When Using the Cycle Approach to Segmenting the Audit, the Reason

question 37

Multiple Choice

When using the cycle approach to segmenting the audit, the reason for treating capital acquisition and repayment separately from the acquisition of goods and services is that:

• A)the transactions are related to financing a company rather than to its operations.
• B)most capital acquisition and repayment cycle accounts involve few transactions, but each is often highly material and therefore should be audited extensively.
• C)both A and B are correct.
• D)neither A nor B is correct.

---

Definitions:

Profit-maximizing

A firm's strategy or approach to achieve the highest possible profit from its operations, focusing on optimizing production and sales.

Accounting Costs

The recorded expenses in the financial statements of a company, including both fixed and variable costs incurred during business operations.

Sunk Costs

Costs that have already been incurred and cannot be recovered.

Foregone Opportunities

Benefits or earnings that are missed out on when choosing one alternative over another.