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Appendix: Appendix: Overview Overview of Revenue Revenue Cycle Activities Activities and Documents Documents
DISCUSSION QUESTIONS 1. Distinguish Distinguish between between the sales, billing, billing, and AR departmen partments. ts. Why can t the sales sales or AR departdepartments prepare the bills? 2. Explai Explain n the risks associate associated d with with mailro mailroom om proprocedures. 3. How could could an employee employee embezzle funds funds by issuing an unauthorized sales credit memo if the appropriate segregation of duties and authorization controls were not in place? 4. What task task can the AR departmen departmentt engage in to verify that all checks sent by the customers customers have been appropriately deposited and recorded? 5. Why is access access control control over revenue revenue cycle docudocuments just as important as the physical control devices over cash and inventory? 6. For a batch batch proces processing sing system system using using sequen sequential tial files, files, descri describe be the interme intermediat diatee and permane permanent nt files that are created after the edit run has successfu cessfully lly been been comple completed ted when when proces processing sing the sales order file and updating the accounts receivable and inventory master files. ’
7. Why has the use of magneti magneticc tapes as a storage storage medium declined in recent years? What are their primary uses currently? 8. Discuss Discuss both the tangible tangible and intangible intangible benefits benefits of real-time real-time processing. processing. 9. Distinguish Distinguish between between positive and negative negative confirconfirmations. 10. What is the purpos purposee of analytic analytical al reviews reviews in the audit of revenue cycle accounts? 11. 11. Expl Explain ain the openopen-inv invoi oice ce system system.. What What effe effect ct might it have on confirmation responses? 12. What financial financial statement statement misrepresentatio misrepresentations ns may result from an inconsistently applied credit policy? Be specific. 13. Give Give three example exampless of access access control control in a POS system. 14. What makes POS systems differen differentt from revenue revenue cycles of manufacturing firms? 15. Is a POS system that that uses bar codin codingg and a laser light light scanner scanner foolpr foolproof oof against against inaccur inaccurate ate updates? Discuss.
MULTIPLE-CHOICE QUESTIONS 1. Which Which docu docume ment nt is not prepare prepared d by the sales sales department? a. packi packing ng slip slip b. shippi shipping ng notice notice c. bill bill of ladin ladingg d. stock stock relea release se 2. Whic Which h docu docume ment nt trig trigge gers rs the the upda update te of the the inventory inventory subsidiary subsidiary ledger? ledger? a. bill bill of ladi lading ng b. stock stock relea release se c. sales sales orde orderr d. shipp shipping ing noti notice ce 3. Which Which function function should should not be performed by the billing department? a. record recording ing the the sales sales in the the sales sales journa journall b. sending sending the the ledger ledger copy copy of of the sales sales order order to accounts receivable c. sending sending the the stock stock release release docum document ent and the the shipping notice to the billing department as proof of shipment d. sending the stock stock release release document document to inveninventory control
4. When will a credit credit check check approval approval most likely likely require require specific authorization by the credit department? a. when when verifying verifying that that the current current transac transaction tion does not exceed the customer s credit limit b. when veri verifyin fyingg that the curr current ent transac transactio tion n is with a valid customer c. when when a valid valid custom customer er places places a mater materia ially lly large order d. when a valid valid custom customer er return returnss goods goods 5. Which type of of control is conside considered red to be a comcompensating pensating control? control? a. segreg segregatio ation n of of duties duties b. acce access ss contr control ol c. super supervi visi sion on d. accoun accounting ting record recordss 6. Which Which of the follow following ing is not an an output control? a. The shippin shippingg departme department nt verifie verifiess that the goods sent from the warehouse are correct in type and quantity. b. General General ledger ledger clerks clerks recon reconcile cile journa journall vouchers that were independentl independentlyy prepared prepared in various departments. ’
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Chapter 9: Auditing the Revenue Cycle
c. d.
The sales clerk uses pre-numbered sales orders. The billing department reconciles the shipping notice with the sales invoice to ensure that customers are billed only for the quantities shipped. 7. Which function or department below records the decrease in inventory due to a sale? a. warehouse b. sales department c. billing department d. inventory control 8. Which situation indicates a weak internal control structure? a. the AR clerk authorizes the write off of bad debts b. the record-keeping clerk maintains both AR and AP subsidiary ledgers
c.
the inventory control clerk authorizes inventory purchases d. the AR clerk prepares customer statements every month 9. The bill of lading is prepared by the a. sales clerk. b. warehouse clerk. c. shipping clerk. d. billing clerk. 10. Which of following functions should be segregated? a. opening the mail and recording cash receipts in the journal b. authorizing credit and determining reorder quantities c. shipping goods and preparing the bill of lading d. providing information on inventory levels and reconciling the bank statement
PROBLEMS 1. Process Description Describe the procedures, documents, and departments involved when insufficient inventory is available to fill a customer s approved order. ’
2. Process Description Refer to Figure 9.1 and explain where the batch totals come from and which accounts in the general ledger are affected by the end-of-day batch process.
3. Flowchart Analysis Use the flowchart for Problem 3 to answer these questions: a. What accounting document is represented by symbol A? b. What is an appropriate name for the department labeled B? c. What would be an appropriate description for process C? d. What is the location represented by symbol D? e. What accounting record is represented by symbol E? f. What is an appropriate name for the department labeled H? g. What device is represented by symbol F? h. What device is represented by symbol G? i. What accounting record is represented by symbol G?
4. Internal Control Evaluation Identify the control weaknesses depicted in the flowchart for Problem 4.
5. Segregation of Functions Which, if any, of the following situations represent improper segregation of functions?
a. The billing department prepares the customers in voices, and the AR department posts to the customers accounts. b. The sales department approves sales credit memos as the result of product returns, and subsequent adjustments to the customer accounts are performed by the AR department. c. The shipping department ships goods that have been retrieved from stock by warehouse personnel. d. The general accounting department posts to the general ledger accounts after receiving journal vouchers that are prepared by the billing department. ’
’
6. Internal Controls CMA 688 5-2 Jem Clothes, Inc., is a twenty-five-store chain concentrated in the Northeast that sells ready-to-wear clothes for young men and women. Each store has a full-time manager and an assistant manager, both of whom are paid a salary. The cashiers and sales personnel are typically young people working part-time who are paid an hourly wage plus a commission based on sales volume. The Problem 6 flowchart on page 459 depicts the flow of a sales transaction through the organization of a typical store. The company uses unsophisticated cash registers with four-part sales invoices to record each transaction. These sales invoices are used regardless of the payment type (cash, check, or bank card). On the sales floor, the salesperson manually records his or her employee number and the transaction (clothes, class, description, quantity, and unit price),
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