If the Client's Internal Control for Recording Sales Returns and Allowances

question 84

Multiple Choice

If the client's internal control for recording sales returns and allowances is evaluated as effective:

• A) all sales returns must be confirmed with the customer.
• B) a sample of sales returns and allowances subsequent to closing date are examined
• C) all sales returns must be traced to supporting documentation.
• D) a larger sample is needed to verify cutoff.

---

Definitions:

Retained Earnings

The portion of net income that is retained by a company rather than distributed to its shareholders as dividends, often used for reinvestment.

Market-to-Book Value

A ratio used to compare a company's current market price to its book value, indicating how highly the market values the company relative to its actual assets.

Financial Statements

A set of formal records that outline an entity's financial activities and condition, including the balance sheet, income statement, and cash flow statement.

Stock Market

A collection of markets and exchanges where the buying, selling, and issuance of shares of publicly-held companies occur.