Chapter 14 Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions
Auditing and Assurance Services 14th Edition Test Bank
To
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Auditing and Assurance Services, 14e (Arens)
Chapter 14 Audit of the Sales and Collection Cycle: Tests of
Controls and Substantive Tests of Transactions
Learning Objective 14-1
1)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 Answer: D
Terms: Sales and collection cycle
Diff: Easy
Objective: LO 14-1
AACSB: Reflective thinking skills
2)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.
Answer: A
Terms: Auditor objectives for sales and cash collections
Diff: Moderate
Objective: LO 14-1
AACSB: Analytic skills
3)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) True
B) False
Answer:
A
Terms: Objective in audit of sales and collection cycle; Account balances fairly presented
Diff: Easy
Objective: LO 14-1
AACSB: Reflective thinking skills
4)The sales and collection cycle applies to businesses that transfer goods to
customers or provides services to businesses.
A) True
B) False
Answer:
A
Terms: Sales and collection cycle
Diff: Moderate
Objective: LO 14-1
AACSB: Reflective thinking skills
, To
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Learning Objective 14-2
1)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 Answer:
D
Terms: Class of transactions; Sales and collection cycle
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
2)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 Answer: D
Terms: Initiates transaction in sales and collection cycle
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
3)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
Answer: C
Terms: Document indicates request for merchandise
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
4)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
Answer: A
Terms: Document matched with customer order
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
, To
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5)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 Answer: B
Terms: Event must take place in order to assure payment
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
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. Answer: C
Terms: Goods shipped on account; Properly authorized person
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
7)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. Answer:
B
Terms: Document prepared to initiate shipment of goods
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
8)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. Answer:
A
Terms: Document used to indicate amount of sale and payment due date
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
, To
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9)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 Answer: D
Terms: Sales and collection cycle; revenue recognized
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
10) 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. Answer: C
Terms: Recognize sales revenue
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
11) 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
Answer: C
Terms: Business function within the sales class of transactions
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
12) 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. Answer: D
Terms: Accounts receivable subsidiary ledger
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
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