1. A key internal control in the revenue process is the separation of duties between cash handling and record keeping. The objective most directly associated with this control is to verify that
a. Cash receipts recorded in the cash receipts journal are reasonable
b. Cash receipts are properly classified
c. Recorded cash receipts result from legitimate transactions
d. Existing cash receipts are recorded

2. An auditor tests a company’s policy of obtaining credit approval before shipping goods to customers in support of management’s financial statement assertion of
a. Valuation or allocation
b. Completeness
c. Existence or occurrence
d. Rights and obligations

3. Which of the following internal controls would most likely reduce write-offs of uncollectible accounts receivable?
a. Employees responsible for authorizing sales and charge-offs of uncollectible accounts receivable are denied access to cash.
b. Shipping documents and sales invoices are matched by an employee who does not have the authority to charge off uncollectible accounts receivable.
c. Employees involved in the credit-granting function are separated from the sales function.
d. Accounts receivable master file records are reconciled to the control account by an employee who is not involved in the credit-granting function.

4. A manufacturing company received a substantial sales return in the last month of the year, but the credit memorandum for the return was not prepared until after theauditors had completed the field work. The returned merchandise was included in the physical inventory. What control should have prevented the misstatement?
a. Aged trial balance of accounts receivable is prepared.
b. Credit memoranda are prenumbered and all numbers are accounted for.
c. A reconciliation of the trial balance of customer’s accounts with the general ledger control is prepared periodically.
d. Receiving reports are prepared for all materials received and such reports are accounted for on a regular basis.

5. The sales manager credited a salesperson, Jack Smith, with sales that were actually “house account” sales. Later Smith divided his excess sales commissions with the sales manager. What control should have prevented the misstatement?
a. The summary sales entries are checked periodically by persons independent of sales functions.
b. Sales orders are reviewed and approved by persons independent of the sales department.
c. The internal auditor compares the sales commission statements with the cash disbursements records.
d. Sales orders are prenumbered, and all are accounted for.

6. A sales invoice for $5,200 was computed correctly, but, by mistake, was entered as $2,500 to the sales journal and to the accounts receivable master file. The customer remitted only $2,500, the amount on his monthly statement. What control should have prevented the misstatement?
a. Prelisting and predetermined totals are used to control posting.
b. Sales invoice numbers, prices, discounts, extensions, and footing are independently checked.
c. The customer’s monthly statements are verified and mailed by a responsible person other than the bookkeeper who prepared them.
d. Unauthorized remittance deductions made by customers or other matters in dispute are investigated promptly by a person independent of the accounts receivable function.

7. Copies of sales invoices show different unit prices for apparently identical items.
What control should have prevented the misstatement?
a. All sales invoices are checked as to all details after their preparation.
b. Differences reported by customers are satisfactorily investigated.
c. Statistical sales data are compiled and reconciled with recorded sales.
d. All sales invoices are compared with the customer’s purchase orders.
The following sales procedures were encountered during the annual audit of Marvel Wholesale Distributing Company. Use this information to answer questions 8, 9, and 10.
Customer orders are received by the sales order department. A clerk computes the approximate dollar amount of the order and sends it to the credit department for approval. Credit approval is stamped on the order and sent to the accounting department. A computer is then used to generate two copies of a sales invoice. The order is filed in the customer order file.
The customer copy of the sales invoice is routed through the warehouse, and the shipping department has authority for the respective departments to release and ship the merchandise. Shipping department personnel pack the order and manually prepare a three-copy bill of lading: the original copy is mailed to the customer, the second copy is sent with shipment, and then the other is filed in sequence in the bill of lading file. The sales invoice shipping copy is sent to the accounting department with any changes resulting from lack of available merchandise.
A clerk in accounting matches the received sales invoice shipping copy with the sales invoice customer copy from the pending file. Quantities on the two invoices are compared and prices are compared to an approved price list. The customer copy is then mailed to the customer, and the shipping copy is sent to the data processing department.
The data processing clerk in accounting enters the sales invoice data into the computer, which is used to prepare the sales journal and update the accounts receivable master file. She files the shipping copy in the sales invoice file in numerical sequence.

8. To determine whether the internal controls operate effectively to minimize instance of failure to post invoices to customers’ accounts receivable master file, the auditor would select a sample of transactions from the population represented by the:
a. Customer order file.
b. Bill of lading file.
c. Customer’s accounts receivable master file.
d. Sales invoice file.

9. To determine whether the internal controls operated effectively to minimize instances of failure to invoice shipment, the auditor would select a sample of trans-actions from the population represented by the:
a. Customer order file.
b. Bill of lading file.
c. Customers’ accounts receivable master file.
d. Sales invoice file.

10. To gather audit evidence that uncollected items in customers’ accounts represented existing trade receivables, the auditor would select a sample of items from the population represented by the:
a. Customer order file.
b. Bill of lading file.
c. Customers’ accounts receivable master file.
d. Sales invoice file.