An Auditor Who Uses a Transaction Cycle Approach to Assessing

question 24

Multiple Choice

An auditor who uses a transaction cycle approach to assessing control risk most likely would test control activities related to transactions involving the sale of goods to customers with the:

• A)Collection of receivables.
• B)Purchase of merchandise inventory.
• C)Payment of accounts payable.
• D)Sale of long-term debt.

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Definitions:

Accounts Receivable

Represents the money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.

5 C's of Credit

The five key elements a lender analyzes when determining a borrower's creditworthiness: character, capacity, capital, collateral, and conditions.

Capital

Financial assets or the financial value of assets, such as cash and goods, working to create wealth through investment or production.

Operating Cash Flows

Cash generated from a company's normal business operations, indicating its ability to generate revenue.