Giezelle Mae C.

Gonzales

BA 73 Chapter 9

Monday, April 27, 2015

Review Questions

1. What documents initiates the sales process?

A customer order, sometimes in the form of purchase order usually initiates a

sales order.

2. Distinguish between packing slip, a shipping notice, and a bill of lading.

Packing slip is a document that travels with the goods to the customer to
describe the contents of the order. Shipping notice is a document that informs the
billing department that the customer’s order has been filled and shipped. Bill of
lading is a formal contract between the seller and the shipping company that
transport the goods to the customer.

3. What are three input controls?

The three input controls are Data Validation Controls, Testing Validation Controls
and Batch Controls.

4. What are the three rules that ensure that no single employee or department process
a transaction in its entirety?

Rule 1: Transaction authorization should be separate from transaction processing.

Rule 2: Asset custody should be separated from the record-keeping task

Rule 3: The organization should be structured that the perpetration of fraud requires
collusion between two or more individuals.

5. What is automation, and why it is used?

Automation involves using technology to improve the efficiency and effectiveness

of a task. Automation is used to reduced overhead costs, make better credit granting
decisions, and collect outstanding accounts receivable.
6. What is the objective of reengineering?

The objective of reengineering is to greatly reduce costs by identifying and

eliminating non-value added streamlining necessary existing process.

7. Distinguish between an edit run, sort run, and update run.

Edit program is the first run in the batch process; it validates transaction by
testing each record for the existence of clerical or logical errors and recalculates the
batch control totals reflect changes due to the removal of error records. Sort run
physically arranges the sales order transaction file sequentially by account number,
which is one of its secondary keys. Update run post to accounts receivable by
sequentially matching the account number key in each sales order record with
corresponding record in the AR-SUB master file.

8. How is the record’s primary key critical in preserving the audit trail?

The primary key provides the link between the magnetic records stored on a
computer disk and the physical and events that they represent. In database system
the primary key of one table’s record is the embedded foreign records.

9. What are the advantages of a real-time processing?

The advantages of a real-time processing are Real-time processing greatly

shortens the cash cycle of the firm, Real-time processing can give a firm a
competitive advantage in the market place, Manual procedures tend to produce
clerical errors, such as incorrect account numbers, invalid inventory numbers, and
price-quantity extension miscalculation and Real-time processing reduces the amount
of paper document in a system.

10. Why does billing receive a copy of the sales order when the order is approved but
does not bill until the goods are shipped?

The billing department's receipt of the sales order occurs in most instances
before the goods are actually shipped; thus, the economic event is not complete.
Some of the goods may not be available to ship; thus, the customer should not be
billed until the goods are shipped and the economic event is complete

11. How do test of controls relate to substantive tests?

Test of control is a test to know the strength of internal control, the stronger the
internal control, the lower the control risk, the less substantive test needed. The
weaker the internal control, the higher the control risk, more substantive test is
needed.
12. In a manual system, after which event in the sales process should the customer be
billed?

The shipment of goods marks the completion of the economic event and the
point which the customer should be billed.

13. What is a bill of lading?

Bill of lading is a formal contract between the seller and the shipping company
that transport the goods to the customer.

14. What document initiates a billing process?

A shipping notice and stock release usually initiates a billing process.

15. Where in the cash receipts process does supervision play an important role?

Supervision plays an important role in the mail room where both the check and
remittance advice are in the hands of one person. Mail room fraud can result to
stealing of checks and destroying the remittance to cover the theft.

16. List the revenue cycle audit objectives derived from the “existence or occurrence”
management assertion.

Verify that the accounts receivable represents amounts actually owed to the
organization at the balance sheet date. /establish that the revenue from sales
transactions represent goods shipped and services rendered during the period
covered by the financial statements.

17. List the revenue cycle audit objectives derived from the “completeness”
management assertion.

Determine that all amounts owed to the organization at the balance sheet date
are reflected in the accounts receivables. Verify that all sales for shipped goods, all
services rendered, and all returns and allowances for the period are reflected in the
financial statements.

18. List the revenue cycle audit objectives derived from the “accuracy” management
assertion.

Verify that the revenue transactions are accurately computed and based on
current prices and correct quantities. Ensure that the AR subsidiary ledger, the Sales
invoice file, and the Remittance file are mathematically correct and agree with the
general ledger accounts.