Connect Access Card for Principles of Auditing & Other Assurance Services
21st Edition
ISBN: 9781260299366
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Chapter 6, Problem 16RQ
What is meant by making a proper year-end cutoff? Explain the effects of errors in the cutoff of sales transactions in both the income statement and the balance sheet.
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If sales were overstated by recording a false credit sale at the end of the year, where could you find the false “dangling debit”?a. Inventory.b. Cost of goods sold.c. Bad debt expense.d. Accounts receivable.
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When analytical procedures disclose unexpected changes in financial relationships relative to prior years, the auditors consider the possible reasons for the changes. Give several possible reasons for the following significant changes in relationships:
a. The rate of inventory turnover (ratio of cost of goods sold to average inventory) has declined from the prior year’s rate.
b. The number of days’ sales in accounts receivable has increased over the prior year.
Chapter 6 Solutions
Connect Access Card for Principles of Auditing & Other Assurance Services
Ch. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - Prob. 3RQCh. 6 - Discuss what is meant by the phrase shopping for...Ch. 6 - Prob. 5RQCh. 6 - Prob. 6RQCh. 6 - Prob. 7RQCh. 6 - Prob. 8RQCh. 6 - Prob. 9RQCh. 6 - Prob. 10RQ
Ch. 6 - Prob. 11RQCh. 6 - Prob. 12RQCh. 6 - Prob. 13RQCh. 6 - Prob. 14RQCh. 6 - Prob. 15RQCh. 6 - What is meant by making a proper year-end cutoff?...Ch. 6 - Prob. 17RQCh. 6 - Prob. 18RQCh. 6 - Prob. 19RQCh. 6 - Prob. 20RQCh. 6 - Auditing standards require the auditors to have a...Ch. 6 - Prob. 22RQCh. 6 - Prob. 23RQCh. 6 - Prob. 24QRACh. 6 - Prob. 25QRACh. 6 - Prob. 26QRACh. 6 - Prob. 27QRACh. 6 - Prob. 28QRACh. 6 - Prob. 29QRACh. 6 - Prob. 30QRACh. 6 - Prob. 31QRACh. 6 - Prob. 32QRACh. 6 - Prob. 33QRACh. 6 - Prob. 34QRACh. 6 - Prob. 35QRACh. 6 - Prob. 36QRACh. 6 - Prob. 37QRACh. 6 - Prob. 38AOQCh. 6 - Prob. 38BOQCh. 6 - Prob. 38COQCh. 6 - Prob. 38DOQCh. 6 - Prob. 38EOQCh. 6 - Prob. 38FOQCh. 6 - Prob. 38GOQCh. 6 - Prob. 38HOQCh. 6 - Prob. 38IOQCh. 6 - Prob. 38JOQCh. 6 - Prob. 38KOQCh. 6 - Prob. 38LOQCh. 6 - Prob. 39OQCh. 6 - Prob. 40OQCh. 6 - Prob. 41OQCh. 6 - Prob. 42AOQCh. 6 - Prob. 42BOQCh. 6 - Prob. 42COQCh. 6 - Tracing from source documents to journals most...Ch. 6 - Vouching from journals (or ledgers) to source...Ch. 6 - For each definition (or portion of a definition)...Ch. 6 - Prob. 44PCh. 6 - Prob. 45PCh. 6 - Tammy Potter, a new partner with the regional CPA...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Under the periodic inventory system, what account is credited when an estimate is made for sales made this year, but expected to be returned next year? (a) Merchandise Inventory (b) Customer Refunds Payable (c) Sales (d) Sales Returns and Allowancesarrow_forwardIndicate the effect of each of the following errors on the following balance sheet and income statement items for the current and succeeding years: beginning inventory, ending inventory, accounts payable, retained earnings, purchases, cost of goods sold, net income, and earnings per share. a. The ending inventory is overstated. b. Merchandise purchased on account and received was not recorded in the purchases account until the succeeding year although the item was included in inventory of the current year. c. Merchandise purchased on account and shipped FOB shipping point was not recorded in either the purchases account or the ending inventory. d. The ending inventory was understated as a result of the exclusion of goods sent out on consignment.arrow_forwardHow do you calculate the estimate using the percentage of sales and aging of accounts methodsarrow_forward
- Which of the following is NOT a correct explanation for turnover ratios and periods calculated based on them? Select one: a. Receivables turnover indicates how many times a company circulates its receivables in a year. b. Average collection period is the number of days between the sale transaction and the collection of receivable from customer. c. Inventory turnover is the number of days between purchase of inventory and its sale to the customer. d. Average payment period is the number of days between the purchase transaction and the payment of payables to the suppliers. Clear my choicearrow_forwardThe following statements are correct except a.Under the allowance method, estimated losses from uncollectible accounts are recognized as expenses in the subsequent period in which the related sales occur. b.A trade discount is the reduction in the list sales price of an item to arrive at the net sales price actually charged to the customer. c.When it appears that the estimate of uncollectible accounts of a prior period was too low, the corrections must be reported as corrections to the current period financial statements. d.The bad debt expense for a period should be determined by recognizing the estimated losses from uncollectible accounts in the period in which receivables are determined to be uncollectible.arrow_forwardWhen testing cutoff for sales and receivables at December 31 (year end) an auditor is confronted with the following four scenarios. Which of the four most likely requires the auditor to propose an adjusting entry at the balance sheet date? Question 24 options: Terms of trade are FOB destination. Goods were shipped on December 31, and the sale was recorded on January 8. Terms of trade are FOB shipping point. Goods were shipped on December 31, and the sale was recorded on December 31. Terms of trade are FOB destination. Goods were shipped on December 31, and the sale was recorded on December 31. Terms of trade are FOB shipping point. Goods were shipped on January 2, and the sale was recorded on January 4.arrow_forward
- The following situations represent errors and frauds that could occur in financial statements.Required:State how the ratio in question would compare (higher, equal, or lower) to what the ratio should have been had the error or fraud not occurred.a. The company recorded fictitious sales with credits to sales revenue accounts and debits to accounts receivable. Inventory was reduced, and cost of goods sold was increased for the profitable “sales.” Is the current ratio higher than, equal to, or lower than what it should have been?b. The company recorded cash disbursements by paying trade accounts payable but held the checks past the year-end date, meaning that the “disbursements” should not have been shown as credits to cash and debits to accounts payable. Is the current ratio higher than, equal to, or lower than what it should have been? Consider cases in which the currentratio before the improper “disbursement” recording was (1) higher than 1:1, (2) equal to 1:1, and (3) lower than…arrow_forwardHow much is the adjustment to the Cost of Sales account to set up its correct balance?arrow_forwardUnder the new revenue recognition standard, what most companies do at the end of the period related to sales returns? Describe the journal entries that would be recorded.arrow_forward
- An auditor noted that client sales increased 10 percent for the year. At the same time, Cost of Goods Sold as a percentage of sales had decreased from 45 percent to 40 percent and year-end accounts receivable had increased by 8 percent. Based on this information, the auditor is most likely concerned abouta. Unrecorded costs.b. Improper credit approvals.c. Improper sales cutoff.d. Fictitious sales.arrow_forwardA bank that is examining the ratio of annual costs of goods sold to average inventory, is examining which category of ratios? a.Profit measures b.Operating efficiency measures c.Liquidity measures d.Expense control measuresarrow_forwardWhen merchandisers and manufacturers prepare income statements for their annual reports to shareholders, they usually begin the statement with net sales. For internal reporting purposes, however, the income state-ments will show gross sales and the related contra-revenue accounts of sales returns and allowances and sales discounts. What might explain this difference in the financial information disclosed to external parties and management? Do you consider the more limited disclosure in the annual reports to be inconsistent with the full disclosure principle? Briefly explain your point of viewarrow_forward
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