The Cycle Approach to Auditing

question 2

Multiple Choice

The cycle approach to auditing

• A) ties to the way transactions are recorded in journals and then summarized in the general ledger and financial statements.
• B) cannot combine transactions recorded in different journals with the general ledger balances that result from those transactions.
• C) is the only way of segmenting an audit.
• D) assumes that each account has two or more cycles associated with it.

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Definitions:

Predetermined Overhead Rate

A rate calculated before a period begins, used to assign manufacturing overhead costs to products based on a relevant activity base.

Manufacturing Overhead Applied

The portion of manufacturing overhead costs allocated to each unit of production based on a predetermined rate.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including materials, labor, and manufacturing overhead.

Underapplied

Refers to a situation where the allocated manufacturing costs are less than the actual manufacturing costs incurred.