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Sales Adjustments and Internal Control Quiz
10 Questions
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Sales Adjustments and Internal Control Quiz

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@VictoriousInsight

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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?

    <p>Testing the completeness of recorded sales returns and allowances</p> 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?

    <p>Substantive tests of account balances</p> 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?

    <p>Existence of recorded write-offs</p> Signup and view all the answers

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

    <p>Proper authorization of write-offs</p> Signup and view all the answers

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

    <p>Fictitious transactions recorded</p> Signup and view all the answers

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

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

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

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

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