Question 1

Which of the following is a business function related to sales returns and allowances?
A)processing customer orders
B)writing off uncollectible accounts
C)processing and recording credit memos
D)granting credit

Accepted Answer

Processing and recording credit memos are directly related to sales returns and allowances. Credit memos are issued to customers when they return a product or are given a reduction in price due to a defect or other issue with the product. This function is necessary for accurate record keeping and ensuring that the accounting for returns and allowances is properly reflected in financial statements. The other choices, processing customer orders, granting credit, and writing off uncollectible accounts, are all related to sales but not specifically to returns and allowances.

Question 2

Credit should be approved before goods are shipped to a customer.

Accepted Answer

Credit approval prior to shipment mitigates the risk of non-payment or default by the customer.

Question 3

Discuss the four business functions that result in sales transactions in a typical sales and collection cycle and,for each function,state the key documents and records involved.

Accepted Answer

The answer of Discuss the four business functions that result...

Question 4

Customer billing is a critical process which auditors must understand.What are the most important aspects of billing and what are the related objectives?

Accepted Answer

The answer of Customer billing is a critical process which...

Question 5

Which document or record is used in the write-off of uncollectible accounts classes of transactions?
A)general journal
B)remittance advice
C)sales transaction file
D)sales order

Accepted Answer

The write-off of uncollectible accounts is a type of adjusting entry that is recorded in the general journal. This entry is made to remove the uncollectible account from the accounts receivable balance and to record the loss in the bad debt expense account. Remittance advice is a document sent by a customer along with their payment, providing details of the payment. Sales transaction file and sales order are records related to the sale of goods or services and not used in the write-off of uncollectible accounts.

Question 6

You are an audit manager for Rodgers & Co.and have recently taken on a new client,Manufacturing Company.You are in the initial stages of planning the audit and have decided to start gathering information about the sales/collection cycle of the business.List below the classes of transactions that you need to gather audit evidence for in designing your audit procedures.

Accepted Answer

The answer of You are an audit manager for Rodgers...

Question 7

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?
A)company personnel
B)temporary employees in the town where the lockbox is located
C)bank employees
D)company controller

Accepted Answer

The bank employees are generally responsible for opening receipts when a company uses a lockbox service. This service is provided by the bank, and they have personnel in place to handle the receipt processing. The use of a lockbox service can expedite the handling of cash receipts for a company, as the bank can process the receipts faster than the company's own personnel.

Question 8

Some companies have customers send payments directly to an address maintained by a bank.This is called a(n)________ system.
A)direct deposit
B)funds transfer
C)lockbox
D)interbank transfer

Accepted Answer

The system described is known as a lockbox system, where the bank collects payments on behalf of the company and deposits them directly into the company's account, reducing the time and effort required for the company to handle and process payments. A is incorrect, as direct deposit typically refers to the deposit of paychecks directly into an employee's bank account, not customer payments. B and D are also incorrect as they describe general methods of transferring funds, but do not specifically pertain to this type of system.

Question 9

Which accounts are involved in the sales class of transactions?
A)accounts receivable and sales returns and allowances
B)cash and allowance for uncollectible accounts
C)sales allowances and accounts receivable
D)accounts receivable and sales

Accepted Answer

The sales class of transactions involves two main accounts, which are accounts receivable (where the revenue from sales is initially recorded) and sales (where the revenue earned from selling goods or services is recorded). The other options mentioned involve accounts related to cash management and managing uncollectible accounts, which are not directly related to sales transactions.

Question 10

When posting items sold on account from the sales journal
A) 
B) 
C) 
D)

Accepted Answer

The answer of When posting items sold on account from...

Question 11

A ________ is a list prepared when cash is received by someone who has no responsibility for recording sales,accounts receivable,or cash,and who has no access to the accounting records.
A)prelisting of cash receipts.
B)sales invoice.
C)packing ticket.
D)vendor invoice.

Accepted Answer

A prelisting of cash receipts is a document prepared by someone who has no responsibility for recording sales, accounts receivable, or cash, and who has no access to the accounting records. It is a list of all the cash received, usually including the date, amount, and source of the cash, and is used to ensure that all the cash received has been properly recorded and deposited. The other options listed are not related to preparing a prelisting of cash receipts.

Question 12

Which of the following is a correct statement regarding the shipment of goods?
A)The shipping document must be in paper form.
B)The shipping document is used to update the perpetual inventory records.
C)Only one copy of the shipping document is needed.
D)All of the above are correct statements.

Accepted Answer

The shipping document is used to update the perpetual inventory records, but it does not necessarily have to be in paper form and multiple copies may be needed depending on the shipment and recipient's requirements. Option A is not necessarily true as electronic shipping documents can also be used, and option C is not true as multiple copies may be needed.

Question 13

Explain each of the following types of documents and indicate the class of transactions in which they are commonly used.
1. customer order
2. shipping document
3. remittance advice
4. sales returns and allowance journal
5. uncollectible account authorization form

Accepted Answer

The answer of Explain each of the following types of...

Question 14

The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle.

Accepted Answer

The receipt of a customer order is the first step in the sales process, which ultimately leads to the collection of payment from the customer. Therefore, it is the starting point for the entire sales and collection cycle.

Question 15

A sales invoice is a document that usually indicates credit approval.

Accepted Answer

A sales invoice is a document that lists the details of the products or services sold, along with their prices, quantities, and total amount due. It serves as a request for payment from the buyer and does not typically indicate credit approval.

Question 16

The preparation of a sales invoice is the final step in the sales and collection cycle.

Accepted Answer

The preparation of a sales invoice is an early step in the sales and collection cycle, typically followed by the delivery of goods or services, receipt of payment, and the recording of the payment in the financial records.

Question 17

Credit should be approved before a customer's order is received.

Accepted Answer

Credit approval typically occurs after a customer's order is received but before the order is processed and shipped, to ensure the customer has the means to pay.

Question 18

When dealing with the processing and recording of cash receipts,
A)the most important concern is the theft of cash.
B)theft can only occur before the receipts are entered into the records.
C)cash receipts should be deposited at least monthly.
D)the monthly statement is used to prepare the cash receipts journal.

Accepted Answer

The most important concern when dealing with the processing and recording of cash receipts is the potential for theft of cash, as it is a liquid asset and easily misappropriated.

Question 19

For a firm that practices good internal controls in the sales and collections cycle,the function of indicating credit approval should be recorded on which of the following documents?
A)sales order
B)sales invoice
C)customer order
D)remittance advice

Accepted Answer

The function of indicating credit approval should be recorded on the sales order, as this document initiates the sales process and serves as the basis for determining whether credit should be extended to the customer. A good internal control practice is to have the credit approval process documented on the sales order to ensure that only approved customers receive products or services on credit. The sales invoice documents the actual sale and is generated after the credit has already been approved. The customer order is a document created by the customer and is not typically used to record credit approval. The remittance advice is a document used by the customer to indicate which invoices are being paid and does not relate to the credit approval process.

Question 20

A bill of lading is a special type of sales invoice used when goods are shipped interstate.

Accepted Answer

The answer of A bill of lading is a special...

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

Which of the following is a business function related to sales returns and allowances?

Credit should be approved before goods are shipped to a customer.

Discuss the four business functions that result in sales transactions in a typical sales and collection cycle and,for each function,state the key documents and records involved.

Customer billing is a critical process which auditors must understand.What are the most important aspects of billing and what are the related objectives?

Which document or record is used in the write-off of uncollectible accounts classes of transactions?

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?

Some companies have customers send payments directly to an address maintained by a bank.This is called a(n) ________ system.

Which accounts are involved in the sales class of transactions?

When posting items sold on account from the sales journal

A ________ is a list prepared when cash is received by someone who has no responsibility for recording sales,accounts receivable,or cash,and who has no access to the accounting records.

Which of the following is a correct statement regarding the shipment of goods?

Explain each of the following types of documents and indicate the class of transactions in which they are commonly used. 1. customer order 2. shipping document 3. remittance advice 4. sales returns and allowance journal 5. uncollectible account authorization form

The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle.

A sales invoice is a document that usually indicates credit approval.

The preparation of a sales invoice is the final step in the sales and collection cycle.

Credit should be approved before a customer's order is received.

When dealing with the processing and recording of cash receipts,

For a firm that practices good internal controls in the sales and collections cycle,the function of indicating credit approval should be recorded on which of the following documents?

A bill of lading is a special type of sales invoice used when goods are shipped interstate.