Final answer:
Tests detecting credit sales recorded in the wrong accounting period relate to the cutoff assertion. They ensure sales are recorded when the transaction occurs, thus maintaining accurate financial statements. A credit card transaction serves as an example where proper recording is essential.
Step-by-step explanation:
Tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion of cutoff. The assertion of cutoff refers to the accounting principle that transactions and events should be reported in the correct accounting period. Ensuring the proper recording of credit sales regarding when they occur ensures that the revenue is matched with the period in which the sales were performed, complying with the accrual basis of accounting.
A credit card immediately transfers money from the credit card company's checking account to the seller; this is a representation of a sale and the resultant receivable that the company records on their books. The company must accurately record such transactions within the appropriate accounting period to provide truthful financial statements. If sales are incorrectly dated, it could lead to misstated revenues and receivables, which would affect users of the financial statements.