The Revenue Cycle: Sales to Cash Collections

12.1 Describe the basic business activities and related information processing
operations performed in the revenue cycle.

2) The ________ normally triggers the billing process in the revenue cycle.
A) sales order received from the sales department
B) picking ticket received from the sales department
C) packing slip received from the shipping department
D) journal voucher received from the shipping department

3) The ________ normally triggers the customer payment recording process.

A) sales invoice
B) deposit slip
C) remittance advice
D) customer monthly statement

4) The ________ should always be included with a merchandise shipment to a customer.

A) picking ticket
B) packing slip
C) sales invoice
D) remittance advice

5) According to generally accepted accounting principles, a sale is recognized when

A) cash is received from the customer.
B) inventory is removed from the warehouse.
C) inventory becomes the legal property of the customer.
D) a sales order is approved by sales, inventory control, and credit departments.

6) ________ is not a basic activity of the revenue cycle.

A) Sales order entry
B) Shipping
C) Receiving
D) Billing

7) 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.

8) How is credit approval generally handled for established customers with a documented
payment history?
A) A new credit application is requested.
B) General authorization by a sales clerk
C) Specific authorization by the credit manager
D) A formal credit check should be made for each sale.

9) 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.

10) Checking the quantity of inventory available before accepting a sales order is a good
practice for all of the reasons except to
A) determine which items may need to be back ordered.
B) verify the accuracy of the perpetual inventory records.
C) inform the customer about availability and delivery times.
D) update inventory records to reduce the quantity available by the number of items ordered.

11) Special software packages called ________ can help an organization manage customer
service.
A) EDI systems
B) CRM systems
C) POS systems
D) VMI systems

12) The ________ is a legal contract that defines responsibility for goods that are in transit.
A) bill of lading
B) packing slip
C) back order
D) picking list

13) 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

14) The basic document created in the billing process is call a ________.
A) bill of lading
B) sales invoice
C) sales order
D) packing list

15) 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

16) 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

17) 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.

18) 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

19) 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.

20) 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

21) 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.

22) A(n) ________ 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

23) 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.

24) 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.

25) The shipping department at Eka Toys 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 shipping agreements are documented on
A) picking tickets.
B) packing slips.
C) bills of lading.
D) RFID tags.

26) The accounts receivable management method typically used by credit card companies is
A) balance forward.
B) post billing.
C) monthly statement.
D) open-invoice.

27) If a firm does not use an ERP, the best way to mitigate the risk of the destruction of
master data is to
A) implement backup and disaster recovery procedures.
B) use an ERP.
C) proper segregation of duties.
D) use of multiple master data files.

28) If a firm uses an ERP, the best way to mitigate the risk of the destruction of master data is
to
A) frequently update the ERP system.
B) implement the ERP system in three separate instances.
C) periodically audit the ERP system.
D) integrate the ERP system with all IT functions.
29) Identify a useful tool for monitoring accounts receivable.
A) ERP exception report
B) accounts receivable aging report
C) accounts receivable tolerance report
D) customer credit limit report

30) An accounts receivable aging report is useful for doing everything except
A) estimating bad debts.
B) estimating future sales.
C) projecting the timing of future cash flows.
D) deciding whether to increase a specific customer's credit limit.

31) A picking ticket is generated by the

A) shipping process.
B) sales order entry process.
C) packing process.
D) billing process.

32) The packing slip

A) lists the quantity, price, and description of each item included in the shipment.
B) lists the price and description of each item included in the shipment.
C) lists the quantity and description of each item included in the shipment.
D) lists the quantity and price of each item included in the shipment.

12.2 Discuss the key decisions that need to be made in the revenue cycle, and
identify the information needed to make those decisions.
1) 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) 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

3) Which of the following is not a key decision that needs to be made in the revenue cycle?
A) How should merchandise be delivered to customers?
B) Should credit be extended to customers?
C) How can customer payments be processed to maximize cash flow?
D) Which vendor should inventory be purchased from?

4) Regularly reviewing an accounts receivable aging report can help management do what?
A) spot firms who are falling behind in their payments
B) identify customers who have not purchased anything lately
C) improve the speed which customers make payments
D) determine whether the firm's pricing policy is effective

5) Regularly reviewing an accounts receivable aging report can help management do what?
A) identify customers who have not purchased anything lately
B) determine whether changes are needed in the firm's credit policies
C) improve the speed which customers make payments
D) determine whether the firm's pricing policy is effective

6) By using an ERP to merge the billing, sales, and marketing functions, the firm may be able
to
A) bill the customer right after the sale occurs.
B) market products and services on bills sent to customers.
C) use customer's past purchase history to send information about related products and
services the customer may be interested in.
D) eliminate the need for a firm to have a billing, sales, and marketing department.

7) Suppose management wanted to increase the speed of processing customer payments. One
way to speed up payment transaction processing is to
A) use a FEDI.
B) use JEDI analysis software.
C) eliminate credit sales.
D) extend the amount of credit offered to customers.

12.3 Identify major threats in the revenue cycle, and evaluate the adequacy of
various control procedures for dealing with those threats.

1) Before a shipping notice is prepared during the revenue cycle, shipping department
personnel should match the inventory received from the warehouse to the
A) sales order.
B) picking tickets.
C) picking ticket and sales order.
D) sales order and bill of lading.

2) Which is the best control to prevent invoicing customers for more than the actual quantity
shipped?
A) Use the information from the sales order to prepare the sales invoice.
B) Use the information from the packing slip 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 picking ticket to prepare the sales invoice.

4) 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.
6) 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.

7) 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

8) 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) 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.

10) Segregation of duties controls dictates that the collection and recording functions be kept
separate from each other. However, the accounts receivable department needs to know when
customers pay their invoices. What is a solution to this potential internal control problem?
A) Establish a lockbox arrangement with a bank.
B) Have customers send a remittance advice with their payment.
C) Have mailroom personnel prepare a remittance list which can be forwarded to accounts
receivable.
D) all of the above

11) 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.

12) An ________ is an arrangement where a bank receives customer payments and transmits
payment data to the organization.
A) e-commerce.
B) electronic funds transfer (EFT).
C) electronic lockbox.
D) electronic data interchange (EDI).

13) Customers that send their payments electronically directly to the billing company's bank
are using
A) electronic funds transfer (EFT).
B) electronic data interchange (EDI).
C) procurement cards.
D) an electronic lockbox.

14) 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.

15) 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

16) 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