When an Auditor Tests an Entity's Cost Accounting System, the Auditor's

question 50

Multiple Choice

When an auditor tests an entity's cost accounting system, the auditor's tests are primarily designed to determine that

• A) Quantities on hand have been computed based on acceptable cost accounting techniques that reasonably approximate actual quantities on hand.
• B) Physical inventories are in substantial agreement with book inventories.
• C) The system is in accordance with generally accepted accounting principles and is functioning as planned.
• D) Costs have been properly assigned to work in process, finished goods, and cost of goods sold.

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Definitions:

Allowance for Doubtful Accounts

A contra asset account used to estimate the portion of a company's accounts receivable that may not be collected.

Bad Debt Expense

A projected expense reported by companies accounting for receivables that are expected to remain uncollected.

Pre-Reconciliation Cash Balance

The initial cash balance reported before adjustments are made for reconciling items in the preparation of a bank reconciliation.

Outstanding Checks

Checks that have been written and recorded in the issuer's account but have not yet been cashed or deposited by the recipient.