You are planning a substantive test for purchase transactions to determine if all inventory items received are recorded on the books. What is the appropriate population to select your sample to begin this test?

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Question restatement: You are planning a substantive test for purchase transactions to determine if all inventory items received are recorded on the books. What is the appropriate population to select your sample to begin this test?

Option 1: Purchase orders
Reasoning: Purchase orders represent the authorization or intent to buy but do not confirm goods actually received or recorded in inventory. Using purchase orders would test the procurement authorization process rather than the completeness of recording received items.

Option 2: Cash disbursements
Reasoning: Cash disbursements relate to payment transactions and the timing of cash outflows. Sampling them would focus on the payment cycle and potential mismatches between goods received and payments, not directly on whether all received inventory items are recorded.

Option 3: Purchase journal entries
Reasoning: Purchase journal entries document the accounting entries for purchases, but if items were received and not properly recorded, the root issue may first be seen in the receiving/receiving documents or inventory records. The population of purchases alone may miss unrecorded or misrecorded items if the source documents aren’t aligned with actual receipt.

Option 4: Receiving report documentation
Reasoning: Receiving reports (receiving report documentation) are generated when goods are physically received and serve as the primary source document linking received items to inventory records. Sampling from receiving reports allows you to verify that every item actually received has a corresponding recording in the inventory system, addressing completeness directly.

Summary: Among the options, receiving report documentation best provides the link between goods received and the inventory records, enabling a substantive test aimed at ensuring all received items are recorded. The other options either test different processes (authorization, payment) or rely on secondary accounting records that may not directly capture the completeness of inventory recording without the receiving evidence.

You are planning a substantive test for purchase transactions to determine if all inventory items received are recorded on the books. What is the appropriate population to select your sample to begin this test?Single choice

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