Question

When reviewing receipts, you see that last October, the organization spent over $300 on envelopes. Which test of control would you perform to determine if this was a reasonable expense?

(A) payroll testing
(B) general expense testing
(C) new vendor testing
(D) general inventory testing

Answer 1

To assess the reasonableness of the $300 spent on envelopes, b. general expense testing is the appropriate test of control. This process includes comparing the cost to historical data, checking for specific events that may have driven envelope demand, and reviewing purchase invoices and approvals.

Step-by-step explanation:

To determine if the organization's expenditure of over $300 on envelopes last October was a reasonable expense, the test of control that you would perform is general expense testing. This type of testing focuses on the rationale and authorization behind transactions within the general expenses category. It involves verifying that the expenses are legitimate business transactions, properly authorized, and recorded accurately.

During the general expense testing, you would compare the quantity and cost of envelopes purchased to previous periods to assess if the amount spent falls within the normal range. You would also investigate to see if there was a specific project or event that may have required a bulk purchase of envelopes. Additionally, reviewing the supplier's invoice for price and quantity, as well as the approval of the purchase order, would provide insight into the appropriateness of the transaction.