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

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.

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

4. Sales and collection cycle applies to businesses that transfer goods to customers or provides services to businesses.
A) True
B) False

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

6. 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

7. 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 (s matched with the customer order to assure that the correct quantity and type of goods are shipped)

8. What critical event must take place before goods can be shipped 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

9. 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.

10. 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.

11. 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

12. 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

13. 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.

14. 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

15. 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.

16. 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.

17. 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

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

A) credit memo.
B) remittance advice.
C) vendor invoice.
D) monthly statement.

19. 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.

20. A document that initiates shipment of goods and indicates the description of the merchandise, the quantity
shipped, and customer name and address is the:
A) bill of lading.
B) sales invoice.
C) picking ticket.
D) vendor invoice.

21. The ________ is a contract between a carrier (e.g., a trucking company) and the seller of goods that dictates the
details surrounding the shipment of goods.
A) bill of lading
B) sales invoice
C) picking ticket
D) remittance advice

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

23. In designing audit procedures for the sales returns and allowances account, the auditor would primarily rely on the
following accounts, except for:
A) sales returns and allowances transaction file.
B) accounts receivable master file.
C) cash receipts journal.
D) sales returns and allowances will be recorded in all of the above.

24. 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

25. C.

26. Credit memos are normally issued for what purpose(s)?

A) To adjust the customers balance to the amount owed to the company.
B) To assist in the aging of accounts receivable.
C) To reduce customer frustration and sales losses.
D) To inform the customer of the balance due.
27. 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

28. One key internal control to prevent fictitious transactions in the sales and collection cycle is:
A) assign a specific customer number for each customer in the computer files.
B) to account for the integrity of the numerical sequence of sales orders.
C) to include the sales price list of all products in the computer files.
D) having bank reconciliations prepared by one who is independent of the treasury function.

29. Which of the following is the appropriate point at which the auditor deems authorization to be critical?
A) Credit granting/ Price authorization/Shipment of goods: Yes /Yes/ Yes
B) Credit granting/ Price authorization/Shipment of goods: Yes /No /Yes
C) Credit granting/ Price authorization/Shipment of goods: No /Yes /No
D) Credit granting/ Price authorization/Shipment of goods : Yes/No/No

30. Sales should be recorded, at the earliest, when:

A) the order is received.
B) the order is received and credit is approved.
C) credit is approved and it is verified that there is enough inventory to fill the order.
D) the shipment takes place.

31. Which of the following would least concern an auditor regarding the lack of a specific authorization to conduct the
sales transaction?
A) granting of credit
B) shipment of goods
C) determination of discounts
D) selling of goods for cash

32. Smith Manufacturing Company's accounts receivable clerk has a friend who is also a Smith's customer. The
accounts receivable clerk has issued fictitious credit memos to his friend for goods supposedly returned. The most
effective procedure for preventing this activity is to:
A) prenumber and account for all credit memorandums.
B) require receiving reports that provide evidence of returned inventory items to support all credit memorandums
before they are approved.
C) have independent sales and accounts receivable departments.
D) mail monthly statements to customers.
33.

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

A) True
B) False

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

A) True
B) False

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

A) True
B) False

37. The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle.
A) True
B) False

38. The preparation of a sales invoice is the final step in the sales and collection cycle.
A) True
B) False

40) A bill of lading is a special type of sales invoice used when goods are shipped interstate.
A) True
B) False

41) The shipping point is critical because it is the first point at which company assets are released to another party.
A) True
B) False

42) A bill of lading is a written contract between the seller and the buyer.
A) True
B) False

43) In a lockbox system, bank employees are responsible for opening cash receipts and maintaining records of all
payments made by customers at the lockbox address.
A) True
B) False

44) Sales transactions are the result of the following five functions in the sales and collection cycle: processing
customer orders, granting credit, shipping goods, billing customers, and recording sales.
A) True
B) False

45) The prelisting of cash receipts should be prepared by the individual who has primary responsibility for the
recording of cash receipts.
A) True
B) False

46) A credit memo is a document used internally that indicates authority to write-off an account receivable as
uncollectible.
A) True
B) False

47) When a company prepares multi-copy, prenumbered sales invoices at the time customer orders are received, there
is a higher likelihood of failure to bill the customers than when sales invoices are prepared only after goods have been
shipped.
A) True
B) False

48) The auditor's primary concern about authorization centers on shipment of goods to customers.
A) True
B) False

1) When designing audit procedures, tracing of source documents to the customers subsidiary ledger and
subsequently to the general ledger is done to satisfy what assertion?
A) valuation
B) cutoff
C) completeness
D) classification

2) Which of the following documents is not commonly associated with the "cash receipts" class of transactions?
A) Remittance advice
B) Sales order
C) Prelisting of cash receipts
D) Cash receipts journal or listing

3) When sales invoices are automatically calculated and posted by a computer, the auditor may be able to
reduce substantive tests of transactions for which, if any, assertion?
A) accuracy
B) existence
C) completeness
D) none of the above

4) In many audits, no substantive tests of transactions are made for the ________ assertion on the grounds that
understatement of sales is not a concern.
A) accuracy
B) existence
C) completeness
D) none of the above

5) Which one the following procedures performed for the billing function provides evidence for the
completeness assertion?
A) Making sure that all shipments have been billed.
B) Making sure that no shipment has been billed more than twice.
C) Making sure that each shipment is billed at the correct amount.
D) Making sure that each shipment is billed to the proper customer.

6) Which of the following procedures performed for the billing function may provide evidence that the
accounts receivable subsidiary ledger is in agreement with the accounts receivable control account?
A) Making sure that all shipments have been billed.
B) Making sure that no shipment has been billed more than twice.
C) Making sure that each shipment is billed at the correct amount.
D) Making sure that each shipment is billed to the proper customer.

7) The document that the accounting staff will use as the primary basis for recording sales transactions and updating
the customers accounts receivable subsidiary ledger is the:
A) sales order.
B) bill of lading.
C) sales journal.
D) sales invoice.

8) In determining the level of audit efficiency, once the auditor has identified the key internal controls and identified
any deficiencies in order to determine the level of control risk appropriate for a private company client, it is
appropriate to decide whether:
A) substantive tests can be reduced sufficiently to justify costs of performing tests of controls.
B) substantive tests can be increased sufficiently to justify costs of performing tests of controls.
C) tests of controls can be increased sufficiently to justify costs of performing substantive tests.
D) tests of controls can be reduced sufficiently to justify costs of performing substantive tests

9) Which one of the following statements is true? In deciding on substantive tests of transactions:
A) some procedures are commonly employed on every audit regardless of the circumstances.
B) all procedures are dependent on the adequacy of the controls and the results of the tests of controls.
C) results obtained in the prior year's audit will not affect the procedures used this year.
D) the materiality of the item will not influence the choice of procedures used.

10) To test for recorded sales for which there were no actual shipments, the auditor vouches from the:
A) bill of lading to the sales journal.
B) sales journal to the shipping documents.
C) sales journal to the accounts receivable subsidiary ledger.
D) bill of lading to the supporting customer order and sales order.

11) An effective procedure to test for unbilled shipments is to trace from the:
A) sales journal to the shipping documents.
B) shipping documents to the sales journal.
C) sales journal to the accounts receivable ledger.
D) sales journal to the general ledger sales account.

12) The auditor traces items from the source documents to the journals to obtain audit evidence that will satisfy the:
A) existence objective.
B) completeness objective.
C) ownership objective.
D) valuation objective.

13) In many audits of sales transactions STOT can be reduced in determining the completeness objective because:
A) understatements of assets and income are a greater concern than overstatements.
B) overstatements of assets and income are a greater concern than understatements.
C) it doesn't matter if income is understated because the savings on income tax offsets the reduced revenue and net
income is correct.
D) the unrecorded sales cause a reduction of accounts receivable; therefore, the ratios of the two financial statements
will not be misleading.

14) To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally
compared with:
A) the original invoices.
B) an approved master price list.
C) the amounts recorded in the sales journal for that transaction.
D) the amounts posted to the customer's account in the accounts receivable master file

16) Prenumbered documents will only be useful for control purposes if:
A) a different numerical sequence is used for each company.
B) the sequence is accounted for periodically.
C) employees are allowed to use documents out of numerical sequence.
D) the same numerical sequence is used each accounting period.

17) ________ tests are for omitted transactions, while ________ tests are for nonexistent transactions.
A) Tracing, vouching
B) Vouching, tracing
C) Verifying, tracking
D) Tracking, verifying

18) Which one of the following best describes the auditors responsibilities regarding appropriate authorizations in the
sales/collections cycle?
A) B, C, and D should all be of concern to the auditor.
B) Credit must be authorized before the sale.
C) Goods must be shipped after the authorization.
D) Prices must be authorized.

19) Which one of the following is of the least concern to the auditor when designing substantive tests of transactions
for the sales/collection cycle?
A) Sales being included in the journal for which no shipment was made.
B) Sales to related parties, such as officers and subsidiaries. (TDB)
C) Sales recorded more than once.
D) Shipments being made to nonexistent customers and recorded as sales.
20) An auditor needs to determine whether all customers of an electric utility company are being billed. The auditor
should test from the:
A) sales register to the accounts receivable ledger.
B) sales register to the meter department records.
C) accounts receivable ledger to the sales register.
D) meter department records to the sales register.

21) Which one of the following would the auditor consider to be an incompatible operation if the cashier receives
remittances from the mailroom?
A) The cashier prepares the daily deposit.
B) The cashier makes the daily deposit at a local bank.
C) The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
D) The cashier endorses the checks.

8) Which of the following would offer the best protection for a company that wishes to prevent a reoccurrence of a
previously detected "lapping" problem with trade accounts receivable?
A) Segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail.
B) Segregate duties so that no employee has access to checks from customers and currency from daily cash receipts.
C) Have customers send payments directly to the company's depository bank.
D) Request that customer's payment checks be made payable to the company and addressed to the treasurer.

9) Preparation of a proof of cash would not be useful in discovering differences between the actual and reported cash
balances if the differences were due to:
A) deposits in transit.
B) collections on the company's behalf by the bank which are deposited directly to the company's account.
C) cash receipts that were not recorded in the relevant accounting records.
D) service charges.

15) The most difficult type of cash embezzlement for the auditor to detect is when the cash is stolen before it can be
recorded in the cash receipts journal.
A) True
B) False

16) The most important audit concern in the processing and recording cash receipts function is not tracing the cash
receipts from customers to their subsidiary ledger accounts.
A) True
B) False

1) The auditor would expect that an account receivable from a customer would be written off by the client when which
of the following occurs:
A) the customer files for bankruptcy.
B) the account is at least six months old.
C) a collection agency cannot inspire customer to pay the debt.
D) the client company concludes that an amount is no longer collectible.

2) The auditor's primary concern in performing audit procedures of the write-off of uncollectible accounts relates to
the risk that the client writes offs customer accounts that have already been collected. The primary control for
preventing this fraud is:
A) examining authorized credit memos.
B) examining the uncollectible account authorization form.
C) examining debit memos.
D) examining the vouchers payable register.

3) Generally, audit evidence gathered from the sales and collection cycle is combined with evidence:
A) as the evidence accumulation process proceeds.
B) only when all fieldwork processes of the engagement are completed.
C) only after the audit of the sales and collection cycle is concluded.
D) after the conclusion of both the cash cycle and the sales and collection cycle.