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Auditing the Revenue Cycle

True/False

REQUIRED: For each of the following items, indicate whether it is (T) True or (F) False. For those marked ¿False,¿ identify the error(s) and indicate the change or changes that are needed to make the statement true.

1) The accounts receivable generated by credit sales transactions are nearly always material to the balance sheet.

2) Cash collection may precede revenue recognition, resulting in earned revenues.

3) Inherent risk tends to be low in the revenue cycle.

4) Virtually every company that requires an audit has a computerized accounting system.

5) It is generally more effective to evaluate total revenues against a measure of business activity than comparing current revenues with prior-year r

Solution Preview

1) The accounts receivable generated by credit sales transactions are nearly always material to the balance sheet.

This is true

2) Cash collection may precede revenue recognition, resulting in earned revenues.

This is false. Cash collected prior to revenue recognition would be classified as unearned ...

Solution Summary

The solution explains some true/false questions relating to revenue cycle

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