Final answer:
In auditing, tracing is the process of following a transaction from the ledger back to the source documents. Option 1, where an auditor selects a cash transaction from the ledger and examines the supporting documentation, is a clear-cut example of tracing.
Step-by-step explanation:
Understanding Tracing in Auditing
Tracing is an auditing technique which involves following a transaction from the original source documents up to its recording in the ledger to ensure that the transaction has been recorded correctly.
Among the options presented, option 1 is considered tracing, where an auditor selects a cash transaction from the ledger and examines the underlying journal entry and supporting documentation. The auditor's goal here is to verify that the transaction recorded in the ledger accurately reflects the initial transaction and supporting data.
Tracing is utilized to test the completeness assertion, making sure that all transactions that should be recorded in the financial statements have been included. It is the opposite of vouching, another auditing technique, where an auditor would start with source documents and follow the transaction into the ledger to test for occurrence or that transactions recorded have actually taken place.
The other options provided (2, 3, and 4) depict actions that are similar in nature but are not as clear-cut examples of tracing as option 1 is. Option 4 somewhat resembles tracing but typically would be referring to tracing the invoice through the process to assure it's been included properly in the records, and this process can often involve aspects of vouching as well.