Question

The auditors are concerned about source documents that reflect valid transactions that have not been recorded in the journals. Which procedure would be most effective?

1) Procedure A
2) Procedure B
3) Procedure C
4) Procedure D

Answer 1

Auditors can employ Procedure C to compare source documents with journal entries and ensure all valid transactions are recorded. This procedure involves tracing sample source documents to their corresponding journal entries.

Step-by-step explanation:

To address the concern about valid transactions not being recorded in the journals, auditors can employ Procedure C. This procedure involves comparing the source documents directly with the journal entries. The auditors can select a sample of source documents and trace them to their corresponding journal entry to ensure that all valid transactions have been recorded.

For example, if a source document such as a sales invoice is found, auditors can follow the sales invoice number and trace it to the sales journal to verify that the transaction has been properly recorded. By performing this procedure on a representative sample of transactions, auditors can assess the extent of the problem and take corrective actions if necessary.

The primary topic of this question is auditing and the importance of recording valid transactions in the journals.