In Searching for Unrecorded Liabilities, the Purpose of the Audit

question 8

Multiple Choice

In searching for unrecorded liabilities, the purpose of the audit procedure to "examine underlying documentation for subsequent cash disbursements" is to

• A) uncover liabilities on the balance sheet which should not have been recorded until a subsequent period.
• B) find the documentation relating to a cash disbursement.
• C) uncover payments made in a subsequent accounting period for liabilities that existed at the balance sheet date.
• D) uncover cash disbursements recorded in a subsequent accounting period which should be recorded in this period.

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Definitions:

Interest Expense

The financial cost of borrowing money that an entity sustains over time.

Notes Payable

Written promises to pay a specified amount of money, usually including interest, at a future date; classified as liabilities.

Cash

Money in the form of coins or banknotes, especially that which is used to conduct transactions.

Adjusted Trial Balance

A list of all accounts and their balances after adjustments, used to compile financial statements and check for errors in journal entries.