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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 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
1
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.
5
3)
Which is the best 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
reconcile the bank statement to VLC's records on a regular basis?
A)
Internal audit department
B)
Treasurer
C)
External auditor
D)
Cashier
Page
Ref: 355
5)
Which of the following documents normally triggers the billing process in the
revenue 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
8
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
Page
Ref: 353
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.
Page
Ref: 355
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.
5
10)
Which of the following is not one of the controls for the mail room
where customer payments are commingled with other mail?
A)
Requiring the controller to be personally present when mail is received and
opened
B)
Preparing a remittance list as mail is opened
C)
Restrictively endorsing checks when received
D)
Requiring two mail room clerks to open mail together
7
11)
What is the primary objective of the revenue cycle?
A)
to maximize revenue and minimize expense
B)
to reduce outstanding accounts receivable balances through increased cash sales
C)
to provide the right product in the right place at the right time at the right
price
D)
to sell as much product as possible and/or to maximize service billings
2
12)
Which of the decisions below is not ordinarily found as part of the
revenue cycle?
A)
What credit terms should be offered?
B)
How often should accounts receivable be subjected to audit?
C)
How can customer payments be processed to maximize cash flows?
D)
What are the optimal prices for each product or service?
2-333
13)
Which of the following is not a basic activity of the revenue cycle?
A)
sales order entry
B)
shipping
C)
receiving
D)
billing
3
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.
8
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.
9
16)
During the sales order entry process, a ________ is performed to compare the
quantity ordered with the standard amounts normally ordered.
A)
completeness test
B)
redundant data check
C)
field check
D)
reasonableness test
9
17)
During the sales order entry process, a ________ is performed to verify that
each transaction record contains all appropriate data items.
A)
completeness test
B)
redundant data check
C)
field check
D)
reasonableness test
9
18)
When a customer places an order (on account) for a certain product, what should
be done before the order is checked for inventory availability?
A)
The customer's available credit should be checked.
B)
The sales order should be created and written to a file.
C)
Shipping should be notified of an order in process.
D)
A picking list should be generated for the warehouse.
5
19)
How is credit approval generally handled for established customers with a
documented payment history?
A)
Specific authorization by the credit manager
B)
General authorization by a sales clerk
C)
A new credit application is requested
D)
A formal credit check should be made for each sale
0
20)
What is a typical procedure for processing sales orders from 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.
0
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.
1-342
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.
3
23)
The best 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.
2
24)
This document is a legal contract that defines responsibility for goods that
are in transit.
A)
packing slip
B)
bill of lading
C)
picking list
D)
back order
5
25)
Two documents usually accompany goods shipped to a customer. What are the two
documents?
A)
a bill of lading and an invoice
B)
a packing slip and a bill of lading
C)
an invoice and a packing slip
D)
an invoice and a sales order
5
26)
What is the basic document created in the billing process?
A)
bill of lading
B)
sales order
C)
packing list
D)
sales invoice
9
27)
A company uses the method for tracking accounts receivable where customers pay
according to individual sales invoices. This describes the ________ method.
A)
monthly statement
B)
open-invoice
C)
balance forward
D)
cycle billing
Page
Ref: 350
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
Page
Ref: 350
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.
Page
Ref: 350
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
D)
remittance advice
Page
Ref: 350
31)
When a customer pays off the balance on an invoice, the payment is credited to
the ________ file.
A)
customer master
B)
sales transaction
C)
cash receipts master
D)
All of the above are correct.
Page
Ref: 351
32)
A type of business document in which part of the original document is returned
to the source for further processing is called a ________ document.
A)
feedback
B)
returnable
C)
closed-loop
D)
turnaround
Page
Ref: 350
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.
9
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
Page
Ref: 351
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 list which can be forwarded to
accounts receivable.
C)
Establish a lockbox arrangement with a bank.
D)
all of the above
Page
Ref: 353-354
36)
The benefits of a lockbox arrangement with a bank are maximized when
A)
the bank is located nearby to the company, so remittance advices can be
delivered to the company every day.
B)
several banks around the country are used, in order to minimize the time
payments spend in the mail.
C)
an arrangement is made with only one bank, so all remittance advices can be
batched for processing.
D)
the bank deposits the payments and accesses the customer's information system
to record the payments.
Page
Ref: 354
37)
An arrangement where a bank receives customer payments through the postal
system, scans the remittance advices, and transmits payment data to the
business electronically is known as
A)
e-commerce.
B)
an electronic lockbox.
C)
electronic funds transfer (EFT).
D)
electronic data interchange (EDI).
Page
Ref: 354
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.
Page
Ref: 354
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.
Page
Ref: 354
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
2
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
5
42)
The activities involved in soliciting and processing customer orders within the
revenue cycle are known as the ________.
A)
sales order entry process
B)
shipping order process
C)
revenue process
D)
marketing process
7
43)
To ensure proper segregation of duties, only the ________ has authority to
issue credit memos.
A)
accounts receivable supervisor
B)
controller
C)
credit manager
D)
cashier
Page
Ref: 352
44)
It has been discovered that credit sales have been made to customers with a
poor credit rating. If this continues, the company will face increasing
uncollectible receivables and losses due to bad debts. Separation of duties
between ________ and ________ should help resolve the problem.
A)
shipping; billing duties
B)
credit approval; marketing
C)
billing; credit approval
D)
marketing; accounts receivable
0
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.
5
46)
Which of the following would be the least 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.
5
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.
Page
Ref: 350
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 the sale.
C)
closed loop verification on the customer ID.
D)
field checks on the values in dollar fields.
Page
Ref: 352
49)
When a proper segregation of duties exists in the area of handling cash
receipts, the ________, who reports to the ________, actually handles the cash
and is not the same person who posts cash receipts to customer accounts.
A)
cashier; treasurer
B)
cashier; controller
C)
accountant; treasurer
D)
accountant; controller
Page
Ref: 355
50)
In a revenue cycle with proper controls, the ________ who reports to the
________, is not involved in any cash handling activities.
A)
accounts receivable clerk; treasurer
B)
accounts receivable clerk; controller
C)
cashier; controller
D)
cashier; treasurer
Page
Ref: 355
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 on customers with past due balances
D)
poor performance; preparation and review of performance reports
7
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
Page
Ref: 355
53)
To prevent the loss of valuable data in the revenue 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.
7,
335
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.
9
55)
The manager of Callow Youth Clothing was entering an order online from Sad
Clown Pajamas. He entered all the items and quantities, completed the checkout
and payment process, but the following error message popped up when he tried to
exit the site: "Please enter your email address." This message is
likely the result of a
A)
customer relationship management software application.
B)
validity check.
C)
completeness test.
D)
closed-loop verification.
9
56)
Sad Clown Pajamas is an Internet-based wholesaler. Customers enter their orders
online. The manager of Callow Youth Clothing was entering an order when the
following error message popped up: "Your total order exceeds your
available 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.
0
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.
Page
Ref: 350
58)
Laz Chance wears roller blades and headphones when he is at work at the Squishy
Things Toy Company. He is a product packer. The 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.
2
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.
B)
bills of lading.
C)
packing slips.
D)
RFID tags.
5
60)
Sad Clown Pajamas is an Internet-based wholesaler. The manager of Callow Youth
Clothing received an order from Sad Clown and found that the wrong product had
been shipped. He repackaged the order and sent it back for a refund. When Sad
Clown Pajamas received the returned product, they mailed a ______ to Callow Youth
Clothing's manager.
A)
packing slip
B)
letter requesting an explanation
C)
remittance advice
D)
credit memo
Page
Ref: 352
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.
Page
Ref: 352
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.
Page
Ref: 355
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 the lower price. Which of the following controls would best
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
2
64)
The accounts receivable management method typically used by credit card
companies is
A)
balance forward.
B)
postbilling.
C)
monthly statement.
D)
open-invoice.
Page
Ref: 351
65)
The accounts receivable clerk destroys all invoices for sales made to family
and friends and does not record the sales in the accounts receivable subsidiary
ledgers. The family and friends usually give the clerk cash as a"thank
you". Which procedure will not prevent or detect this fraud?
A)
Send monthly statements to all customers with balances owed.
B)
Reconcile sales invoices in the billing department to the total debits to
accounts receivable subsidiary ledgers.
C)
Sequentially prenumber all invoices and prepare a sequence check at the end of
each day.
D)
Reconcile the accounts receivable control account to the accounts receivable
subsidiary ledger.
Page
Ref: 350
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 the mail, checks are sent to the
cashier's office and remittance advices are sent to the accounts receivable
department.
0
67)
For sales returns, the least 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.
Page
Ref: 352
68)
Describe the basic revenue cycle activities.
69)
Explain how validity checks, completeness tests and reasonableness tests can be
implemented to ensure accuracy of customer orders.
70)
Define and describe benefits of a CRM system.
71)
How can Electronic Data Interchange (EDI) facilitate the billing and accounts
receivable process?
72)
Describe typical credit approval procedures.
73)
Describe the two methods to manage accounts receivable.
74)
Describe cycle billing and identify how an organization might benefit by using
cycle billing.
75)
Failure to collect cash on credit sales is a threat in the revenue cycle. What
controls can be used to help neutralize this threat?
76)
Discuss ways in which technology can be used to streamline cash collections.
77)
Describe four threats in the revenue cycle and identify appropriate controls
for each threat.
78)
Discuss the general control issue of the loss of data, as it relates to the
revenue cycle.
79)
Explain how to effectively segregate duties in the sales order activity.
80)
Discuss the revenue cycle threat of stockouts, carrying costs, and markdowns.
81)
You have been hired by a catalog company to computerize its sales order entry
process. Approximately 70% of all orders are received over the telephone by a
sales person. The other 30% of orders are received by a sales person through
mail or fax. The catalog company wants the phone orders processed real-time.
The mail and fax orders will be processed in batches of 50 orders. The
following attributes are collected for every sales order:
Customer
number (if the order is from a new customer, a new number needs to be assigned)
Customer
name
Address
Payment
method (credit card for phone and fax orders and check for mailed orders)
Credit
card number and expiration date
Items
ordered and quantity of each
Unit
price of each item ordered
Identify and describe at least ten
specific control policies and procedures you will implement for the sales order
process. Be very specific describing the controls and number each new control
you suggest.
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