Question 1

A person who has access to both cash and accounts receivable records may be able to take cash receipts by
A) Kiting.
B) Lapping.
C) Overstating cash receipts.
D) Underfooting the bank reconciliation.

Accepted Answer

Lapping is a method of covering up the theft of cash receipts by crediting one customer's account with another customer's payment. This can be done by someone with access to both cash and accounts receivable records.

Question 2

Internal control assessment is important because it governs the ________________________________,_________________________________ and _________________________________ of substantive procedures.

Accepted Answer

The answer of Internal control assessment is important because it...

Question 3

Prenumbering invoices,shipping documents,and sales orders is a practice to achieve which of the following assertions?
A) Completeness.
B) Occurrence.
C) Accuracy.
D) Presentation or disclosure.

Accepted Answer

Prenumbering documents helps to ensure that all transactions are recorded and accounted for, thus achieving the completeness assertion.

Question 4

Confirmations provide evidence of _________________________________ and,to a limited extent,________________________________ of accounts and notes receivable.

Accepted Answer

The answer of Confirmations provide evidence of _________________________________ and,to a...

Question 5

___________________________ may be used to access computerized receivable files to select and print confirmations.

Accepted Answer

The answer of ___________________________ may be used to access computerized...

Question 6

Assertions related to account balances are ________________________________,________________________________,_________________________________ ________________________________,_________________________________ and ________________________________.

Accepted Answer

The answer of Assertions related to account balances are ________________________________,________________________________,_________________________________...

Question 7

The positive form of confirmation is best used when
A) Account balances are relatively large.
B) Account balances are small in amount but numerous.
C) Accounts are not in dispute.
D) Internal control is considered effective.

Accepted Answer

Positive confirmation is best used when account balances are relatively large, as it requires a response from the debtor, ensuring accuracy and verification of significant amounts.

Question 8

Another way to obtain information about the internal control system is to take a single example of a transaction and __________________________ the process from its initiation to its recording in the accounting records.

Accepted Answer

The answer of Another way to obtain information about the...

Question 9

In the revenue and collection cycle,the order of the activities in the cycle is best illustrated by
A) Delivering goods, billing customer, granting credit, and performing collection activities.
B) Customer ordering, delivering goods, granting credit, and billing customers.
C) Processing customer orders, granting credit, delivering goods, and billing customers.
D) Granting credit, billing customers, delivering goods, and processing cash receipts.

Accepted Answer

The order of the activities in the revenue and collection cycle typically starts with processing customer orders, followed by granting credit (if applicable), delivering goods, and finally billing customers. Collection activities come after the billing process. Option C is the only choice that follows this logical order of events.

Question 10

An internal control questionnaire for evaluating the occurrence objective of revenues would not include which of the following questions?
A) Is customer credit approved before orders are shipped?
B) Are customer statements mailed monthly by the accounts receivable department?
C) Are direct confirmations of receivables obtained periodically by the internal auditor?
D) Are returned goods checked against necessary reports?

Accepted Answer

The answer of An internal control questionnaire for evaluating the...

Question 11

The actions in tests of controls involve ________________________________,________________________________,________________________________,_________________________________ and ________________________________.

Accepted Answer

The answer of The actions in tests of controls involve...

Question 12

Dual direction testing involves samples of transactions selected to obtain evidence about control over _________________________________ in one direction and control over _________________________________ in the other direction.

Accepted Answer

The answer of Dual direction testing involves samples of transactions...

Question 13

_________________________________ of accounts receivable records implies the power to alter them directly or enter transactions to alter them.

Accepted Answer

The answer of _________________________________ of accounts receivable records implies the...

Question 14

The pending sales orders can be reviewed for evidence of the _________________________________ of recorded _________________________________ and ________________________________.

Accepted Answer

The answer of The pending sales orders can be reviewed...

Question 15

Which of the following internal control activities most likely would deter lapping of collections from customers?
A) Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries.
B) Authorization of write-offs of uncollectible accounts by a supervisor independent of credit approval.
C) Separation of duties between receiving cash and posting the accounts receivable ledger.
D) Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries.

Accepted Answer

Separation of duties between receiving cash and posting the accounts receivable ledger would ensure that the employee who receives cash is not able to manipulate the accounts receivable records to cover up any lapping of collections. Lapping occurs when an employee who has stolen a customer's payment applies a subsequent customer's payment to the first customer's account to cover up the theft. By separating the duties of cash receipts and accounts receivable ledger posting, no single employee would have control over both functions, making it difficult to cover up any lapping of collections. The other options do not directly address the risk of lapping of collections.

Question 16

The financial records of the Movitz Company show that Mr.Dennis owes $4,100 on an account receivable.An independent audit is being carried out and the auditors send a positive confirmation to Mr.Dennis.What is the most likely reason as to why a positive confirmation rather than a negative confirmation was used here?
A) Control risk was particularly low for accounts receivable.
B) Inherent risk was particularly high for accounts receivable.
C) Mr. Dennis's account was not yet due.
D) Mr. Dennis's account was not with a related party.

Accepted Answer

A positive confirmation is sent when inherent risk is high and there is a greater likelihood of errors or misstatements. In this case, the auditors may have wanted to confirm the accuracy of the receivable since there is already an outstanding balance. A negative confirmation would only be used if control risk was low and there was a lower risk of errors or misstatements.

Question 17

Information about the internal control system can be gathered by completing an __________________________________________.

Accepted Answer

The answer of Information about the internal control system can...

Question 18

A procedure to gather evidence on both account balances and controls is called a ______________________________________ procedure.

Accepted Answer

The answer of A procedure to gather evidence on both...

Question 19

Two widely used confirmation forms to test accounts receivable are _________________________________ and _________________________________ confirmations.

Accepted Answer

The answer of Two widely used confirmation forms to test...

Question 20

Which of the following is not an alternative procedure when a confirmation is not received?
A) Examine sales invoices and vouch them to underlying shipping documents.
B) Examine payments received before the end of the period.
C) Examine customer purchase orders.
D) Examine client correspondence with the customer.

Accepted Answer

When a confirmation is not received, alternative procedures may include examining sales invoices and vouching them to underlying shipping documents, examining customer purchase orders, and examining client correspondence with the customer. However, examining payments received before the end of the period is not an alternative procedure when a confirmation is not received.

Quiz 7: Revenue and Collection Cycle

A person who has access to both cash and accounts receivable records may be able to take cash receipts by

Internal control assessment is important because it governs the ________________,_ and _________________ of substantive procedures.

Prenumbering invoices,shipping documents,and sales orders is a practice to achieve which of the following assertions?

Confirmations provide evidence of _ and,to a limited extent, of accounts and notes receivable.

___________________________ may be used to access computerized receivable files to select and print confirmations.

Assertions related to account balances are ________________,,_ ,_ and ________________.

The positive form of confirmation is best used when

Another way to obtain information about the internal control system is to take a single example of a transaction and __________________________ the process from its initiation to its recording in the accounting records.

In the revenue and collection cycle,the order of the activities in the cycle is best illustrated by

An internal control questionnaire for evaluating the occurrence objective of revenues would not include which of the following questions?

The actions in tests of controls involve ________________,,,_ and ________________.

Dual direction testing involves samples of transactions selected to obtain evidence about control over _ in one direction and control over _ in the other direction.

_________________________________ of accounts receivable records implies the power to alter them directly or enter transactions to alter them.

The pending sales orders can be reviewed for evidence of the _________________ of recorded _ and ________________.

Which of the following internal control activities most likely would deter lapping of collections from customers?

Information about the internal control system can be gathered by completing an __________________________________________.

A procedure to gather evidence on both account balances and controls is called a ______________________________________ procedure.

Two widely used confirmation forms to test accounts receivable are _ and _ confirmations.

Which of the following is not an alternative procedure when a confirmation is not received?