In general, revenue is recognized when:

B) an entity satisfies a performance obligation.

C) it is recorded in the sales journal.

According to FASB ASC 606, which of the following is not part of the five-step approach for revenue recognition?

C) Determine whether the buyer will take a discount.

A) Identify the contract(s) with a customer.

B) Determine the transaction price.

D) Identify the performance obligations in the contract

What is channel stuffing?

C) A company induces distributors to buy substantially more inventory than they can promptly resell.

A) A company records revenue before delivery terms can be arranged.

B) A company records revenue on goods that will be shipped overseas.

D) A company alters the terms and conditions of recorded sales to entice customers to accept delivery of goods.

Tracing copies of sales invoices to shipping documents will provide evidence that all:

A) shipments to customers were recorded as receivables.

C) accounts receivable ledger is complete.

D) shipments to customers were billed.

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's assertion about account balances of:

A) accuracy, valuation and allocation.

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

B) Examine shipping documents for matching sales invoices.

A) Scan the sales journal for sequential and unusual entries.

C) Compare the accounts receivable ledger to daily sales summaries.

D) Inspect unused sales invoices for consecutive prenumbering.

Tracing shipping documents to prenumbered sales invoices provides evidence that:

B) shipments to customers were properly billed.

A) no duplicate shipments or billings occurred.

C) all goods ordered by customers were shipped.

D) all prenumbered sales invoices were accounted for.

Which of the following is not an inherent risk factor for the revenue process?

D) The entity does not follow its stated policies for sales order approvals.

A) Complexity of revenue recognition issues.

B) Difficulty of auditing transactions.

Data Corporation has just computerized its billing and accounts receivable record keeping. You want to make maximum use of the new computer in your audit of Data Corporation. Which of the following audit techniques could not be performed through a computer program?

D) Resolving differences reported by customers on confirmation requests.

A) Tracing audited cash receipts to accounts receivable credits.

B) Selecting accounts to be confirmed on a random basis.

C) Examining sales invoices for completeness, consistency between different items, valid conditions, and reasonable amounts.

In auditing accounts receivable, the negative form of confirmation request most likely would be used when:

B) the combined assessed level of inherent and control risk relative to accounts receivable is low.

A) recipients are likely to return positive confirmation requests without verifying the accuracy of the information.

C) a small number of accounts receivable are involved but a relatively large number of errors are expected.

D) the auditor performs a dual purpose test that assesses control risk and obtains substantive evidence.

uditors may use positive and/or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations?

B) A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances.

A) The positive confirmation form must always be used to confirm all balances regardless of size.

C) A combination of the two confirmation types can be used, with the positive form used for trade receivables and the negative form for other receivables.

D) The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory.

In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following?

A) The credit manager's opinion.

B) An aging schedule of past due accounts.

C) Subsequent year collections of amounts in accounts receivable at the balance sheet date.

D) Ratios calculated showing the past relationship of the valuation allowance to net credit sales.

Audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. This aging is used by the auditor to:

C) evaluate the allowance for doubtful accounts.

A) evaluate internal control over credit sales.

B) test the accuracy of recorded credit sales.

D) verify the existence of the recorded receivables.

Which of the following is the best argument against the use of negative accounts receivable confirmations?

D) The inference drawn from receiving no reply may not be correct.

A) The cost-per-response is excessively high.

B) There is no way of knowing if the intended recipients received them.

C) Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment.

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about:

A) accuracy, valuation and allocation.

28) 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?

C) Employees involved in the credit-granting function are separated from the sales function.

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.

D) Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit.

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be shipped that are not invoiced. The inadequate control activities could cause an:

C) understatement of revenues and receivables and an overstatement of inventory.

A) understatement of revenues, receivables, and inventory.

B) overstatement of revenues and receivables and an understatement of inventory.

D) overstatement of revenues, receivables, and inventory.

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be invoiced that are not shipped. The inadequate control activities could cause an:

B) overstatement of revenues and receivables and an understatement of inventory.

A) understatement of revenues, receivables, and inventory.

C) understatement of revenues and receivables and an overstatement of inventory.

D) overstatement of revenues, receivables, and inventory.

Immediately upon receipt of cash, a responsible employee should:

A) record the amount in the cash receipts journal.

C) update the subsidiary accounts receivable records.

D) prepare a deposit slip in triplicate.

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom?

C) The cashier posts the receipts to the accounts receivable subsidiary ledger cards.

A) The cashier prepares the daily deposit.

B) The cashier makes the daily deposit at a local bank.

D) The cashier endorses the checks.

Which is NOT a key segregation of duties for the revenue process? Different parties should:

A) prepare shipping orders and prepare bills of lading.

B) perform the credit and billing functions.

C) perform the shipping and billing functions.

D) receive cash and adjust accounts receivable.

All of the following are important controls over credit memos except:

A) proper segregation of duties to ensure that sales discounts taken were earned.

B) credit memos should be approved by someone other than whoever initiated it.

C) credit memos should be supported by a receiving document for returned goods.

D) proper segregation of duties between access to customer records and authorizing credit memos.

Auditors are more concerned with the occurrence assertion for revenues than the completeness assertion because:

A) entities are more likely to overstate than understate revenues.

B) entities are more likely to understate than overstate revenues.

C) it is difficult to determine when services have been performed.

D) the allowance for doubtful accounts often is understated.

Which of the following control activities may prevent the failure to bill customers for some shipments?

A) Each shipment should be supported by a prenumbered sales invoice that is accounted for.

B) Each sales order should be approved by authorized personnel.

C) Sales journal entries should be reconciled to daily sales summaries.

D) Each sales invoice should be supported by a shipping document.

Which of the following internal control activities most likely would ensure that all billed sales are correctly posted to the accounts receivable ledger?

A) Daily sales summaries are compared to daily postings to the accounts receivable ledger.

B) Each sales invoice is supported by a prenumbered shipping document.

C) The accounts receivable ledger is reconciled daily to the control account in the general ledger.

D) Each shipment on credit is supported by a prenumbered sales invoice.

A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the:

A) meter department records to the billing (sales) register.

B) billing (sales) register to the meter department records.

C) accounts receivable ledger to the billing (sales) register.

D) billing (sales) register to the accounts receivable ledger.

Which of the following procedures would ordinarily be expected to best reveal improper cutoff of sales at the balance sheet date?

A) Compare shipping documents with sales records.

B) Apply gross profit rates to inventory disposed of during the period.

C) Trace payments received subsequent to the balance sheet date.

D) Send accounts receivable confirmation requests.

If the objective of a test of details is to detect the overstatement of sales, the auditor should trace transactions from the:

D) accounting records to the shipping documents.

A) cash receipts journal to the sales journal.

B) sales journal to the cash receipts journal.

C) shipping documents to the accounting records.

Which of the following misstatements is not related to the completeness assertion for revenue?

C) Next year's revenue is recorded this year.

A) Goods are shipped, but revenue is not recorded.

B) This year's revenue is recorded next year.

D) Revenue is not recognized for services that have been performed.

Which of the following is a test of controls for the transaction assertion of completeness for revenue?

C) Trace shipping documents to sales invoices and the sales journal.

A) Test a sample of sales invoices for authorized customer orders.

B) Review sales orders for proper credit approval.

D) Examine reconciliation of subsidiary ledger to general ledger control account.

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates respondents' exceptions and comments. By this procedure, the auditor would be most likely to learn about which of the following?

A) One of the cashiers has been covering a personal embezzlement by lapping.

B) One of the sales clerks has not been preparing charge slips for credit sales to family and friends.

C) One of the EDP control clerks has been removing all sales invoices applicable to his account from the data file.

D) The credit manager has misappropriated remittances from customers whose accounts have been written off.

An auditor most likely would limit substantive tests of sales transactions when control risk is assessed as low for the existence or occurrence assertions concerning sales transactions and the auditor has already gathered evidence supporting:

B) cash receipts and accounts receivable.

A) opening and closing inventory balances.

D) cutoffs of sales and purchases.

Cooper, CPA is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely:

A) send positive confirmation requests.

B) send negative confirmation requests.

C) examine evidence of subsequent cash receipts.

D) inspect the internal records, such as copies of the tax invoices that were mailed to the residents.

Auditors sometimes use ratios as audit evidence. For example, an unexplained increase in the ratio of gross profit to sales may suggest which of the following possibilities?

C) Selling and general expenses erroneously being recorded as merchandise purchases.

Which of the following might be detected by an auditor's review of the entity's sales cutoff?

D) Overstated sales for the year.

A) Excessive goods returned for credit.

C) Lapping of year-end accounts receivable.

An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account as of October 31. By this procedure, the auditor would be most likely to learn about which of the following?

C) An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period.

A) An October invoice was improperly computed.

B) An October check from a customer was posted in error to the account of another customer with a similar name.

D) An account balance is past due and should be written off.

Chapter 10

Authored by Thư anh

English

University

Used 16+ times

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Revenue is realized when a product or service is exchanged for inflows or other enhancement of assets.

TRUE

FALSE

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Accounting standards require entities to follow a five-step approach for recognizing revenue.

TRUE

FALSE

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Channel stuffing is an improper practice used to boost sales by inducing distributors to buy more inventory than they can promptly resell.

TRUE

FALSE

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The return of vendor purchases is a part of the revenue process.

TRUE

FALSE

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The revenue process affects numerous accounts in the financial statements.

TRUE

FALSE

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A remittance advice is used to track purchases.

TRUE

FALSE

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Order entry is the initial function in the revenue cycle.

TRUE

FALSE

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Chapter 10

Revenue is realized when a product or service is exchanged for inflows or other enhancement of assets.

Accounting standards require entities to follow a five-step approach for recognizing revenue.

Channel stuffing is an improper practice used to boost sales by inducing distributors to buy more inventory than they can promptly resell.

The return of vendor purchases is a part of the revenue process.

The revenue process affects numerous accounts in the financial statements.

A remittance advice is used to track purchases.

Order entry is the initial function in the revenue cycle.

Credit authorization is used to determine if a customer is able to pay for goods.

A negative confirmation requests that customers respond whether they agree or not with the amount due to the entity stated in the confirmation.

A positive confirmation requests that customers respond whether they agree or not with the amount due to the entity stated in the confirmation.

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