In Order to Efficiently Establish the Correctness of the Accounts

question 32

Multiple Choice

In order to efficiently establish the correctness of the accounts payable cutoff, an auditor will be most likely to

• A) Coordinate cutoff tests with physical inventory observation.
• B) Compare cutoff reports with purchase orders.
• C) Compare vendors' invoices with vendors' statements.
• D) Coordinate mailing of confirmations with cutoff tests.

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Definitions:

Credit Sales

Sales made by a business where the payment is deferred to a later date, typically recorded as accounts receivable until payment is received.

Debit Balance

An account balance that occurs when the total of debits in an account exceeds the total of credits, typical for asset and expense accounts.

Bad Debt Expense

An expense recognized by businesses for accounts receivable that are considered unrecoverable and written off.

Net Credit Sales

The total value of sales made on credit minus any returns or allowances, indicating the actual revenue generated from credit transactions.