Question 1

The auditor's objectives for the sales and cash collections activities when the client is primarily an e-commerce business as compared to a "bricks and mortar" business are:
A) unchanged.
B) expanded.
C) mitigated.
D) decreased.

Accepted Answer

A

Question 2

A ________ is a document that indicates a request for merchandise by a customer.
A) sales invoice
B) vendor invoice
C) customer order
D) sales order

Accepted Answer

C

Question 3

What event initiates a transaction in the sales and collection cycle?
A) receipt of cash
B) delivery of product to a customer
C) identification of a new customer
D) customer request for goods

Accepted Answer

A transaction in the sales and collection cycle is initiated when a customer requests goods, as this leads to the creation of a sales order and subsequent processes in the cycle.

Question 4

The sales and collection cycle applies to businesses that transfer goods to customers or provides services to businesses.

Accepted Answer

The sales and collection cycle is a key cycle in accounting that applies to businesses that transfer goods to customers or provides services to businesses. It involves the processes of making sales, billing customers, receiving payments, and collecting accounts receivable.

Question 5

The document that requires adjustments to the customers subsidiary ledger account is the:
A) bill of lading.
B) sales invoice.
C) credit memo.
D) monthly statement.

Accepted Answer

A credit memo would require adjustments to the customers subsidiary ledger account because it represents a reversal of a previous transaction. A bill of lading is a document used in shipping, a sales invoice is a document used to bill a customer, and a monthly statement is a summary of activity over a given period of time but does not necessarily require adjustments to a customer's account.

Question 6

Before goods are shipped on account, a properly authorized person must:
A) prepare the sales invoice.
B) approve the journal entry.
C) approve the customer's credit.
D) verify that the unit price is accurate.

Accepted Answer

Authorizing the customer's credit is necessary to ensure that the sale will be paid for. The other options may be necessary steps in the sales process, but they do not relate to payment and credit approval.

Question 7

Which of the following is not an account affected by the sales and collection cycle?
A) Cash
B) Accounts receivable
C) Allowance for doubtful accounts
D) Sales of Accounts Receivables

Accepted Answer

Sales of accounts receivables is not an account affected by the sales and collection cycle as it refers to the actual selling of existing accounts receivables to a third party, which is separate from the process of recording sales and collecting payments from customers. The other options (A, B, and C) are all accounts involved in the sales and collection cycle.

Question 8

Which of the following is not a business function within the "Sales" class of transactions?
A) processing customer orders
B) granting credit
C) processing and recording sales returns and allowances
D) shipping goods

Accepted Answer

The answer of Which of the following is not a...

Question 9

Which of the following is not one of the five classes of transactions included in the sales and collection cycle?
A) Sales returns and allowances
B) Write-off of uncollectible accounts
C) Bad debt expense
D) Interest Income

Accepted Answer

The five classes of transactions in the sales and collection cycle are sales, cash receipts, sales returns and allowances, write-off of uncollectible accounts, and bad debt expense. Interest income is not related to this cycle.

Question 10

A document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance is the:
A) accounts receivable subsidiary ledger.
B) monthly statement.
C) remittance advice.
D) sales invoice.

Accepted Answer

A monthly statement details all transactions that have affected a customer's accounts receivable balance for the billing period, including sales, payments, credit memos, and debit memos. It is sent to each customer to ensure they have an accurate record of their account activity and balance. The other options listed (accounts receivable subsidiary ledger, remittance advice, and sales invoice) are all related to accounts receivable but do not include the same level of detail as a monthly statement.

Question 11

In the sales and collection cycle when is, generally, the earliest point at which revenue can be recognized?
A) sales approval
B) credit approval
C) cash collection
D) shipment of goods

Accepted Answer

The earliest point at which revenue can be recognized in the sales and collection cycle is typically when the goods are shipped, as this is when the seller has fulfilled their obligation to the customer and earned the right to recognize revenue. Sales approval (A) may indicate management's intent to sell, but it does not necessarily mean a transaction has occurred. Credit approval (B) is only relevant for credit sales, and does not impact the timing of revenue recognition for cash sales. Cash collection (C) indicates that payment has been received, but it does not necessarily mean that the goods have been shipped, so it is not the earliest point at which revenue can be recognized.

Question 12

In the accounts receivable subsidiary ledger the length of time the account has been due can be useful to the client and the auditor in preparing the:
A) trial balance.
B) working trial balance.
C) accounts receivable trial balance.
D) aged accounts receivable trial balance.

Accepted Answer

The aged accounts receivable trial balance categorizes accounts by the length of time they have been outstanding, providing important information about the company's collection efforts and potential bad debt.

Question 13

What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected?
A) determination of correct delivery address
B) credit approval
C) matching of shipping document with sales invoice
D) receipt of sales order from the customer

Accepted Answer

Credit approval is critical before shipping goods to ensure payment can be reasonably expected. Without credit approval, there is a risk that the customer may not be able to pay for the goods, causing financial loss for the seller. The other options are important steps in the shipping process, but credit approval is the most critical to payment assurance.

Question 14

The total of the individual account balances in the accounts receivable subsidiary ledger should equal the:
A) total sales for the period.
B) balance of the sales account in the general ledger.
C) total sales less the total cash received for the period.
D) balance of the accounts receivable account in the general ledger.

Accepted Answer

The accounts receivable subsidiary ledger maintains individual account balances for each customer with outstanding receivables. The sum of these individual account balances should equal the balance in the accounts receivable account in the general ledger, which represents the total amount owed to the company by all customers. Option A is not correct because the total sales for the period may not be the same as the total amount owed by customers at the end of the period. Option B is incorrect because the balance in the sales account in the general ledger is not relevant to the accounts receivable subsidiary ledger. Option C is incorrect because the total cash received for the period is not necessarily equal to the total amount owed by customers.

Question 15

The overall objective in the audit of the sales and collection cycle is to evaluate whether the account balances affected by the cycle are fairly presented in accordance with Accounting standards.

Accepted Answer

The objective of the audit of the sales and collection cycle is to provide reasonable assurance that the financial statements are free from material misstatement in accordance with accounting standards. This is achieved by evaluating the design and implementation of internal controls over the sales and collection cycle, testing the effectiveness of those controls, and substantively testing account balances affected by the cycle. The ultimate goal of this audit is to express an opinion on the fairness of the financial statements as a whole.

Question 16

A document prepared to initiate shipment of the goods sold by an independent shipper is the:
A) sales order.
B) bill of lading.
C) sales invoice.
D) customer order.

Accepted Answer

The document prepared to initiate shipment of the goods sold by an independent shipper is the bill of lading. The sales order is the document that outlines the details of the sale, the sales invoice is the document requesting payment for the goods sold, and the customer order is a general term that could refer to either the sales order or the purchase order placed by the customer.

Question 17

The document used to indicate to the customer the amount of a sale and payment due date is the:
A) sales invoice.
B) bill of lading.
C) purchase order.
D) sales order.

Accepted Answer

A sales invoice is a document that provides the customer with detailed information about the purchase made, including the amount due, payment terms, and due date. It is used to request payment from the customer and serves as proof of the sale. A bill of lading is a document used in shipping to acknowledge that goods have been received and to set out the terms of the shipment. A purchase order is a document used by a buyer to request goods or services from a supplier, and a sales order is a document used by a seller to confirm a sales agreement with a customer.

Question 18

A ________ is a document that is matched with the customer order to assure that the correct quantity and type of goods are shipped.
A) sales order
B) customer order
C) vendor invoice
D) sales invoice

Accepted Answer

A sales order is a document used by businesses to detail the specifics of a customer’s request to purchase products or services. This includes information on what the customer is ordering, the quantity, and the delivery date. When the goods are shipped, the sales order is used to verify that the correct items were sent to the customer.

Question 19

Most companies recognize sales revenue when:
A) sales are invoiced.
B) goods are received by the customer.
C) goods are shipped.
D) Both B and C are correct, depending upon the company's revenue recognition policies.

Accepted Answer

The answer of Most companies recognize sales revenue when:
A) sales...

Question 20

The document that accompanies the customer's payment is the:
A) credit memo.
B) remittance advice.
C) vendor invoice.
D) monthly statement.

Accepted Answer

The remittance advice is the document that accompanies the customer's payment. It provides information about the payment being made, such as the invoice numbers and the total amount being paid. Credit memos are typically issued by the seller to the buyer as a result of returned merchandise or a reduction in the amount owed. Vendor invoices are bills received by the buyer from the seller for goods or services purchased. Monthly statements are typically sent by the seller to the buyer summarizing all transactions for the month.

Quiz 14: Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

The auditor's objectives for the sales and cash collections activities when the client is primarily an e-commerce business as compared to a "bricks and mortar" business are:

A ________ is a document that indicates a request for merchandise by a customer.

What event initiates a transaction in the sales and collection cycle?

The sales and collection cycle applies to businesses that transfer goods to customers or provides services to businesses.

The document that requires adjustments to the customers subsidiary ledger account is the:

Before goods are shipped on account, a properly authorized person must:

Which of the following is not an account affected by the sales and collection cycle?

Which of the following is not a business function within the "Sales" class of transactions?

Which of the following is not one of the five classes of transactions included in the sales and collection cycle?

A document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance is the:

In the sales and collection cycle when is, generally, the earliest point at which revenue can be recognized?

In the accounts receivable subsidiary ledger the length of time the account has been due can be useful to the client and the auditor in preparing the:

What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected?

The total of the individual account balances in the accounts receivable subsidiary ledger should equal the:

The overall objective in the audit of the sales and collection cycle is to evaluate whether the account balances affected by the cycle are fairly presented in accordance with Accounting standards.

A document prepared to initiate shipment of the goods sold by an independent shipper is the:

The document used to indicate to the customer the amount of a sale and payment due date is the:

A ________ is a document that is matched with the customer order to assure that the correct quantity and type of goods are shipped.

Most companies recognize sales revenue when:

The document that accompanies the customer's payment is the: