Question 1

The key issurelating to auditing saland receivablare that the receivabldo actually exist and are collectible with adequate allowancfor doubtful accounts, and that the salare genuine and neither overstated or understated.

Accepted Answer

Auditing of sales and receivables is primarily focused on verifying the existence and collectibility of receivables and the genuineness of sales, making sure they are not overstated or understated. Therefore, the statement is true.

Question 2

Controls over approving credit relate to the:

Accepted Answer

Controls over approving credit primarily ensure that the amounts recorded for credit sales are accurate, properly valued, and allocated correctly. This relates directly to the accuracy, valuation, or allocation assertion, as it ensures that credit sales are recorded at the correct amounts and are properly included in the financial statements.

Question 3

In a credit salenvironment, the document that usually initiatthe activity in the salcycle is:

Accepted Answer

The customer order is the document that initiates the sales cycle, as it represents the customer's request to purchase goods or services.

Question 4

Accounts receivable can be verified without any consideration being given to salon the income statement.

Accepted Answer

Verification of accounts receivable involves ensuring that the amounts reported are accurate and collectible, which directly impacts the income statement through revenue recognition and bad debt expense.

Question 5

One of the key objectivin auditing saland receivablis that the customer is satisfied with the goods or servicprovided by the company.

Accepted Answer

The key objective in auditing sales and receivables is to ensure the accuracy and completeness of financial records, not customer satisfaction.

Question 6

The cut-off tests for salare designed to ensure that both saland receivablare recorded in the correct accounting period and that inventoriand accounts payable are recorded in the same accounting period.

Accepted Answer

The cut-off tests for sales and receivables ensure they are recorded in the correct period, while inventory and accounts payable cut-off tests ensure they are recorded in the same period.

Question 7

From the following which would not be an appropriate control procedure for the invoicing of customers?

Accepted Answer

Segregating filling and dispatching sales orders is not a control procedure for the invoicing of customers. It is a control procedure for the processing of sales orders. The other options (A, B, and C) are appropriate control procedures for the invoicing of customers.

Question 8

In a credit salenvironment, the documents that servas the basis for internal processing of an order is:

Accepted Answer

In a credit sales environment, the documents that serve as the basis for internal processing of an order begin with a sales order, which records the customer's request for a product or service. This document serves as the basis for subsequent documents including the dispatch note and sales invoice. Therefore, the best choice is B) sales order.

Question 9

A significant risk over cash receipts is that cash paid by customers is stolen before it is recorded.

Accepted Answer

Cash receipts pose a significant risk of theft or misappropriation, either by employees or external parties, before they are recorded in the accounting system. This can result in an understatement of revenues and misstatements in financial statements. It is important for companies to implement proper controls and measures, such as segregation of duties, regular reconciliations, and security procedures, to mitigate this risk.

Question 10

A substantive test for accounts receivable could include verifying accounts receivable and the related allowance account is to trace the current period's opening balancto the closing audited balancin the previous year's working papers.

Accepted Answer

This is an appropriate substantive test for accounts receivable. It involves verifying the opening and closing balances of the accounts receivable and allowance account to ensure they tie in with the audited balances from the previous year's working papers. This helps to ensure the accuracy and completeness of the accounts receivable balance on the current period's financial statements.

Question 11

A substantive test for salmay include a sample of invoicfrom the saljournal which would be vouched back to salorders or shipping documents in order to test occurrence.

Accepted Answer

This statement is true. Vouching back from sales journal to sales orders or shipping documents is a common substantive test for testing the occurrence assertion related to sales. By selecting a sample of invoices from the sales journal and tracing them back to their corresponding sales orders or shipping documents, auditors can determine whether the sales actually occurred and were properly recorded in the accounting system.

Question 12

Saltransactions are the main source of operating revenue for most business enterprises, and thus, the accounts receivable produced by credit saltransactions are material to the balance sheet for all businessexcept where cash receipts are predominant.

Accepted Answer

This statement is true. Credit sales transactions generate accounts receivable, which are a significant source of operating revenue for most businesses. Therefore, accounts receivable are material to the balance sheet of most businesses, except for those where cash receipts are the primary source of revenue instead of credit sales.

Question 13

Accounting for the numerical sequence of dispatch notused in tracing will primarily meet the:

Accepted Answer

Accounting for the numerical sequence of dispatch not used in tracing would primarily meet the completeness assertion, as it ensures that no dispatches have gone missing or unrecorded.

Question 14

The account balance audit objective, "Accounts receivable represent gross claims on customers at balance date and agree with the sum of the accounts receivable subsidiary ledger", is derived from the assertion category of:

Accepted Answer

This objective relates to ensuring that the accounts receivable balance is accurately recorded and valued, which aligns with the valuation and allocation assertion. It ensures that the gross claims on customers are correctly summed up and reflected in the financial statements.

Question 15

In a credit salenvironment, the best place to vest credit approval is in:

Accepted Answer

The best place to vest credit approval is in an independent credit department. This ensures that there is a dedicated team that reviews and approves credit applications based on established criteria, independently of any other department's interests or biases. This helps to minimize the risk of granting credit to customers who may default on payment, ultimately protecting the company's financial health.

Question 16

To enhance controls in the credit salarea, the warehouse should be instructed not to release (or dispatch) goods until:

Accepted Answer

Requiring an approved sales order ensures proper authorization and documentation before releasing goods. A sales requisition (option A) may not have been authorized or properly approved, and a completed sales invoice (option B) only confirms the sale has been completed but does not ensure proper authorization for goods release. Option D is not a reliable control as it relies solely on the shipping department's request and does not provide additional documentation for authorization.

Question 17

In terms of the accounts receivable, the main consideration is the gross amount due from customers on credit saland the related allowance for doubtful accounts.

Accepted Answer

This statement is true. The amount of accounts receivable is the gross amount due from customers on credit sales. However, it is important to also consider the allowance for doubtful accounts, which represents an estimate of the amount that may not be collected from customers.

Question 18

Credit checks should be performed for all customers after sending the customer order to the warehouse for processing, pickup and delivery.

Accepted Answer

Credit checks should be performed before accepting the customer order, not after sending it to the warehouse for processing, pickup, and delivery. This helps to ensure that the customer is able to pay for the order and reduces the risk of financial loss for the company.

Question 19

Which of the following is not normally considered a step in the credit salfunctions?

Accepted Answer

Acquiring goods to fill the order is part of the inventory management or procurement process, not the credit sales function.

Question 20

Which of these is not a specific audit objective for saland receivables?

Accepted Answer

Representation is not a specific audit objective for sales and receivables. The specific audit objectives for sales and receivables include existence or occurrence, completeness, and presentation and disclosure.

Quiz 9: Auditing Saland Receivabl