Question

14-22 (Objectives 14-2 , 14-3) The following questions deal with internal control and audit evidence in the sales and collection cycle. Choose the best response.

1.Tracing shipping documents to sales invoices provides evidence that

a. sales billed to customers were actually shipped.

b.shipments to customers were properly invoiced.

c. shipments to customers were recorded as sales.

d. all goods ordered by customers were shipped.

2. Which of the following procedures most likely represents an internal control designed to reduce the risk of errors in the billing process?

a. Comparing control totals for shipping documents with corresponding totals for sales invoices.

b. Matching receiving documents with approved sales orders before invoice preparation.

c. Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

d. Requiring customers that purchase on account to be approved by the credit department.

3. An auditor wishes to test the completeness assertion for sales. Which of the following audit tests would most likely accomplish this objective?

a. Select a sample of shipments occurring during the year and trace each one to inclusion in the sales journal.

b. Compare accounts receivable turnover (net credit sales/average gross receivables) in the current year to that achieved in the prior year.

c. Use common size analysis to compare recorded sales to sales recorded by other companies in the same industry.

d. Select large individual sales recorded during the year and review supporting documentation.

Answer 1

1.) Option - 'B'

Tracing shipping documents to sales invoices provides evidence that shipments to customers were properly invoiced.

2.) Option - 'A'

Comparing control totals for shipping documents with corresponding totals for sales invoices procedure is most likely represents an internal control designed to reduce the risk of errors in the billing process.

3.) Option - 'A'

Select a sample of shipments occurring during the year and trace each one to inclusion in the sales journal is the test would most likely accomplish this objective.