Which One of the Following Statements Regarding the Five Types

question 23

Multiple Choice

Which one of the following statements regarding the five types of audit tests in the sales and collection cycle is NOT correct?

• A) Substantive tests of transactions are used both to test the effectiveness of internal controls and to test the dollar amount of these transactions.
• B) Tests of details of balances are used to verify ending account balances.
• C) Analytical procedures are used to test the relationships among the account balances in the cycle, both to each other and to prior years.
• D) Tests of controls are used primarily to test the efficiency of internal controls over the five classes of transactions.

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Definitions:

Goods Sold

Refers to the total quantity of goods that have been sold during a particular period, often used interchangeably with the term 'cost of goods sold' which represents the direct costs attributable to the production of the sold goods.

Indirect Materials

Materials used in the production process but cannot be directly traced to the final product; often considered part of manufacturing overhead.

Indirect Labor

Labor costs associated with employees who do not directly contribute to the production of goods or services but support the production process, such as maintenance staff or supervisors.

Direct Materials

Raw materials that can be directly attributed to the production of a good or service.