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Accounting Information Systems

Chapter 12 Test Bank

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
Answer: D

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.
Answer: D

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.
Answer: A

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
Answer: A

6) Which of the following documents would normally trigger the process to record a customer
A) Remittance advice
B) Customer monthly statement
C) Deposit slip
D) Sales invoice
Answer: A


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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
Answer: A

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.
Answer: A

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.
Answer: A

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
Answer: C

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?
Answer: B

13) Which of the following is not a basic activity of the revenue cycle?
A) sales order entry
B) shipping
C) receiving
D) billing
Answer: C


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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.
Answer: B

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.
Answer: D

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.
Answer: A

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
Answer: B

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.
Answer: B

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.
Answer: A

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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.
Answer: D

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
Answer: B

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
Answer: B

26) What is the basic document created in the billing process?

A) bill of lading
B) sales order
C) packing list
D) sales invoice
Answer: D

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
Answer: B

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
Answer: D


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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.
Answer: A

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
Answer: C

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.
Answer: A

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
Answer: D

33) A document typically encountered in the revenue cycle that is both an output document and a
source document is the
A) sales invoice.
B) customer purchase order.
C) sales order.
D) packing slip.
Answer: A

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
Answer: C


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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
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
Answer: B

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).
Answer: B

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.
Answer: B

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.
Answer: A

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
Answer: A

42) The activities involved in soliciting and processing customer orders within the revenue cycle are

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known as the ________.
A) sales order entry process
B) shipping order process
C) revenue process
D) marketing process
Answer: A

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.
Answer: A

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.
Answer: C

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.
Answer: A

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.
Answer: B

60) Sad Clown Pajamas is an Internet-based wholesaler. The manager of Callow Youth Clothing received

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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
Answer: D

64) The accounts receivable management method typically used by credit card companies is
A) balance forward.
B) postbilling.
C) monthly statement.
D) open-invoice.
Answer: A


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