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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
) mar!eting manager; vice president of finance
") treasurer; vice president of finance
Answer# "
$age %ef# &&1
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AA,B# 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# "
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AA,B# Anal*tic
&) 0hich is the best control to prevent invoicing customers for the 1uantit* ordered, which was more
than the 1uantit* 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 the sales invoice.
") 3se the information from the sales order to prepare the sales invoice.
Answer# A
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AA,B# %eflective 6hin!ing
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op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
.) 6he cashier deposits chec!s in the ban! for 9er* )arge orporation :9)) and also prepares
pa*ments to vendors. 'f the following, who is best to reconcile the ban! statement to 9);s records on
a regular basis2
A) Internal audit department
B) 6reasurer
) 5<ternal auditor
") ashier
Answer# A
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AA,B# Anal*tic
/) 0hich of the following documents normall* triggers the billing process in the revenue c*cle2
A) $ac!ing slip received from the shipping department
B) ,ales order received from the sales department
) $ic!ing tic!et received from the sales department
") =ournal voucher received from the shipping department
Answer# A
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AA,B# 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
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AA,B# 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
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AA,B# Anal*tic
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op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
>) A monthl* statement sent to customers serves a control purpose 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
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AA,B# %eflective 6hin!ing
A) 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
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AA,B# Anal*tic
14) 0hich of the following is not one of the controls for the mail room where customer pa*ments are
commingled with other mail2
A) %e1uiring the controller to be personall* present when mail is received and opened
B) $reparing a remittance list as mail is opened
) %estrictivel* endorsing chec!s when received
") %e1uiring two mail room cler!s to open mail together
Answer# A
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AA,B# Anal*tic
11) 0hat is the primar* ob(ective of the revenue c*cle2
A) to ma<imize revenue and minimize e<pense
B) to reduce outstanding accounts receivable balances through increased cash sales
) to provide the right product in the right place at the right time at the right price
") to sell as much product as possible andBor to ma<imize service billings
Answer#
$age %ef# &&-
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AA,B# Anal*tic
&
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
1-) 0hich of the decisions below is not 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<imize cash flows2
") 0hat are the optimal prices for each product or service2
Answer# B
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AA,B# Anal*tic
1&) 0hich of the following is not a basic activit* of the revenue c*cle2
A) sales order entr*
B) shipping
) receiving
") billing
Answer#
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AA,B# Anal*tic
1.) %etail stores could send their orders directl* to the manufacturer;s sales order s*stem in a format that
would eliminate the need for data entr*, using
A) 9endor +anaged Inventor*.
B) 5lectronic "ata Interchange.
) $oint 'f ,ale.
") 5lectronic Dunds 6ransfer.
Answer# B
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AA,B# Anal*tic
1/) +atching customer account numbers and inventor* item numbers to the numbers in the customer
and inventor* master files is an e<ample of a
A) completeness test.
B) field chec!.
) reasonableness test.
") validit* chec!.
Answer# "
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AA,B# Anal*tic
.
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
1?) "uring the sales order entr* process, a ________ is performed to compare the 1uantit* ordered with
the standard amounts normall* ordered.
A) completeness test
B) redundant data chec!
) field chec!
") reasonableness test
Answer# "
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AA,B# 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
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AA,B# 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 customer;s 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
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AA,B# Anal*tic
1A) 8ow is credit approval generall* handled 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 re1uested
") A formal credit chec! should be made for each sale
Answer# B
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AA,B# Anal*tic
/
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
-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<ceeded2
A) Eeneral authorization to approve the order is given to sales cler!s.
B) ,pecific authorization must be granted b* the credit manager.
) 6he sale should be re(ected.
") 6he sales cler! should order a report from a credit bureau before approving the order.
Answer# B
$age %ef# &.4
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AA,B# Anal*tic
-1) A compan* should chec! inventor* 1uantities before accepting a sales order for all the following
reasons except to
A) verif* the accurac* of the perpetual inventor* records.
B) inform the customer about availabilit* and deliver* times.
) !now which items ma* need to be bac! ordered.
") update inventor* records to reduce the 1uantit* available b* the number of items ordered.
Answer# A
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AA,B# Anal*tic
--) %esponding to customer in1uiries and general customer service is an important aspect in the revenue
c*cle. ,ince customer service is so important, software programs have been created to help manage this
function. 6hese special software pac!ages are called
A) 5"I s*stems.
B) $', s*stems.
) 9+I s*stems.
") %+ s*stems.
Answer# "
$age %ef# &.&
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AA,B# Anal*tic
-&) 6he best solution for maintaining accurate automated perpetual inventor* s*stem is to use
A) closedCloop verification when inventor* is received from vendors and recorded.
B) point of sale devices integrated with inventor* records.
) periodic ph*sical counts to reconcile with perpetual inventor* records.
") %DI" tags.
Answer# "
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AA,B# Anal*tic
?
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
-.) 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# &./
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AA,B# Anal*tic
-/) 6wo documents usuall* accompan* goods 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# &./
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AA,B# 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# &.A
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AA,B# 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
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AA,B# Anal*tic
@
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
->) 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
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AA,B# Anal*tic
-A) 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
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AA,B# 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#
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AA,B# 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
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AA,B# %eflective 6hin!ing
>
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
&-) A t*pe of business document in which part 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
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AA,B# 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.
) sales order.
") pac!ing slip.
Answer# A
$age %ef# &.A
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AA,B# 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
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AA,B# 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# "
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AA,B# Anal*tic
A
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
&?) 6he benefits of a loc!bo< arrangement with a ban! are ma<imized when
A) the ban! is located nearb* to the compan*, so remittance advices can be delivered to the compan*
ever* da*.
B) several ban!s around the countr* are used, in order to minimize the time pa*ments spend in the mail.
) an arrangement is made with onl* one ban!, so all remittance advices can be batched for processing.
") the ban! deposits the pa*ments and accesses the customer;s information s*stem to record the
pa*ments.
Answer# B
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AA,B# Anal*tic
&@) An arrangement where a ban! receives customer pa*ments through the postal s*stem, scans the
remittance advices, and transmits pa*ment data to the business electronicall* is !nown as
A) eCcommerce.
B) an electronic loc!bo<.
) electronic funds transfer :5D6).
") electronic data interchange :5"I).
Answer# B
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AA,B# Anal*tic
&>) 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
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AA,B# Anal*tic
&A) 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
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AA,B# Anal*tic
14
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
.4) Fe* differences e<ist when an integrated 5nterprise %esource $lanning s*stem :5%$) replaces an
e<isting AI, or legac* s*stem. Dor e<ample, ________ are more accurate and timel*, enabling sales
order entr* staff to provide customers more accurate information about deliver* dates.
A) inventor* records
B) cash receipts
) credit approval decisions
") e<ception reports
Answer# A
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AA,B# Anal*tic
.1) 0hen an 5%$ is used, it is assumed that there will be increases in efficienc* and the effectiveness of
the activities related to the revenue c*cle. 8owever, what must be in place and functioning well to full*
realize these benefits2
A) an effective mar!eting staff
B) all the components of the e<penditure c*cle
) ade1uate controls
") ade1uate s*stem flowchart documentation
Answer#
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AA,B# Anal*tic
.-) 6he activities involved in soliciting and processing customer orders within the revenue c*cle are
!nown as the ________.
A) sales order entr* process
B) shipping order process
) revenue process
") mar!eting process
Answer# A
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AA,B# Anal*tic
.&) 6o ensure proper segregation of duties, onl* the ________ has authorit* to issue credit memos.
A) accounts receivable supervisor
B) controller
) credit manager
") cashier
Answer#
$age %ef# &/-
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AA,B# Anal*tic
11
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
..) 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
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AA,B# Anal*tic
./) onsider the following revenue c*cle scenario# 6he compan* has been e<posed to customer
dissatisfaction and the suggested control procedure to be implemented is to install and use barCcode
scanners. 0hat is the threat2
A) 6he compan* ma* be shipping the wrong merchandise.
B) 6he compan* ma* be shipping the wrong 1uantities of merchandise.
) 6he compan* ma* be shipping orders to the wrong address.
") All of the above threats ma* appl* to this scenario.
Answer# A
$age %ef# &./
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AA,B# %eflective 6hin!ing
.?) 0hich of the following would be the least effective control to minimize the loss of inventor*2
A) ,ecure the storage location of inventor*.
B) %elease inventor* onl* with proper documentation.
) $eriodicall* bac! up all perpetual inventor* records.
") %econcile the ph*sical counts with and perpetual records.
Answer#
$age %ef# &./
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AA,B# Anal*tic
.@) ,eparating the shipping and billing functions is designed to reduce the threat of
A) failure to bill customers.
B) billing customers for wrong 1uantities.
) billing customers before merchandise has been shipped.
") shipping the wrong merchandise.
Answer# A
$age %ef# &/4
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AA,B# %eflective 6hin!ing
1-
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
.>) 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 of the sale.
) closed loop verification on the customer I".
") field chec!s on the values in dollar fields.
Answer# B
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AA,B# %eflective 6hin!ing
.A) 0hen a proper segregation of duties e<ists in the area of handling cash receipts, the ________, who
reports to the ________, actuall* handles the cash and is not the same person who posts cash receipts to
customer accounts.
A) cashier; treasurer
B) cashier; controller
) accountant; treasurer
") accountant; controller
Answer# A
$age %ef# &//
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AA,B# Anal*tic
/4) In a revenue c*cle with proper controls, the ________ who reports to the ________, is not involved
in an* cash handling activities.
A) accounts receivable cler!; treasurer
B) accounts receivable cler!; controller
) cashier; controller
") cashier; treasurer
Answer# B
$age %ef# &//
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AA,B# Anal*tic
/1) A serious e<posure in the revenue c*cle is loss of assets. 0hat is the related threat and applicable
control procedure that address this e<posure2
A) shipping errors; reconciliation of sales order with pic!ing tic!et and pac!ing slip
B) theft of cash; segregation of duties and minimization of cash handling
) ma!ing sales that turn out to be uncollectible; force sales people to ma!e collection calls on
customers with past due balances
") poor performance; preparation and review of performance reports
Answer# B
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AA,B# Anal*tic
1&
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
/-) 0hich of the following duties could be performed b* the same individual and not 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# &//
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AA,B# %eflective 6hin!ing
/&) 6o prevent the loss of valuable data in the revenue c*cle, 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# -@@, &&/
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AA,B# 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 1uantit* 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# &&A
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AA,B# %eflective 6hin!ing
//) 6he manager of allow Gouth lothing was entering an order online from ,ad lown $a(amas. 8e
entered all the items and 1uantities, completed the chec!out and pa*ment process, but the following
error message popped up when he tried to e<it the site# H$lease enter *our email address.H 6his message
is li!el* the result of a
A) customer relationship management software application.
B) validit* chec!.
) completeness test.
") closedCloop verification.
Answer#
$age %ef# &&A
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AA,B# %eflective 6hin!ing
1.
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
/?) ,ad lown $a(amas is an InternetCbased wholesaler. ustomers enter their orders online. 6he
manager of allow Gouth lothing was entering an order when the following error message popped up#
HGour total order e<ceeds *our available credit. A redit "epartment representative will contact *ou
within -. hours.H 6his message is the result of a
A) validit* chec!.
B) reasonableness test.
) limit chec!.
") sign chec!.
Answer#
$age %ef# &.4
'b(ective# )earning 'b(ective &
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AA,B# %eflective 6hin!ing
/@) In $etaluma, alifornia, electric power is provided to consumers b* the $ower 6o 6he $eople
5lectrical ompan*, a local coCop. 5ach month $66$ mails bills to @4,444 households and then
processes pa*ments as the* are received. 6he customers are provided with a remittance advice, which is
a
A) warning that failure to pa* b* the due date will result in a late charge.
B) confirmation of the firm;s privac* polic*.
) turnaround document.
") bill.
Answer#
$age %ef# &/4
'b(ective# )earning 'b(ective 1
"ifficult* # 5as*
AA,B# Anal*tic
/>) )az hance wears roller blades and headphones when he is at wor! at the ,1uish* 6hings 6o*
ompan*. 8e is a product pac!er. 6he headphones give him computerCgenerated instructions so he
!nows the location of each item and 1uantit* that should be included in the order. 6hese instructions are
the e1uivalent 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*
AA,B# Anal*tic
1/
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
/A) 6he shipping department at ,1uish* 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*
AA,B# Anal*tic
?4) ,ad lown $a(amas is an InternetCbased wholesaler. 6he manager of allow 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 lothing;s manager.
A) pac!ing slip
B) letter re1uesting an e<planation
) remittance advice
") credit memo
Answer# "
$age %ef# &/-
'b(ective# )earning 'b(ective 1
"ifficult* # 5as*
AA,B# Anal*tic
?1) A customer service manager at ,ad lown $a(amas, Bob, received a call from the manager at
allow Gouth lothing, who informed Bob that allow was entering ban!ruptc* li1uidation and it was
unli!el* that the* would be able to pa* 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.
) approve a credit memo.
") document the phone conversation and forward it to the credit department manager.
Answer# "
$age %ef# &/-
'b(ective# )earning 'b(ective 1
"ifficult* # "ifficult
AA,B# %eflective 6hin!ing
1?
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
?-) 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.
") fre1uent reconciliation of records.
Answer#
$age %ef# &//
'b(ective# )earning 'b(ective &
"ifficult* # +oderate
AA,B# Anal*tic
?&) A sales cler! 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. 0hich of the
following controls would best 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
AA,B# 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*
AA,B# 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 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.
) ,e1uentiall* prenumber all invoices and prepare a se1uence chec! at the end of each da*.
") %econcile the accounts receivable control account to the accounts receivable subsidiar* ledger.
Answer# A
$age %ef# &/4
'b(ective# )earning 'b(ective &
"ifficult* # +oderate
AA,B# %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* 1uantit* 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 I1,444 increments.
") 0hen customer pa*ments are received in the mail, chec!s are sent to the cashier;s office and
remittance advices are sent to the accounts receivable department.
Answer#
$age %ef# &.4
'b(ective# )earning 'b(ective &
"ifficult* # 5as*
AA,B# Anal*tic
?@) Dor 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; subsidiar* ledgers.
B) re1uire approval for each credit memo b* the credit manager.
) se1uentiall* prenumber all credit memos and perform a se1uence 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
AA,B# %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 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*
AA,B# Anal*tic
?A) 5<plain how validit* chec!s, completeness tests and reasonableness tests can be implemented to
ensure accurac* of customer orders.
Answer# 9alidit* chec!s can be used to compare the customer and inventor* information on the
customer order with the information in the customer and inventor* master files. A completeness test can
ensure that all the necessar* information is present on the customer order. A reasonableness test can
compare the 1uantit* ordered with the customer;s past order histor* for that item.
$age %ef# &&A
'b(ective# )earning 'b(ective &
"ifficult* # +oderate
AA,B# Anal*tic
1>
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
@4) "efine and describe benefits of a %+ s*stem.
Answer# %+ stands for customer relationship management. ,ince customer service is so important
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*, 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
%+ 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
AA,B# 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 process is the sales invoice. +an* companies 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 1uic!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# &.A
'b(ective# )earning 'b(ective 1
"ifficult* # +oderate
AA,B# Anal*tic
@-) "escribe t*pical credit approval procedures.
Answer# +ost businessCtoCbusiness sales are made on credit. Fe* to revenue c*cle success 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 new customers, or when orders e<ceed a customer;s
credit limit, or the customer has a past due balance, specific authorization for the credit manager should
specificall* authorize and approve further credit. 6he s*stem can also be programmed to do a limit
chec! for each order processed to maintain further control in this area. Also, mar!eting personnel should
not ma!e credit decisions, as a potential conflict of interest is possible.
$age %ef# &&AC&.4
'b(ective# )earning 'b(ective 1
"ifficult* # +oderate
AA,B# Anal*tic
@&) "escribe the two methods to manage accounts receivable.
Answer# 'pen invoice s*stem customers pa* the invoice b* returning a remittance advice turnaround
document and a chec!. %emittances are applied against specific open invoices. 6he openCinvoice method
can be used to offer discounts for prompt pa*ments since invoices are individuall* trac!ed. 8owever,
such individual trac!ing adds comple<it* in maintaining information. BalanceCforward method 
customers pa* according to the amount shown on a monthl* statement and remittances are applied
against the total outstanding balance; this method is used b* department stores t*picall* where
customers ma!e a large number of smaller dollar amount purchases.
$age %ef# &/4
'b(ective# )earning 'b(ective 1
"ifficult* # +oderate
AA,B# Anal*tic
1A
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
@.) "escribe c*cle billing and identif* how an organization might benefit b* using c*cle billing.
Answer# *cle billing is spreading out the customer base so that a portion of the billing is done each
da* to a group of customers. redit card and utilit* companies use it e<tensivel* because of their large
customer bases. 6he advantage of this method is that the billing load is dispersed and the cash flow of
the compan* is evened out dramaticall*.
$age %ef# &/1
'b(ective# )earning 'b(ective 1
"ifficult* # +oderate
AA,B# Anal*tic
@/) Dailure to collect cash on credit sales is a threat in the revenue c*cle. 0hat controls can be used to
help neutralize this threat2
Answer# Both accounts receivable and cash flows should be monitored. ,egregation of dut* controls
should alwa*s be implemented and monitored for compliance. Also, a control used to deal with accounts
receivable :which directl* impacts cash flow) is to use an accounts receivable aging schedule. 6his
schedule lists customer account balances b* length of time outstanding and provides information for
estimating bad debts. It can also assist in evaluating credit policies and specific customer credit limits.
Also, a cash budget can be used to provide a more precise estimate of cash inflows :cash collected from
sales) and cash outflow :outstanding pa*ables). An organization can be alerted to a pending cash flow
shortage, thus enabling it to secure shortCterm financing at competitive rates to deal with the problem in
a timel* manner.
$age %ef# &.1, &/?
'b(ective# )earning 'b(ective &
"ifficult* # "ifficult
AA,B# Anal*tic
@?) "iscuss wa*s in which technolog* can be used to streamline cash collections.
Answer# Answers ma* include the following points# A loc!bo< s*stem can reduce dela*s due to
processing and geographical distance between customer and compan*. ustomers send remittances to a
nearb* $.'. bo<; a local ban! pic!s up remittances, deposits cash and sends remittance advices and
copies of all chec!s to the compan*. 6he main disadvantage is cost; the ban!s charge a service fee up to
1J of the cash processed through the s*stem. Information technolog* can provide additional efficiencies
in the use of loc!bo<es. An electronic loc!bo< sends electronic notification of remittances to the
compan*. 6his method enables the compan* to begin appl*ing remittances to customer accounts before
the photocopies of the chec!s arrive. An 5D6 s*stem eliminates paper chec!s and uses electronic
pa*ments between ban!s. Integrating 5D6 and 5"I, called the financial electronic data interchange,
automates billing and cash collections. $rocurement cards or credit cards can be used. 6hese cards
eliminate the ris!s and costs associated with creating and maintaining accounts receivable, but cost
between -J to .J of the gross sales price.
$age %ef# &/.
'b(ective# )earning 'b(ective 1
"ifficult* # "ifficult
AA,B# Anal*tic
-4
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
@@) "escribe four threats in the revenue c*cle and identif* appropriate controls for each threat.
Answer# Answers can 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 accountabilit* for pic!ing and shipping; and 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 posting to customer accounts; handling cash and
authorizing credit memos and ad(ustments; issuing credit memos and maintaining customer accounts);
use of loc!bo<es for receipts and 5D6 for disbursements; mailing customer statements monthl*; use
cash registers in retail operations where cash pa*ments are received; deposit cash dail* in the ban!; and
have the ban! reconciliation function performed b* independent third parties.
6hreat @# $osting errors in updating accounts receivable ontrols# 3se of editing and batch totals is
essential here.
6hreat ># )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 A# $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
AA,B# Anal*tic
-1
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
@>) "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.
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<ternal and internal
reporting purposes and for customer in1uiries. ,uch records must be protected from loss and damage b*
using bac!up files. 'ne bac!up file should be !ept onCsite, while a second should be !ept offCsite.
Bac!up files of the most recent transactions should also be maintained. Also, all dis!s and tapes should
have both e<ternal and internal file labels to reduce the possibilit* of accidental erasure of important
files. Access controls are also important as a general control. 3nauthorized access to information ma*
cause lea!s of the information to competitors and the ris! of damage to sensitive and important data
files. 5mplo*ees should have certain access restrictions to help prevent this threat from occurring.
$asswords and user I"s will help to limit access to files and the operations allowed to be performed on
files. Dor e<ample, the sales staff should not be allowed writeCaccess to customers; credit limit and
approval information. Individual terminals should also have access controls in place. An e<ample of this
control would be to prevent someone at a shipping doc! terminal from entering a sales transaction order.
Another control that should be put in place is to re1uire activit* logs of an* management approved
transaction. ,uch a log should be maintained for audit trail purposes.
$age %ef# &&/
'b(ective# )earning 'b(ective &
"ifficult* # "ifficult
AA,B# Anal*tic
@A) 5<plain how to effectivel* segregate duties in the sales order activit*.
Answer# ,ales orders should be recorded b* sales personnel. redit decisions should be made b* the
credit manager, not sales personnel. Also, sales orders authorize release of goods to shipping. 0arehouse
and shipping should be separate from sales. Because a computer does recording and authorization, it is
important to ensure integrit* of the programs and to perform edit chec!s on an* online entries.
$age %ef# &&@C&..
'b(ective# )earning 'b(ective &
"ifficult* # +oderate
AA,B# Anal*tic
--
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
>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 are a threat in the sales order entr* process. 6he
problem with stoc!outs is that when goods are not available to ship to customers, the business ris!s
losing the sale to a competitor that can provide the goods in a timel* manner. 6he opposite problem can
also occur where e<cess inventor* increases carr*ing costs, with the result that mar!downs ma* be
necessar* in order to sell the inventor*. 6wo controls can be implemented to cope with this threat. 'ne
control that can be put into place is to establish accurate inventor* control. An AI, with realCtime online
capabilities can be programmed to use the perpetual inventor* method. 6his will ensure that accurate
records are maintained about the 1uantit* of inventor* for sale. 6his will eliminate mista!es in placing
orders for goods when a sufficient inventor* amount is on hand. $eriodic ph*sical counts of inventor*
will also verif* the perpetual amounts recorded b* the AI,. Another important control in this situation is
that of accurate sales forecasting. $roper mar!eting efforts should be made in con(unction with regularl*
reviewing sales forecasts for accurac*. ,uch forecasts should be revised as necessar*. ,ales force
mar!eting efforts should be commensurate with inventor* levels as well.
$age %ef# &.-
'b(ective# )earning 'b(ective &
"ifficult* # "ifficult
AA,B# Anal*tic
-&
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all
>1) Gou have been hired b* a catalog compan* to computerize its sales order entr* process.
Appro<imatel* @4J of all orders are received over the telephone b* a sales person. 6he other &4J of
orders are received b* a sales person through mail or fa<. 6he catalog compan* wants the phone orders
processed realCtime. 6he mail and fa< orders will be processed in batches of /4 orders. 6he following
attributes are collected for ever* sales order#
ustomer number :if the order is from a new customer, a new number needs to be assigned)
ustomer name
Address
$a*ment method :credit card for phone and fa< orders and chec! for mailed orders)
redit card number and e<piration date
Items ordered and 1uantit* of each
3nit price of each item ordered
Identif* and describe at least ten specific control policies and procedures *ou will implement for the
sales order process. Be ver* specific describing the controls and number each new control *ou suggest.
Answer#
1. 9alidit* chec! on customer number
-. Authorization controls to set up new customer records
&. hec! digit on customer number
.. +odulus 11 on customer number
/. losedCloop verification on customer number
?. redit approval before accepting orders
@. redit chec! and credit limit establishment for new customers, before accepting orders
>. $reformatting of customer state, zip code and phone number
A. 'nCline realCtime authorization of credit card charges
14. Dield chec! on credit card number and e<piration date
11. 9alidit* chec! on item number
1-. hec! digit on item number
1&. +odulus 11 on item number
1.. losedCloop verification on item number
1/. Auto fill of unit price, based on item number
1?. Dield chec! on 1uantit* ordered
1@. Batch control totals for mail and fa< orders
1>. 5ncr*ption of credit card data
1A. ompleteness chec!
$age %ef# &&A
'b(ective# )earning 'b(ective &
"ifficult* # +oderate
AA,B# Anal*tic
-.
op*right 7 -41- $earson 5ducation, Inc. publishing as $rentice 8all