Chapter 7 In Class

Question 1

four basic steps of the revenue collection cycle

Answer 1

1. receiving & processing customer orders
2. delivering goods and services to customers
3. billing customers
4. collecting and depositing cash from custies

Question 2

customer orders, shipping documents, and invoices should be __________

Answer 2

prenumbered

Question 3

bill of lading

Answer 3

a contract between the shipper an the carrier (carrier signs to verify goods are shipped)

Question 4

packing slip

Answer 4

a document included with the shipment that describes the goods being shipped

Question 5

when are sales revenue and AR recorded?

Answer 5

when the shipment is complete & seller prepares final invoice

Question 6

reconciliations should occur between the AR ________ and the AR __________

Answer 6

subledger and control account

Question 7

what do auditing standards require auditors presume there is always a fraud risk of?

Answer 7

improper revenue recognition

Question 8

assertions relevant to AR

Answer 8

• existence
• completeness
• valuation

Question 9

assertions relevant to revenue

Answer 9

• occurrence
• completeness
• cutoff

Question 10

which assertion is relevant to both revenue and AR?

Answer 10

completeness

Question 11

3 primary concerns with RMM

Answer 11

1. is revenue recognized when appropriate?
2. is there a possibility of customers returning goods?
3. is the AR collectible?

Question 12

when is revenue earned?

Answer 12

when a performance obligation is satisfied

Question 13

risk of improper revenue recognition is higher in what kind of companies?

Answer 13

high growth companies and those with related party or complex transactions