PAMANTASAN NG LUNGSOD NG PASIG

COLLEGE OF BUSINESS AND ACCOUNTANCY

BACHELOR OF SCIENCE IN ACCOUNTANCY (BSA)

Quiz for Chapter 6, 6.1, and 6.2
Sales & Revenue Cycle, Cash and Accounts Receivable Balances

RUSTIA, ALYSSA JOYCE C.

Auditing and Assurance: Concepts & Applications 1

I. Multiple Choice (15 pts)

1. Shipping documents should be traced to and compared with sales records or invoices
to:
a. Determine whether payments are properly applied to customer accounts
b. Ensure that shipments are billed to customers
c. Determine whether unit prices billed are in accordance with sales contracts
d. Ascertain whether all sales are supported by shipping documents

2. For effective internal control, employees maintaining the accounts receivable subsidiary
ledger should not also approve
a. Employee overtime wages
b. Credit granted to customers
c. Write-offs of customers accounts
d. Cash disbursements

3. During an audit of accounts receivable function, you found out that the accounts
receivable turnover rate had fallen from 7.3 to 4.3 over the last three years. What is the
most likely cause of the decrease?
a. An increase in the discount offered for early pament
b. A more liberal credit policy
c. A change from net 30 to net 25
d. Greater cash sales

4. The most likely result of ineffective internal controls in the sales cycle is that

a. Fictitious transactions could be recorded, causing an understatement of

revenues and overstatement of receivables
b. Irregularities in recording transactions in the subsidiary accounts could delay
the shipment of goods
c. Omission of shipping documents could go undetected, causing an
understatement of inventory
d. Final authorization of credit memos by personnel in the sales department could
permit an employee defalcation scheme

5. To achieve good internal control, which department should perform the activity of
matching shipping documents with sales orders and preparing daily sales
summaries

a. Billing
b. Shipping
c. Credit
d. Sales order

6. An auditor’s purpose in reviewing credit ratings of customers with delinquent accounts

receivable most likely is to obtain evidence concerning about
a. Valuation or Allocation
b. Presentation and disclosure
c. Existence or occurence
d. Rights and obligations
 7. Which of the following internal controls most likely would reduce the risk of diversion
of customer receipts by the entity’s employees?
a. A bank lockbox system
b. Prenumbered remittance advices
c. Monthly bak reconciliation
d. Daily deposit of cash receipt

8. Which of the following characteristics most likely would be indicative of check kiting?
a. High turnover of employees who have access to cash
b. Many large checks are recorded on Mondays
c. Low average balance compared to high level of deposits
d. Frequent ATM checking account withdrawals

9. To determine whether an entity’s internal control operated effectively to minimize

errors of failures to post invoices to the customers’ accounts ledger, the auditor would
select a sample of transactions from the population represented by the
a. Customer order file
b. Bill of lading file
c. Subsidiary customers’ accounts ledger
d. Sales invoice file

10. Proper authorization of write-offs of uncollectible accounts should be approved in

which of the following departments?
a. Accounts receivable
b. Credit
c. Accounts payable
d. Treasurer

II. Problem
A. Rose Ramos, CPA is auditing the Financial Statemenst of Kapwa, Inc for the year ended
December 31, 2021. Rose has compiled a list of possible risks, including errors and fraud
that may result in the misstatement of Kapwa’s financial statements and a
corresponding list of internal controls that, if properly designed and implemented,
could assist Kapwa in preventing or detecting the errors and fraud.

For each possible risk, errors and fraud numbers 1 to 5, select one internal control
procedure from the given choices that, if properly designed and implemented, most
likely could assist Kapwa in preventing or detecting the errors and irregularities.

Questions:
1. Invoices for goods sold are posted to correct customer accounts
a. Shipping clerk compares goods received from the warehouse with the details
on the shipping documents
b. Approved sales orders are required for goods to be released from the
warehouse
c. Monthly statements are mailed to all customers with outstanding balances
d. Shipping documents are compared with sales invoices when goods are shipped

2. Goods ordered by customers are shipped but are not billed to anyone
a. Shipping documents are compared with sales invoices when goods are
shipped
b. Shipping clerks compare goods receievd from the warehouse with approved
sales order
c. Customer orders are compared with the inventory master file to determine
whether items ordered are in stock
d. Shipping clerks compare goods receivedfrom the warehouse with the details on
the shipping documents

3. Invoices are sent for shipped goods and are recorded in the sales journal but are not
posted to any customer account
a. Customers orders are compared with the inventory master file to determine
whether items ordered are in stock
b. Control amounts posted to the accounts receivable ledger are compared with
the control totals of invoices
 c. Shipping clerks compare goods received from the warehouse with approved
sales order
d. Daily sales summaries are compared with control totals of invoices

4. Credit sales are made to the individuals with unsatisfactory credit ratings
a. Customer orders are compared with approved customer list
b. Sales invoices are compared with the master price file
c. Sales orders are prepared for each customer order
d. Control amounts posted to the accounts receivable ledger are compared with
control totals of invoices

5. Goods are removed from inventory for unauthorized orders

a. Shipping clerks compare goods received from the warehouse with the details
on the shipping documents
b. Monthly statements are mailed to all customers with outstanding balances
c. Approved sales orders are required to be released from the warehouse
d. Shipping clerks compare goods received fro the warehouse with approved sales
orders

Prepared by:
Prof Rowena R. Rosales
Subject Professor