Revenue and Receipt Cycle Quiz

Revenue and receipt cycle 1. Which of the following business function is associated with the revenue/receipt cycle? a. Resources are held, used or transformed. b. Obligations are paid to vendors and employees. c. Capital funds are received from investors and creditors. d. Resources are distributed to outsiders in exchange for promises of future payments. 2. The internal controls surrounding the revenue cycle provide the organization with several assurances that include all of the following except the a. Approval of all credit sales transactions after they are processed. b. Accurate recording, shipping, and billing of all valid sales transactions. c. Proper authorization of all sales and sales return and allowance transactions. d. Proper safeguarding of finished goods inventories while in stock and during the shipment process. 3. The internal control objectives of the revenue cycle include all of the following except a. Revenue cycle transactions are properly executed. b. Transactions relating to revenue are properly recorded. c. Appropriate goods are ordered so that sales can be made. d. Custody over assets resulting from the revenue cycle is properly maintained. 4. Which of the following is not typically included in the sales and collection cycle? a. Bad debt expense. b. Sales returns and allowances. c. Allowance for uncollectible accounts. d. Cash credits from the cash disbursement journal. 5. Which of the following control procedures would most likely assure that access to shipping, billing, inventory control, and accounting records is restricted to personnel authorized by management? a. Segregate responsibilities for authorization, execution and recording, and prenumber and control custody of documents b. Establish cash receipts function in a centralized location and require daily reconciliation of cash receipts records with deposit slips c. Establish policy and procedures manuals, organization charts, and supporting documentation d. Periodically substantiate and evaluate recorded account balances 6. Which of the following is not normally considered a step in the credit sales functions? a. Approving credit b. Accepting customer orders c. Shipping the sales orders d. Acquiring goods to fill the order 7. Before goods are shipped on account, a properly authorized person must a. Approve credit b. Prepare the sales invoice c. Approve the journal entry d. Verify that the unit price is accurate 8. In a credit merchandising organization, the best place to vest credit approval is in: a. Accounts receivable department. b. Sales department. c. A completely separate department. d. The cashier area where receipts will eventually be sent. 9. To achieve good internal control, which department should perform the activities of matching shipping documents with sales orders and preparing daily summaries? a. Billing department c. Shipping department b. Credit department d. Sales order department 10. Which of the following control procedures may prevent the failure to bill customers for some shipments? a. Each shipment should be supported by a pre-numbered 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. 11. 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? a. Employees responsible for authorizing bad debt write-offs are denied access to cash. b. Employees involved in the credit granting are separated from sales function. c. 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. 12. Which of the following control procedures could prevent or detect errors or frauds arising from shipments made to unauthorized parties? a. Document policies and procedures for scheduling shipments. b. Establish procedures for reviewing and approving prices and sales terms before sale. c. prenumber bills of lading and assure that related billings are made on a periodic basis. d. Prepare and periodically update lists of authorized customers. 13. Defective merchandise returned by customers should be presented to a. Inventory control personnel b. Receiving personnel c. Purchasing personnel d. Sales personnel 14. To achieve control when there is no billing department, the billing function should be performed by the a. Accounting department b. Shipping department c. Sales department d. Credit and collection department 15. Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mail room? a. The cashier endorses the checks. b. The cashier prepares the daily deposit. c. The cashier makes the daily deposit at a local bank. d. The cashier posts the receipts to the accounts receivable subsidiary ledger. 16. Which of the following is an effective internal control over accounts receivable? a. Balances in the subsidiary accounts receivable ledger should be reconciled to the general ledger control account once a year, preferably at year-end. b. Responsibility for approval of the write-off of uncollectible accounts receivable should be assigned to the cashier. c. The billing function should be assigned to persons other than responsible for maintaining accounts receivable subsidiary records. d. Only persons who handle cash receipts should be responsible for the preparation of documents that reduce accounts receivable balances. 17. Which of the following would best protect a company that wishes to prevent lapping? a. Having customers send payments directly to the company's bank b. Segregating duties so that accounting has no access to an incoming mail c. Requesting that customers checks be made payable to the company and be addressed to the treasurer d. Segregating duties so that no employee has access both to checks from customers and to currency from daily cash receipts 18. Which of the following is not a universal rule for achieving control over cash? a. Separate the cash-handling and record-keeping functions. b. Decentralize the receiving of cash as much as possible c. Deposit each day's cash receipts by the end of the day. d. Have bank reconciliation's performed by employees who do not handle cash. 19. Which of the following fraudulent activities most likely could be perpetrated due to lack of effective control in the revenue cycle? a. The failure to prepare shipping documents may cause an overstatement of inventory balances. b. Authorization of credit memos by personnel who receives cash may permit the misappropriation of cash. c. Fictitious transactions may be recorded that may cause an understatement of revenues and overstatement of receivables. d. Claims received from customers for goods returned may be intentionally recorded in other customer's accounts. 20. Assuming cash receipts from credit sales have been misappropriated, which of the following is likely to conceal the misappropriation and unlikely to be detected? a. Understating the sales journal b. Overstating the accounts receivable control account c. Overstating the accounts receivable subsidiary ledger d. Overstating the cash receipts journal 21. Which of the following control procedures will likely prevent the concealment of a cash shortage that was perpetrated by improperly writing off a trade accounts receivable? a. Write-offs must be approved by the cashier. b. Write-offs must be authorized by the field sales representatives. c. Write-offs must be supported by an aging schedule showing that only receivables months overdue have been written off. d. Write-offs must be approved by a responsible officer after reviewing credit department recommendations and supporting evidence. 22. During the review of a small owner-managed company's internal controls, the auditor discovers that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls would offset this deficiency? a. The owner reviews errors in billings to customers and postings to subsidiary records. b. The owner reviews credit memos after they are recorded. c. The controller reconciles the detailed receivables records to the general ledger. d. The controller reviews the monthly bank statement directly and reconciles the checking accounts. 23. Sales invoices may be recorded in the incorrect accounting period. A computer comparison of the invoice date with the accounting period when the goods were shipped relates to the a. Valuation or allocation assertion. b. Completeness assertion. c. Existence or occurrence assertion. d. Existence or occurrence assertion and to the completeness assertion. 24. The purpose of tests of controls over shipping is to determine whether a. Shipments are billed b. Billed goods have been shipped c. Credit is approved before goods are shipped d. Shipping department personnel are competent 25. The purpose of tests of controls over billing is to determine whether a. Shipments are billed b. Billed goods have been shipped c. Credit is approved before goods are billed d. Billing department personnel are competent FRAUD AND ERROR 26. An intentional act by one or more individuals among management, employees, or third parties which results in misrepresentation of financial statements refers to a. Error b. Fraud c. Noncompliance d. illegal acts 27. The responsibility for the detection and prevention of errors, fraud and noncompliance with laws and regulations rests with a. Auditor c. client management b. client's legal counsel d. internal auditor 28. The management responsibility to detect and prevent fraud and error is accomplished by a. Implementing adequate quality control system. b. Having an annual audit of financial statements. c. Implementing adequate accounting and internal control system. d. Issuing a representation letter to the auditor. 29. The risk that the audit will fail to uncover a material misstatement is eliminated a. If client has good internal control. b. If client fallows generally accepted accounting principles. c. When the auditor has complied with PSAs d. Under no circumstances. 30. What primarily differentiates fraud from an error? a. Materiality b. Effect on misstatements c. Intent d. Frequency of occurrence 31. The term "error" refers to unintentional misrepresentation of financial information. Examples of errors are when I. Assets have been misappropriated II. Transactions without substance have been recorded III. Records and documents have been manipulated and falsified IV. effects of the transactions have been omitted from a. all of the above statements are true b. only statements I and Ill are true c. all of the above statements are false d. only statements Il and IV are true 32. Which of the following is an example of an error? a. b. c. d. Defalcation Suppression or omission of the effects of transactions from the records or documents. Recording of transactions without substance Misapplication of accounting policies. 33. Which of the following is an "error" as distinguished from "fraud"? a. Embezzlement of company's fund b. Window dressing c. Cleric mistakes in the processing of transactions d. Lapping 34. Which of the following could be an example of fraud? a. Errors in the application of the accounting principles. b. Clerical errors in accounting data underlying the financial statements. c. Misinterpretation of facts that existed when financial statements were prepared. d. Misappropriation of assets or group of assets. 35. Which of the following statements best identifies the two types fraud? a. Theft of assets and employee fraud. b. Misappropriation of asset and defalcation c. Management fraud and employee fraud d. Fraudulent financial reporting and management fraud 36. Fraudulent financial reporting is often called a. management fraud b. misappropriation of assets c. defalcation d. employee fraud 37. Which one of the following terms relates to the embezzling of receipt? a. Manipulation b. Misrepresentation c. Misappropriation d. Misapplication 38. which of the following is an example of fraudulent financial reporting? a. company management changes Inventory count tags and overstates ending inventory, while understating cost of goods sold. b. The treasurer divers customer payments to his personal due, concealing his actions by debiting an expense account, thus overstating expenses. c. An employee steals small tools from the company and neglects to return them; the cost is reported as a miscellaneous operating expense d. An employee omitted an entry to record a bank transfer to cover a cash shortage. 39. Which of the following statements is true? a. It is usually easier for the auditor to uncover fraud than errors. b. It is usually easier for the auditor to uncover errors than fraud c. It is usually equally difficult for the auditor to uncover errors or fraud. d. Usually, the auditor does not design procedures to Uncover fraud errors 40. The most difficult type of misstatement to detect is fraud based on a a. Over recording of transactions, b. nonrecording of transactions. c. Recorded transactions in subsidiaries. d. Related party receivable. 41. If an auditor was engaged to discover errors or fraud and the auditor performed extensive detail work, which of the following auditor be expected to detect? a. Misposting of recorded transactions b. Unrecorded transactions c. Counterfeit signatures on paid check d. Collusive fraud 42. Which of the following statements is incorrect? a. The responsibility for the prevention and detection of fraud and error rests with management. b. The auditor is not and can not be held responsible for the detection of fraud or error. c. In planning an audit, the auditor should assess the risk that fraud or error may cause the financial statements to contain material misstatements. d. The risk of not detecting material fraud is higher than the not detecting a material misstatement arising from error. INTERNAL CONTROL 43. Which of the following would be least likely to be considered a benefit of an effective internal control structure? a. Eliminating all employee irregularities. b. Restricting access to assets. c. Detecting ineffectiveness. d. Ensuring authorization of transactions. 44. A well-designed system of internal control that is functioning effectively is most likely to detect an irregularity arising from a. the fraudulent action of several employees. b. the fraudulent action of an individual employee. c. informal deviations from the official organization chart. d. management fraud. 45. Internal controls are not designed to provide reasonable assurance that a. transactions are executed in accordance with management's authorization. b. irregularities will be eliminated. c. access to assets is permitted only in accordance with management's authorization. d. the recorded accountability for assets is 46. Proper segregation of functional responsibilities in an effective structure of internal control calls for separation of the functions of a. authorization, execution, and payment. b. Authorization, recording, and custody. c. Custody, execution, and reporting. d. authorization, payment, and recording. 47. Establishing and maintaining a system of internal control is the responsibility of the a. Internal auditor b. External auditor c. Management d. Financial vice-president 48. A kind of fraud committed by making entry of fictitious payments or failure to enter receipts. a. Misappropriation of goods. b. Misappropriation of cash. c. Falsification of accounts. d. Lapping. 49. The practice of withholding of receipts from customer(s) of one date and giving the customer(s) credit at a later date out of cash received from customer is known as a. Lapping. b. Kiting. c. Payroll padding. d. Window dressing. 50. Coverage of shortage in one bank account by means of an unrecorded check drawn on another bank account is known as a. Lapping. b. Kiting. c. Reconciling. d. Adjusting 51. It is any illegal misappropriation of bank funds. Thus a teller who pockets a portion of his receipts with intent to defraud the bank for the day is guilty of a. kiting on bank funds. b. embezzlement. c. abstraction of bank funds. d. lapping of bank funds. 52. Primary responsibility for establishing and maintaining an internal control structure rests with a. external auditors b. The internal auditors c. Management d. The controller or the treasurer 53. The fundamental purpose of an internal control structure is to a. Safeguard the resources of the organization b. Provide reasonable assurance that the objectives of the organization are achieved c. Encourage compliance with organization objectives. d. Ensure the accuracy, reliability, and timeliness of information 54. An effective internal control structure a. Reduces the need for management to review exception reports on a day to day basis. b. Eliminates risk and potential loss to the organization. c. Cannot be circumvented by management. d. Is unaffected by changing circumstances and conditions encountered by the organization 55. The internal control structure cannot be designed to provide reasonable assurance that a. Transactions are executed in accordance with management's authorization. b. Irregularities will be eliminated. c. Access to assets is permitted only in accordance with management's authorization. d. The recorded accountability for asset9 is compared with the existing assets at reasonable intervals 56. When an organization has a strong internal control structure, management can expect various benefits. benefit least likely to occur is a. Reduced cost of an external audit b. Elimination of employee fraud c. Availability of reliable data for decision-making purposes and of important documents and records d. Some assurance of compliance with government laws.