Accounting Information Systems, 12e (Romney/Steinbart) Chapter 12 The Revenue Cycle: Sales to Cash Collections
1) In organizations with at least basic segregation of duties, the credit manage r reports to the ________ and the treasurer reports to the ________. A) controller; vice president of finance B) treasurer; controller ) mar!eting manager; vice president of finance ") treasurer; vice president of finance Answer# " $age %ef# &&1 'b(ective# earning 'b(ective 1 "ifficult* # +oderate AAB# Anal*tic -) In the revenue c*cle, before a shipping notice is prepared, the shipping department personnel should match the inventor* received from the warehouse to details from A) pic!ing tic!ets. B) sales order and bill of lading. ) sales order. ") pic!ing tic!et and sales order. Answer# " $age %ef# &/ 'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# Anal*tic &) 0hich is the best control control to prevent invoicing customers for the uantit* uantit* ordered, which was more than the uantit* shipped due to items on bac!order2 A) 3se the information from the pac!ing slip to prepare the sales invoice. B) 3se the information from the pic!ing tic!et to prepare the sales invoice. ) 3se the information from the bill of lading to prepare p repare the sales invoice. ") 3se the information from the sales order to prepare the sales invoice. Answer# A $age %ef# &/4 'b(ective# earning 'b(ective & "ifficult* # 5as* AAB# %eflective 6hin!ing
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) 6he cashier deposits chec!s in the ban! for 9er* 9er* arge orporation :9) and also prepares pa*ments to vendors. 'f the following, who is best to to reconcile the ban! statement to 9s records on a regular basis2 A) Internal audit department B) 6reasurer ) 5
'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic ?) 0hich of the following documents would normall* trigger the process to record a customer pa*ment2 A) %emittance advice B) ustomer monthl* statement ) "eposit slip ") ales invoice Answer# A $age %ef# &/& 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic @) 0hich document should alwa*s be included with a merchandise shipment to a customer2 A) $ac!ing slip B) $ic!ing tic!et ) %emittance advice ") ales invoice Answer# A $age %ef# &/ 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic
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>) A monthl* monthl* statement sent to customers serves a control purpose pu rpose b* A) providing an opportunit* for customers to verif* the balance owed and activit* on the account. B) triggering the process to record a customer pa*ment. ) summarizing invoices and amounts due for customers. ") reminding customers of the balance due and due date. Answer# A $age %ef# &// 'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# %eflective 6hin!ing ) Accounting recognizes a sale when A) inventor* becomes the legal propert* of the customer. B) cash is received from the customer. ) a sales order is approved b* sales, inventor* control, and credit departments. ") inventor* is removed from the warehouse. Answer# A $age %ef# &/ 'b(ective# earning 'b(ective 1 "ifficult* # +oderate AAB# Anal*tic 14) 0hich of the following is not one one of the controls for the mail room where customer pa*ments are commingled with other mail2 A) %euiring the controller to be personall* present when wh en mail is received and opened B) $reparing a remittance list as mail is opened ) %estrictivel* endorsing chec!s when received ") %euiring two mail room cler!s to open mail together Answer# A $age %ef# &&@ 'b(ective# earning 'b(ective & "ifficult* # 5as* AAB# Anal*tic 11) 0hat is the primar* ob(ective of the revenue c*cle2 A) to ma
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1-) 0hich of the decisions below is not ordinaril* ordinaril* found as part of the revenue c*cle2 A) 0hat credit terms should be offered2 B) 8ow often should accounts receivable be sub(ected to audit2 ) 8ow can customer pa*ments be processed to ma 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic 1/) +atching customer account numbers and inventor* item numbers to the numbers in the customer and inventor* master files is an e
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1?) "uring the sales order entr* process, a ________ is performed to compare the uantit* ordered with the standard amounts normall* ordered. A) completeness test B) redundant data chec! ) field chec! ") reasonableness test Answer# " $age %ef# && 'b(ective# earning 'b(ective & "ifficult* # 5as* AAB# Anal*tic 1@) "uring the sales order entr* process, a ________ is performed to verif* that each transaction record contains all appropriate data items. A) completeness test B) redundant data chec! ) field chec! ") reasonableness test Answer# A $age %ef# && 'b(ective# earning 'b(ective & "ifficult* # 5as* AAB# Anal*tic 1>) 0hen a customer places an order :on account) for a certain product, what should be done before the order is chec!ed for inventor* availabilit*2 A) 6he customers available credit should be chec!ed. B) 6he sales order should be created and written to a file. ) hipping should be notified of an order in process. ") A pic!ing list should be generated for the warehouse. Answer# A $age %ef# &&/ 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic 1) 8ow is credit approval generall* handled han dled for established customers with a documented pa*ment histor*2 A) pecific authorization b* the credit manager B) Eeneral authorization b* a sales cler! ) A new credit application is reuested ") A formal credit chec! should be made for each sale Answer# B $age %ef# &4 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic
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-4) 0hat is a t*pical procedure for processing sales orders from new customers or customers ma!ing a purchase that causes their credit limit to be e
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-) 6his document is a legal contract that defines responsibilit* for goods that are in transit. A) pac!ing slip B) bill of lading ) pic!ing list ") bac! order Answer# B $age %ef# &/ 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic -/) 6wo 6wo documents usuall* accompan* goods g oods shipped to a customer. 0hat are the two documents2 A) a bill of lading and an invoice B) a pac!ing slip and a bill of lading ) an invoice and a pac!ing slip ") an invoice and a sales order Answer# B $age %ef# &/ 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic -?) 0hat is the basic document created in the billing process2 A) bill of lading B) sales order ) pac!ing list ") sales invoice Answer# " $age %ef# & 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic -@) A compan* uses the method for trac!ing accounts receivable where customers pa* according to individual sales invoices. 6his describes the ________ method. A) monthl* statement B) openCinvoice ) balance forward ") c*cle billing Answer# B $age %ef# &/4 'b(ective# earning 'b(ective 1 "ifficult* # +oderate AAB# Anal*tic
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->) A method for trac!ing accounts receivable that matches specific invoices and pa*ments from the customer is called a:n) ________ method. A) specific identification B) balance forward ) c*cle billing ") openCinvoice Answer# " $age %ef# &/4 'b(ective# earning 'b(ective 1 "ifficult* # +oderate AAB# Anal*tic -) 6he document a customer returns with their pa*ment and that identifies the source and the amount of the pa*ment is called a A) remittance advice. B) remittance list. ) credit memorandum. ") debit memorandum. Answer# A $age %ef# &/4 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic &4) In the ________ method of trac!ing accounts receivable, customers pa* according to the amount showing on their monthl* statement and pa*ments are applied against the total account balance. A) specific identification B) openCinvoice ) balance forward ") remittance advice Answer# $age %ef# &/4 'b(ective# earning 'b(ective 1 "ifficult* # +oderate AAB# Anal*tic &1) 0hen a customer pa*s off the balance on an invoice, the pa*ment is credited to the ________ file. A) customer master B) sales transaction ) cash receipts master ") All of the above are correct. Answer# A $age %ef# &/1 'b(ective# earning 'b(ective 1 "ifficult* # +oderate AAB# %eflective 6hin!ing
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&-) A t*pe of business document in which part p art of the original document is returned to the source for further processing is called a ________ document. A) feedbac! B) returnable ) closedCloop ") turnaround Answer# " $age %ef# &/4 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic &&) A document t*picall* encountered in the revenue c*cle that is both an output document and a source document is the A) sales invoice. B) customer purchase order. order. ) sales order. ") pac!ing slip. Answer# A $age %ef# & 'b(ective# earning 'b(ective 1 "ifficult* # +oderate AAB# Anal*tic &) A ________ s*stem prepares and mails monthl* statements to customers throughout the entire month, instead of (ust at the end of the month. A) continuous B) openCinvoice ) c*cle billing ") balance forward Answer# $age %ef# &/1 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic &/) 6he accounts receivable department must !now when customers pa* their invoices, *et segregation of duties controls dictate that the collection and recording functions be !ept separate from each other. 0hat is a solution to this potential internal control problem2 A) 8ave customers send a remittance advice with their pa*ment. B) 8ave mailroom personnel prepare a remittance list which can be forwarded to accounts receivable. ) 5stablish a loc!bo< arrangement with a ban!. ") all of the above Answer# " $age %ef# &/&C&/ 'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# Anal*tic
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&?) 6he benefits of a loc!bo< arrangement with a ban! are ma) ustomers that send their pa*ments electronicall* directl* to the compan*s ban! are using A) electronic data interchange :5"I). B) electronic funds transfer :5D6). ) procurement cards. ") an electronic loc!bo<. Answer# B $age %ef# &/ 'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# Anal*tic &) A wa* to incorporate the advantages of 5lectronic "ata Interchange with the 5lectronic Dunds 6ransfer is A) Dinancial 5lectronic "ata Interchange. B) eCcommerce. ) to use procurement cards. ") an electronic loc!bo<. Answer# A $age %ef# &/ 'b(ective# earning 'b(ective & "ifficult* # 5as* AAB# Anal*tic
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4) Fe* differences e
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) It has been discovered that credit sales have been made to customers with a poor credit rating. If this continues, the compan* will face increasing uncollectible receivables and losses due to bad debts. eparation of duties between ________ and ________ should help resolve the problem. A) shipping; billing duties B) credit approval; mar!eting ) billing; credit approval ") mar!eting; accounts receivable Answer# B $age %ef# &4 'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# Anal*tic /) onsider the following revenue c*cle scenario# 6he compan* has been e
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>) All of the following edit chec!s for online editing of accounts receivable transactions would probabl* be included except A) validit* chec!s on customer I" and invoice numbers. B) chec! digit verification on the amount a mount of the sale. ) closed loop verification on the customer cu stomer I". ") field chec!s on the values in dollar fields. Answer# B $age %ef# &/'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# %eflective 6hin!ing ) 0hen a proper segregation of duties e
/-) 0hich of the following duties could be performed b* the same individual and not no t violate segregation of dut* controls2 A) handling cash and posting to customer accounts B) issuing credit memos and maintaining customer accounts ) handling cash and authorizing credit memos ") handling cash receipts and mailing vendor pa*ments Answer# " $age %ef# &// 'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# %eflective 6hin!ing /&) 6o 6o prevent the loss of valuable data in the revenue c*cle, c*c le, internal file labels can be used to A) !eep competitors from accessing files. B) record offCsite storage locations. ) organize the onCsite ph*sical storage site. ") reduce the possibilit* of erasing important files. Answer# " $age %ef# -@@, &&/ 'b(ective# earning 'b(ective & "ifficult* # 5as* AAB# Anal*tic /) 6he manager of allow Gouth lothing was entering an order online from ad lown $a(amas. 8e ordered 144 oneCsize fits all pa(ama bottoms, but when he ordered 1444 oneCsize fits all pa(ama tops, the following error message popped up# H"id *ou mean to enter a uantit* uan tit* of 1444 for *our order2H 6his message is the result of a A) reasonableness test. B) validit* chec!. ) limit chec!. ") closedCloop verification. Answer# A $age %ef# && 'b(ective# earning 'b(ective & "ifficult* # 5as* AAB# %eflective 6hin!ing //) 6he manager of allow Gouth lothing was entering an order online from ad lown $a(amas. 8e entered all the items and uantities, completed the chec!out and pa*ment process, but the following error message popped up when he tried to e
/?) ad lown $a(amas is an InternetCbased wholesaler. ustomers enter their orders online. 6he manager of allow Gouth Gouth lothing was entering an order when the following error message popped up# HGour HGour total order e) az hance wears roller blades and headphones when he is at wor! at the uish* 6hings 6o* ompan*. 8e is a product pac!er. 6he headphones give him computerCgenerated instructions so he !nows the location of each item and uantit* that should be included in the order. 6hese instructions are the euivalent of a A) pic!ing tic!et. B) bill of lading. ) pac!ing slip. ") sales order. Answer# A $age %ef# &'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic
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/) 6he shipping department at uish* 6hings 6o* ompan* 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 specif* legal responsibilit* for the shipment while it is in transit. 6he terms of the agreements are documented on A) pic!ing tic!ets. B) bills of lading. ) pac!ing slips. ") %DI" tags. Answer# B $age %ef# &/ 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic ?4) ad lown $a(amas is an InternetCbased wholesaler. wholesaler. 6he manager of allow Gouth Gouth lothing received an order from ad lown and found that the wrong product had been shipped. 8e repac!aged the order and sent it bac! for a refund. 0hen ad lown $a(amas received the returned product, the* mailed a ______ to allow Gouth Gouth lothings manager. A) pac!ing slip B) letter reuesting an e
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?-) Because it is the most fungible of all assets, the management of cash has alwa*s been the most difficult of all control issues. 6he most important of cash controls is A) minimization of cash handling. B) loc!bo< arrangements. ) segregation of duties. ") freuent reconciliation of records. Answer# $age %ef# &// 'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# Anal*tic ?&) A sales cler! at an electronics store scanned the bar ba r code for a low cost set of headphones and then substituted a high cost set of headphones for his friend, who paid the lower price. 0hich of the following controls would best help help to prevent this sort of fraud2 A) 3se of %DI" tags B) $h*sical inventor* count ) egregation of duties ") imited ph*sical access to bar codes Answer# A $age %ef# &'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# Anal*tic ?) 6he accounts receivable management method t*picall* used b* credit card companies is A) balance forward. B) postbilling. ) monthl* statement. ") openCinvoice. Answer# A $age %ef# &/1 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic ?/) 6he accounts receivable cler! destro*s all invoices for sales made to famil* and friends and does not record the sales in the accounts receivable subsidiar* ledgers. 6he famil* and friends usuall* give the cler! cash as aHthan! *ouH. 0hich procedure will not prevent prevent or detect this fraud2 A) end monthl* statements to all customers with balances owed. B) %econcile sales invoices in the billing department to the total debits to accounts receivable subsidiar* ledgers. ) euentiall* prenumber all invoices and prepare a seuence chec! at the end of each eac h da*. ") %econcile the accounts receivable control account to the accounts accoun ts receivable subsidiar* ledger. Answer# A $age %ef# &/4 'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# %eflective 6hin!ing 1@ op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
??) 0hich of the following poses an internal control problem2 A) $h*sical inspection of inventor* uantit* and condition is outsourced to a firm that specializes in this service. B) $roducts are released from inventor* after a warehouse emplo*ee and a shipping cler! both sign the pic! list. ) ales representatives have authorit* to increase customers credit limits in 1,444 increments. ") 0hen customer pa*ments are received in the mail, chec!s are sent to the cashiers c ashiers office and remittance advices are sent to the accounts receivable department. Answer# $age %ef# &4 'b(ective# earning 'b(ective & "ifficult* # 5as* AAB# Anal*tic ?@) Dor 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 subsidiar* ledgers. B) reuire approval for each credit memo b* the credit manager. ) seuentiall* prenumber all credit memos and perform pe rform a seuence chec! at the end of each da*. ") match each credit memo with a receiving report. Answer# A $age %ef# &/'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# %eflective 6hin!ing ?>) "escribe the basic revenue c*cle activities. Answer# 6he revenue c*cle is a recurring set of business activities and related information information processing operations associated with providing goods and services to customers and collecting cash in pa*ment for those sales. 6he basic activities in the revenue c*cle are# order entr* soliciting and processing customer activities filling customer orders and shipping merchandise invoicing customers and maintaining customer accounts collections the cashier handles remittances and deposits them in the ban!; accounts receivable personnel credits customer accounts for the pa*ments received. $age %ef# &&& 'b(ective# earning 'b(ective 1 "ifficult* # 5as* AAB# Anal*tic ?) 5
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@4) "efine and describe benefits of a %+ s*stem. Answer# %+ stands for customer relationship management. ince customer customer service is so important important toda*, toda*, special %+ software pac!ages have been created that support this vital process. %+ s*stems help a compan* to organize detailed data about customers so that more personalized service can be given to them. A %+ s*stem ma* retain customer preferences and customer transaction histor*, histor*, which can be used to suggest other products the customer ma* wish to purchase. 6he s*stem could also ta!e a proCactive mar!eting approach in contacting customers at certain reCorder points. A wellCimplemented wellCimplemented %+ s*stem can help the business achieve the goal of turning satisfied customers into lo*al customers. $age %ef# && 'b(ective# earning 'b(ective 1 "ifficult* # +oderate AAB# Anal*tic @1) 8ow can 5lectronic "ata Interchange :5"I) facilitate the billing and accounts receivable process2 Answer# 6he basic document created in the billing billing process is the sales sales invoice. +an* companies still still print paper invoices and send them to customers in the mail. Batch processing of invoices ma* create cash flow problems because of the time it ta!es invoices to flow through the regular mail s*stem. ompanies that use 5"I can create uic!er turnaround for pa*ment, and save costs b* reducing paper handling and processing. "epending on the number of invoices processed per *ear, these savings can be significant. $age %ef# & 'b(ective# earning 'b(ective 1 "ifficult* # +oderate AAB# Anal*tic @-) "escribe t*pical credit approval procedures. Answer# +ost businessCtoCbusiness businessCtoCbusiness sales are made on credit. credit. Fe* to revenue c*cle success is is the approval of credit sales before the* are processed and goods shipped. A part of good control in this area is to establish a credit limit for customers. 0ith 0ith new customers, or when orders e
@) "escribe c*cle billing and identif* how an organization might benefit b* using c*cle billing. b illing. Answer# *cle billing is spreading out the customer base so that a portion of the billing billing is done each da* to a group of customers. redit card and utilit* companies use it e
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@@) "escribe four threats in the revenue c*cle c *cle and identif* appropriate controls for each threat. Answer# Answers can include include the following information# 6hreat 1# ales to customers with poor credit ontrols# 8aving an independent credit approval function and maintaining good customer accounting can help to prevent problems. 6hreat -# hipping errors ontrols# %econciling shipping notices with pic!ing tic!ets; barCcode scanners; and data entr* application controls will help to catch these errors. 6hreat 6heft of inventor* ontrols# ecure the location of inventor* and document transfers; release onl* with valid shipping orders; have good goo d accountabilit* for pic!ing and shipping; and finall*, finall*, periodicall* reconcile records with a ph*sical count. 6hreat # Dailure to bill customers ontrols# eparating shipping and billing and preCnumbering of shipping documents helps along with reconciliation of all sales documents. 6hreat /# Billing errors ontrols# %econciliation of pic!ing tic!ets and bills of lading with sales orders; data entr* edit controls; and price lists ma* prevent billing errors. 6hreat ?# 6heft of cash ontrols# egregation of duties is essential to prevent this serious problem :the following duties should be separate# handling cash and a nd posting to customer accounts; handling cash and authorizing credit memos and ad(ustments; issuing credit memos and maintaining customer acco unts); use of loc!bo# oss of data ontrols# %egular bac!ups are essential with one cop* stored offCsite; and logical and ph*sical access controls to prevent lea!age to competitors and irregularities. 6hreat # $oor performance ontrols# 3se sales and profitabilit* anal*ses; accounts receivable aging; and cash budgets to trac! operations. $age %ef# &&?C&&@ 'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# Anal*tic
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@>) "iscuss the general control issue of the loss of data, as it relates to the revenue c*cle. Answer# 'ne of the two general ob(ectives that pertain to all revenue c*cle activities is the loss of data. data. 6he primar* threats related to the data availabilit* ob(ective are the loss of data and access controls. It is imperative that accurate customer account and inventor* records be maintained for e
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>4) "iscuss the revenue c*cle threat of stoc!outs, carr*ing costs, and mar!downs. Answer# toc!outs, carr*ing costs, and mar!downs mar!downs are a threat in the the sales order entr* process. 6he problem with stoc!outs is that when goods are not available to ship to customers, the business business ris!s losing the sale to a competitor that can provide the goods in a timel* manner. manner. 6he opposite problem can also occur where e
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>1) Gou have been hired b* a catalog compan* to computerize its sales order entr* process. Appro. $reformatting of customer state, zip code and phone number . 'nCline realCtime authorization of credit card charges 14. Dield chec! on credit card number and e. 5ncr*ption of credit card data 1. ompleteness chec! $age %ef# && 'b(ective# earning 'b(ective & "ifficult* # +oderate AAB# Anal*tic
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