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Sales Adjustments and Internal Control Quiz

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Sales Adjustments and Internal Control Quiz

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Questions and Answers

What is the primary emphasis for testing the existence of recorded sales returns and allowances?

Testing the valuation of recorded sales returns and allowances

Testing the existence of recorded transactions to uncover any diversion of cash from the collection of accounts receivable (correct)

Testing the completeness of recorded sales returns and allowances

Testing the accuracy of recorded sales returns and allowances

When do auditors generally pay little attention to sales adjustments?

When they involve corrections of billing errors

When they involve returns of merchandise

When they are not material or individual adjustments are not large (correct)

When they involve granting cash discounts

What is a concern about sales adjustments transactions?

Sales adjustments may lead to underestimation of accounts receivable

A transaction may be recorded to cover a material misappropriation of cash receipts (correct)

Sales adjustments may lead to overstatement of net income

A transaction may be recorded to cover up sales returns and allowances

What is the primary emphasis for testing the completeness of sales returns and allowances?

Testing the completeness of recorded sales returns and allowances Signup and view all the answers

What do auditors often perform in connection with cash discounts and sales returns and allowances in connection with sales?

Substantive tests of account balances Signup and view all the answers

What is the most important transaction-related audit objective in the verification of the write-off of individual uncollectible accounts?

Existence of recorded write-offs Signup and view all the answers

What is the major control for preventing misstatement in the write-off of uncollectible accounts?

Proper authorization of write-offs Signup and view all the answers

What is a possible error associated with lack of numeric control over credit memoranda?

Fictitious transactions recorded Signup and view all the answers

What is a possible error associated with unauthorized returns and allowances?

Credit memos issued for authorized returns as well as for goods not actually returned Signup and view all the answers

What is the weakness associated with unauthorized write-off of accounts receivable?

Customer account intentionally written off to conceal misappropriation of customer remittances Signup and view all the answers