If the Client's Internal Control for Recording Sales Returns and Allowances

question 65

Multiple Choice

If the client's internal control for recording sales returns and allowances is evaluated as ineffective,

• A) a larger sample may be needed to verify cutoff.
• B) sampling is not appropriate.
• C) all sales returns must be traced to supporting documentation.
• D) all sales returns must be confirmed with the customer.

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Definitions:

Net Sales

Net sales are the total revenue from goods or services sold by a company, after deducting returns, allowances for damaged or missing goods, and discounts.

Sales Warranty Accrual Method

A method used in accounting to set aside a portion of sales revenue to cover future warranty claims, ensuring that warranty expenses are matched with related sales in the same period.

Warranty Expense

The estimated cost of honoring product warranties, recognized as an expense by companies.

Implied Service Contract

A legal agreement created by the actions, situation, or circumstances of the parties involved rather than written or spoken words.