Multiple Choice Questions

The following questions deal with audit evidence for the sales and collection cycle. Choose the best response.

a.  An auditor is performing substantive tests of transactions for sales. One step is to trace a sample of debit entries from the accounts receivable master file back to the supporting duplicate sales invoices. What will the auditor intend to establish by this step?

    (1) Sales invoices represent existing sales.
    (2) All sales have been recorded.
    (3) All sales invoices have been correctly posted to customer accounts.
    (4) Debit entries in the accounts receivable master file are correctly supported by sales invoices.

b.  To verify that all sales transactions have been recorded, a substantive test of transactions should be completed on a representative sample drawn from
    (1) entries in the sales journal.
    (2) the billing clerk’s file of sales orders.
    (3) a file of duplicate copies of sales invoices for which all prenumbered forms in the series have been accounted.
    (4) the shipping clerk’s file of duplicate copies of bills of lading.

c.  Which audit procedure is most effective in testing credit sales for overstatement?
    (1) Trace a sample of postings from the sales journal to the sales account in the general ledger.
    (2) Vouch a sample of recorded sales from the sales journal to shipping documents.
    (3) Prepare an aging of accounts receivable.

    (4) Trace a sample of initial sales orders to sales recorded in the sales journal.