Untitled Deck

Question 1

1. An auditor tests an entity’s policy of obtaining credit approval before shipping goods to customers in support of management’s financial statement assertion of
   A. Valuation or allocation.
   B. Completeness.
   C. Existence or occurrence.
   D. Rights and obligations.

Answer 1

A

Question 2

2. Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded?
   A. The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances.
   B. The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly.
   C. The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers.
   D. The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.

Answer 2

D

Question 3

3. Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?
   A. Employees responsible for authorizing sales and bad debt write-offs are denied access to cash.
   B. Shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts.
   C. Employees involved in the credit-granting function are separated from the sales function.
   D. Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit.

Answer 3

C