Ch 12 - The Revenue Cycle (Sales to Cash)

Account Accounting ing I nformat nformation ion Syste Systems, 12e (Romney/Steinbart) Chapter 12 The Revenue Revenue Cycle: Sales to Cash Collections

1) In organizations with at least basic segregation of duties, the credit manager reports to the ________ and the treasurer reports to the ________. A) controller; vice president of finance B) treasurer; controller C) marketing manager; vice president of finance D) treasurer; vice president of finance 2) In the revenue cycle, before a shipping notice is prepared, the shipping department personnel should match the inventory received from the warehouse to details from A) picking tickets. B) sales order and bill of lading. C) sales order. D) picking ticket and sales order. 3) Which is the best control control to prevent invoicing customers for the quantity ordered, which was more than the quantity shipped due to items on backorder? A) Use the information from the packing slip to prepare the sales invoice. B) Use the information from the picking ticket to prepare the sales invoice. C) Use the information from the bill of lading to prepare the sales invoice. D) Use the information from the sales order to prepare the sales invoice. 4) The cashier deposits checks in the bank for Very Large Corporation (VLC) and also prepares payments to vendors. Of the following, who is best to to reconcile the bank statement to VLC's records on a regular basis? A) Internal audit department B) Treasurer C) External auditor D) Cashier 5) Which of the following documents normally triggers the billing process in the revenue cycle? cycle? A) Packing slip received from the shipping department B) Sales order received from the sales department C) Picking ticket received from the sales department D) Journal voucher received from the shipping department 6) Which of the following documents would normally trigger the process to record a customer payment? A) Remittance advice B) Customer monthly statement C) Deposit slip D) Sales invoice

7) Which document should always be included with a merchandise shipment to a customer? A) Packing slip B) Picking ticket C) Remittance advice D) Sales invoice 8) A monthly statement sent to customers serves a control purpose by A) providing an opportunity for customers to verify the balance owed and activity on the account. B) triggering the process to record a customer payment. C) summarizing invoices and amounts due for customers. D) reminding customers of the balance due and due date. 9) Accounting recognizes a sale when A) inventory becomes the legal property of the customer. B) cash is received from the customer. C) a sales order is approved by sales, inventory control, and credit departments. D) inventory is removed from the warehouse.

B) shipping C) receiving D) billing 14) Retail stores could send their orders directly to the manufacturer's sales order system in a format that would eliminate the need for data entry, using A) Vendor Managed Inventory. B) Electronic Data Interchange. C) Point Of Sale. D) Electronic Funds Transfer. 15) Matching customer account numbers and inventory item numbers to the numbers in the customer and inventory master files is an example of a A) completeness test. B) field check. C) reasonableness test. D) validity check.

16) During the sales order entry process, a ________ is performed to compare the quantity quantity ordered with the standard 10) Which of the following is not one one of the controls for the amounts normally ordered. mail room where customer payments are commingled with other A) completeness test mail? B) redundant data check C) field check A) Requiring the controller to be personally present when mail is received and opened D) reasonableness test B) Preparing a remittance list as mail is opened C) Restrictively endorsing checks when received 17) During the sales order entry process, a ________ is D) Requiring two mail room clerks to open mail together performed to verify that each each transaction record contains all appropriate data items. 11) What is the primary objective of the revenue cycle? A) completeness test A) to maximize revenue and minimize expense B) redundant data check B) to reduce outstanding accounts receivable balances through C) field check increased cash sales D) reasonableness test C) to provide the right product in the right place at the right 18) When a customer places an order ( on account) for a certain time at the right price D) to sell as much product as possible and/or to maximize product, what should be done done before the order is checked checked for service billings inventory availability? A) The customer's available credit should be checked. 12) Which of the decisions below is not ordinarily ordinarily found as part B) The sales order should be created and written to a file. of the revenue cycle? C) Shipping should be notified of an order in process. A) What credit terms should be offered? D) A picking list should be generated for the warehouse. B) How often should accounts receivable be subjected to 19) How is credit approval generally handled for established audit? C) How can customer payments be processed to maximize cash customers with a documented payment history? flows? A) Specific authorization by the credit manager D) What are the optimal prices for each product or service? B) General authorization by a sales clerk C) A new credit application is requested 13) Which of the following is not a a basic activity of the revenue D) A formal credit check should be made for each sale cycle? A) sales order entry 20) What is a typical procedure for processing sales orders from

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new customers or customers making a purchase that causes their credit limit to be exceeded? A) General authorization to approve the order is given to sales clerks. B) Specific authorization must be granted by the credit manager. C) The sale should be rejected. D) The sales clerk should order a report from a credit bureau before approving the order. 21) A company should check inventory quantities before accepting a sales order for all the following reasons except to A) verify the accuracy of the perpetual inventory records. B) inform the customer about availability and delivery times. C) know which items may need to be back ordered. D) update inventory records to reduce the quantity available by the number of items ordered. 22) Responding to customer inquiries and general customer service is an important aspect in the revenue cycle. Since customer service is so important, software programs have been created to help manage this function. These special software packages are called A) EDI systems. B) POS systems. C) VMI systems. D) CRM systems. 23) The best solution solution for maintaining accurate automated perpetual inventory system is to use A) closed-loop verification when inventory is received from vendors and recorded. B) point of sale devices integrated with inventory records. C) periodic physical counts to reconcile with perpetual inventory records. D) RFID tags.

A) bill of lading B) sales order C) packing list D) sales invoice 27) A company uses the method for tracking accounts receivable where customers pay according to individual sales i nvoices. This describes the ________ method. A) monthly statement B) open-invoice C) balance forward D) cycle billing

33) A document typically encountered in the revenue cycle that is both an output document and a source document is the A) sales invoice. B) customer purchase order. C) sales order. D) packing slip. Answer: A Page Ref: 349 Objective: Learning Objective 1 Difficulty : Moderate AACSB: Analytic

28) A method for tracking accounts receivable that matches specific invoices and payments from the customer is called a(n) ________ method. A) specific identification B) balance forward C) cycle billing D) open-invoice

34) A ________ system prepares and mails monthly statements to customers throughout the entire month, instead of just at the end of the month. A) continuous B) open-invoice C) cycle billing D) balance forward

29) The document a customer returns with their payment and that identifies the source and the amount of the payment is called a A) remittance advice. B) remittance list. C) credit memorandum. D) debit memorandum.

35) The accounts receivable department must know when customers pay their invoices, yet segregation of duties controls dictate that the collection and recording functions be kept separate from each other. What is a solution to this potential internal control problem? A) Have customers send a remittance advice with their payment. B) Have mailroom personnel prepare a remittance li st which can be forwarded to accounts receivable. receivable. C) Establish a lockbox arrangement with a bank. D) all of the above

30) In the ________ method of tracking accounts receivable, customers pay according to the amount showing on their monthly statement and payments are applied against the total account balance. A) specific identification B) open-invoice C) balance forward

36) The benefits of a lockbox arrangement with a bank are maximized when A) the bank is l ocated nearby to the company, so remittance advices can be delivered to the company every day.



38) Customers that send their payments electronically directly to the company's bank are using A) electronic data interchange (EDI). B) electronic funds transfer (EFT). C) procurement cards. D) an electronic lockbox. 39) A way to incorporate the advantages of Electronic Data Interchange with the Electronic Funds Transfer is A) Financial Electronic Data Interchange. B) e-commerce. C) to use procurement cards. D) an electronic lockbox. 40) Key differences exist when an integrated Enterprise Resource Planning system (ERP) replaces an existing AIS or legacy system. For example, ________ are more accurate and timely, enabling sales order entry staff to provide customers more accurate information about delivery dates. A) inventory records B) cash receipts C) credit approval decisions D) exception reports 41) When an ERP is used, it is assumed that there will be increases in efficiency and the effectiveness of the activities related to the revenue cycle. However, what must be in place and functioning well to fully realize these benefits? A) an effective marketing staff B) all the components of the expenditure cycle C) adequate controls D) adequate system flowchart documentation 42) The activities involved in soliciting and processing customer orders within the revenue cycle are known as the ________. A) sales order entry process

A) shipping; billing duties B) credit approval; marketing C) billing; credit approval D) marketing; accounts receivable 45) Consider the following revenue cycle scenario: The company has been exposed to customer dissatisfaction and the suggested control procedure to be implemented is to install and use bar-code scanners. What is the threat? A) The company may be shipping the wrong merchandise. B) The company may be shipping the wrong quantities of merchandise. C) The company may be shipping orders to the wrong address. D) All of the above threats may apply to this scenario. 46) Which of the following would be the least effective effective control to minimize the loss of inventory? A) Secure the storage location of inventory. B) Release inventory only with proper documentation. C) Periodically back up all perpetual inventory records. D) Reconcile the physical counts with and perpetual records. 47) Separating the shipping and billing functions is designed to reduce the threat of A) failure to bill customers. B) billing customers for wrong quantities. C) billing customers before merchandise has been shipped. D) shipping the wrong merchandise. 48) All of the following edit checks for online editing of accounts receivable transactions would probably be included except A) validity checks on customer ID and invoice numbers. B) check digit verification on the amount of t he sale. C) closed loop verification on the customer ID. D) field checks on the values in dollar fields.

51) A serious exposure in the revenue cycle is loss of assets. What is the related threat and applicable control procedure that address this exposure? A) shipping errors; reconciliation of sales order with picking ticket and packing slip B) theft of cash; segregation of duties and minimization of cash handling C) making sales that turn out to be uncollectible; force sales people to make collection calls calls on customers with past due balances D) poor performance; preparation and review of performance reports 52) Which of the following duties could be performed by the same individual and not violate segregation of duty controls? A) handling cash and posting to customer accounts B) issuing credit memos and maintaining customer accounts C) handling cash and authorizing credit memos D) handling cash receipts and mailing vendor payments 53) To prevent the loss of valuable data in the r evenue cycle, internal file labels can be used to A) keep competitors from accessing files. B) record off-site storage locations. C) organize the on-site physical storage site. D) reduce the possibility of erasing important files. 54) The manager of Callow Youth Clothing was entering an order online from Sad Clown Pajamas. He ordered 100 one-size fits all pajama bottoms, but when he ordered 1000 one-size fits all pajama tops, the following error message popped up: "Did you mean to enter a quantity of 1000 for your order?" This message is the result of a A) reasonableness test. B) validity check. C) limit check. D) closed-loop verification.



credit. A Credit Department representative will contact you within 24 hours." This message is the result of a A) validity check. B) reasonableness test. C) limit check. D) sign check. 57) In Petaluma, California, electric power is provided to consumers by the Power To The People Electrical Company, a local co-op. Each month PTTP mails bills to 70,000 households and then processes payments as they are received. The customers are provided with a remittance advice, which is a A) warning that failure to pay by the due date will result in a late charge. B) confirmation of the firm's privacy policy. C) turnaround document. D) bill. 58) Laz Chance wears roller bl ades and headphones when he is at work at the Squishy Things Toy Company. He is a product packer. The headphones headphones give him computer-generated instructions so he knows the location of each item and quantity that should be included in the order. These instructions are the equivalent of a A) picking ticket. B) bill of lading. C) packing slip. D) sales order. 59) The shipping department at Squishy Things Toy Company follows policies that determine which carrier will deliver orders according to the size, weight, and destination of the shipment. It maintains standing agreements with shippers that specify legal responsibility for the shipment while it is in transit. The terms of the agreements are documented on A) picking tickets.

61) A customer service manager at Sad Clown Pajamas, Bob, received a call from the manager at Callow Youth Clothing, who informed Bob that Callow was entering bankruptcy liquidation and it was unlikely that they would be able to pay the outstanding balance on their account. Bob should A) document the phone conversation and forward it to the billing department manager. B) prepare a credit memo. C) approve a credit memo. D) document the phone conversation and forward it to the credit department manager. 62) Because it is the most fungible of all assets, the management of cash has always been the most difficult of all control issues. The most important of cash controls is A) minimization of cash handling. B) lockbox arrangements. C) segregation of duties. D) frequent reconciliation of records. 63) A sales clerk at an electronics store scanned the bar code for a low cost set of headphones and then substituted a high cost set of headphones for his friend, who paid t he lower price. Which of the following controls would best help help to prevent this sort of fraud? A) Use of RFID tags B) Physical inventory count C) Segregation of duties D) Limited physical access to bar codes 64) The accounts receivable management method typically used by credit card companies is A) balance forward. B) postbilling. C) monthly statement. D) open-invoice.

66) Which of the following poses an internal control problem? A) Physical inspection of inventory quantity and condition is outsourced to a firm that specializes in this service. B) Products are released from inventory after a warehouse employee and a shipping clerk both sign the pick list. C) Sales representatives have authority to increase customers' credit limits in $1,000 increments. D) When customer payments are received in t he mail, checks are sent to the cashier's office and remittance advices are sent to the accounts receivable department. 67) For sales returns, the least effective effective control to prevent fraudulent processing of a credit memo is to A) reconcile total of credit memos to total debits posted to customers' subsidiary ledgers. B) require approval for each credit memo by the credit manager. C) sequentially prenumber all credit memos and perform a sequence check at the end of each day. D) match each credit memo with a receiving report.

Ch 12 - The Revenue Cycle (Sales to Cash)

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