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Accounting Information Systems, 12e (Romney/Steinbart) 7) Which document should always be included with a B) shipping

Chapter 12 The Revenue Cycle: Sales to Cash Collections merchandise shipment to a customer? C) receiving
A) Packing slip D) billing
1) In organizations with at least basic segregation of duties, the B) Picking ticket
credit manager reports to the ________ and the treasurer reports C) Remittance advice 14) Retail stores could send their orders directly to the
to the ________. D) Sales invoice manufacturer's sales order system in a format that would
A) controller; vice president of finance eliminate the need for data entry, using
B) treasurer; controller 8) A monthly statement sent to customers serves a control A) Vendor Managed Inventory.
C) marketing manager; vice president of finance purpose by B) Electronic Data Interchange.
D) treasurer; vice president of finance A) providing an opportunity for customers to verify the C) Point Of Sale.
balance owed and activity on the account. D) Electronic Funds Transfer.
2) In the revenue cycle, before a shipping notice is prepared, the
B) triggering the process to record a customer payment.
shipping department personnel should match the inventory
C) summarizing invoices and amounts due for customers. 15) Matching customer account numbers and inventory item
received from the warehouse to details from
D) reminding customers of the balance due and due date. numbers to the numbers in the customer and inventory master
A) picking tickets.
files is an example of a
B) sales order and bill of lading.
9) Accounting recognizes a sale when A) completeness test.
C) sales order.
A) inventory becomes the legal property of the customer. B) field check.
D) picking ticket and sales order. B) cash is received from the customer. C) reasonableness test.
C) a sales order is approved by sales, inventory control, and D) validity check.
3) Which is the best control to prevent invoicing customers for
credit departments.
the quantity ordered, which was more than the quantity shipped
D) inventory is removed from the warehouse. 16) During the sales order entry process, a ________ is
due to items on backorder?
performed to compare the quantity ordered with the standard
A) Use the information from the packing slip to prepare the
10) Which of the following is not one of the controls for the amounts normally ordered.
sales invoice.
mail room where customer payments are commingled with other A) completeness test
B) Use the information from the picking ticket to prepare the
mail? B) redundant data check
sales invoice.
A) Requiring the controller to be personally present when C) field check
C) Use the information from the bill of lading to prepare the
sales invoice. mail is received and opened D) reasonableness test
B) Preparing a remittance list as mail is opened
D) Use the information from the sales order to prepare the sales
C) Restrictively endorsing checks when received 17) During the sales order entry process, a ________ is
invoice.
D) Requiring two mail room clerks to open mail together performed to verify that each transaction record contains all
4) The cashier deposits checks in the bank for Very Large appropriate data items.
Corporation (VLC) and also prepares payments to vendors. Of 11) What is the primary objective of the revenue cycle? A) completeness test
the following, who is best to reconcile the bank statement to A) to maximize revenue and minimize expense B) redundant data check
VLC's records on a regular basis? B) to reduce outstanding accounts receivable balances through C) field check
A) Internal audit department increased cash sales D) reasonableness test
B) Treasurer C) to provide the right product in the right place at the right
C) External auditor time at the right price 18) When a customer places an order (on account) for a certain
D) Cashier D) to sell as much product as possible and/or to maximize product, what should be done before the order is checked for
service billings inventory availability?
5) Which of the following documents normally triggers the A) The customer's available credit should be checked.
billing process in the revenue cycle? 12) Which of the decisions below is not ordinarily found as part B) The sales order should be created and written to a file.
A) Packing slip received from the shipping department of the revenue cycle? C) Shipping should be notified of an order in process.
B) Sales order received from the sales department A) What credit terms should be offered? D) A picking list should be generated for the warehouse.
C) Picking ticket received from the sales department B) How often should accounts receivable be subjected to
D) Journal voucher received from the shipping department audit? 19) How is credit approval generally handled for established
C) How can customer payments be processed to maximize cash customers with a documented payment history?
6) Which of the following documents would normally trigger flows? A) Specific authorization by the credit manager
the process to record a customer payment? D) What are the optimal prices for each product or service? B) General authorization by a sales clerk
A) Remittance advice C) A new credit application is requested
B) Customer monthly statement 13) Which of the following is not a basic activity of the revenue D) A formal credit check should be made for each sale
C) Deposit slip cycle?
D) Sales invoice A) sales order entry 20) What is a typical procedure for processing sales orders from
new customers or customers making a purchase that causes their A) bill of lading
credit limit to be exceeded? B) sales order 33) A document typically encountered in the revenue cycle that
A) General authorization to approve the order is given to sales C) packing list is both an output document and a source document is the
clerks. D) sales invoice A) sales invoice.
B) Specific authorization must be granted by the credit B) customer purchase order.
manager. 27) A company uses the method for tracking accounts receivable C) sales order.
C) The sale should be rejected. where customers pay according to individual sales invoices. D) packing slip.
D) The sales clerk should order a report from a credit bureau This describes the ________ method. Answer: A
before approving the order. A) monthly statement Page Ref: 349
B) open-invoice Objective: Learning Objective 1
21) A company should check inventory quantities before C) balance forward Difficulty : Moderate
accepting a sales order for all the following reasons except to D) cycle billing AACSB: Analytic
A) verify the accuracy of the perpetual inventory records.
B) inform the customer about availability and delivery times. 28) A method for tracking accounts receivable that matches 34) A ________ system prepares and mails monthly statements
C) know which items may need to be back ordered. specific invoices and payments from the customer is called a(n) to customers throughout the entire month, instead of just at the
D) update inventory records to reduce the quantity available by ________ method. end of the month.
the number of items ordered. A) specific identification A) continuous
B) balance forward B) open-invoice
22) Responding to customer inquiries and general customer C) cycle billing C) cycle billing
service is an important aspect in the revenue cycle. Since D) open-invoice D) balance forward
customer service is so important, software programs have been
created to help manage this function. These special software 29) The document a customer returns with their payment and 35) The accounts receivable department must know when
packages are called that identifies the source and the amount of the payment is customers pay their invoices, yet segregation of duties controls
A) EDI systems. called a dictate that the collection and recording functions be kept
B) POS systems. A) remittance advice. separate from each other. What is a solution to this potential
C) VMI systems. B) remittance list. internal control problem?
D) CRM systems. C) credit memorandum. A) Have customers send a remittance advice with their payment.
D) debit memorandum. B) Have mailroom personnel prepare a remittance list which can
23) The best solution for maintaining accurate automated be forwarded to accounts receivable.
perpetual inventory system is to use 30) In the ________ method of tracking accounts receivable, C) Establish a lockbox arrangement with a bank.
A) closed-loop verification when inventory is received from customers pay according to the amount showing on their D) all of the above
vendors and recorded. monthly statement and payments are applied against the total
B) point of sale devices integrated with inventory records. account balance. 36) The benefits of a lockbox arrangement with a bank are
C) periodic physical counts to reconcile with perpetual inventory A) specific identification maximized when
records. B) open-invoice A) the bank is located nearby to the company, so remittance
D) RFID tags. C) balance forward advices can be delivered to the company every day.
D) remittance advice B) several banks around the country are used, in order to
24) This document is a legal contract that defines responsibility minimize the time payments spend in the mail.
for goods that are in transit. 31) When a customer pays off the balance on an invoice, the C) an arrangement is made with only one bank, so all remittance
A) packing slip payment is credited to the ________ file. advices can be batched for processing.
B) bill of lading A) customer master D) the bank deposits the payments and accesses the customer's
C) picking list B) sales transaction information system to record the payments.
D) back order C) cash receipts master
D) All of the above are correct. 37) An arrangement where a bank receives customer payments
25) Two documents usually accompany goods shipped to a through the postal system, scans the remittance advices, and
customer. What are the two documents? 32) A type of business document in which part of the original transmits payment data to the business electronically is known
A) a bill of lading and an invoice document is returned to the source for further processing is as
B) a packing slip and a bill of lading called a ________ document. A) e-commerce.
C) an invoice and a packing slip A) feedback B) an electronic lockbox.
D) an invoice and a sales order B) returnable C) electronic funds transfer (EFT).
C) closed-loop D) electronic data interchange (EDI).
26) What is the basic document created in the billing process? D) turnaround
38) Customers that send their payments electronically directly to A) shipping; billing duties 51) A serious exposure in the revenue cycle is loss of assets.
the company's bank are using B) credit approval; marketing What is the related threat and applicable control procedure that
A) electronic data interchange (EDI). C) billing; credit approval address this exposure?
B) electronic funds transfer (EFT). D) marketing; accounts receivable A) shipping errors; reconciliation of sales order with picking
C) procurement cards. ticket and packing slip
D) an electronic lockbox. 45) Consider the following revenue cycle scenario: The B) theft of cash; segregation of duties and minimization of
company has been exposed to customer dissatisfaction and the cash handling
39) A way to incorporate the advantages of Electronic Data suggested control procedure to be implemented is to install and C) making sales that turn out to be uncollectible; force sales
Interchange with the Electronic Funds Transfer is use bar-code scanners. What is the threat? people to make collection calls on customers with past due
A) Financial Electronic Data Interchange. A) The company may be shipping the wrong merchandise. balances
B) e-commerce. B) The company may be shipping the wrong quantities of D) poor performance; preparation and review of performance
C) to use procurement cards. merchandise. reports
D) an electronic lockbox. C) The company may be shipping orders to the wrong address.
D) All of the above threats may apply to this scenario. 52) Which of the following duties could be performed by the
40) Key differences exist when an integrated Enterprise same individual and not violate segregation of duty controls?
Resource Planning system (ERP) replaces an existing AIS or 46) Which of the following would be the least effective control A) handling cash and posting to customer accounts
legacy system. For example, ________ are more accurate and to minimize the loss of inventory? B) issuing credit memos and maintaining customer accounts
timely, enabling sales order entry staff to provide customers A) Secure the storage location of inventory. C) handling cash and authorizing credit memos
more accurate information about delivery dates. B) Release inventory only with proper documentation. D) handling cash receipts and mailing vendor payments
A) inventory records C) Periodically back up all perpetual inventory records.
B) cash receipts D) Reconcile the physical counts with and perpetual records. 53) To prevent the loss of valuable data in the revenue cycle,
C) credit approval decisions internal file labels can be used to
D) exception reports 47) Separating the shipping and billing functions is designed to A) keep competitors from accessing files.
reduce the threat of B) record off-site storage locations.
41) When an ERP is used, it is assumed that there will be A) failure to bill customers. C) organize the on-site physical storage site.
increases in efficiency and the effectiveness of the activities B) billing customers for wrong quantities. D) reduce the possibility of erasing important files.
related to the revenue cycle. However, what must be in place C) billing customers before merchandise has been shipped.
54) The manager of Callow Youth Clothing was entering an
and functioning well to fully realize these benefits? D) shipping the wrong merchandise.
order online from Sad Clown Pajamas. He ordered 100 one-size
A) an effective marketing staff fits all pajama bottoms, but when he ordered 1000 one-size fits
48) All of the following edit checks for online editing of
B) all the components of the expenditure cycle all pajama tops, the following error message popped up: "Did
accounts receivable transactions would probably be included
C) adequate controls you mean to enter a quantity of 1000 for your order?" This
except
D) adequate system flowchart documentation message is the result of a
A) validity checks on customer ID and invoice numbers.
B) check digit verification on the amount of the sale. A) reasonableness test.
42) The activities involved in soliciting and processing customer B) validity check.
C) closed loop verification on the customer ID.
orders within the revenue cycle are known as the ________. C) limit check.
D) field checks on the values in dollar fields.
A) sales order entry process D) closed-loop verification.
B) shipping order process 49) When a proper segregation of duties exists in the area of
C) revenue process handling cash receipts, the ________, who reports to the 55) The manager of Callow Youth Clothing was entering an
D) marketing process ________, actually handles the cash and is not the same person order online from Sad Clown Pajamas. He entered all the items
who posts cash receipts to customer accounts. and quantities, completed the checkout and payment process, but
43) To ensure proper segregation of duties, only the ________ A) cashier; treasurer the following error message popped up when he tried to exit the
has authority to issue credit memos. B) cashier; controller site: "Please enter your email address." This message is likely
A) accounts receivable supervisor C) accountant; treasurer the result of a
B) controller D) accountant; controller A) customer relationship management software application.
C) credit manager B) validity check.
D) cashier 50) In a revenue cycle with proper controls, the ________ who C) completeness test.
reports to the ________, is not involved in any cash handling D) closed-loop verification
44) It has been discovered that credit sales have been made to activities.
customers with a poor credit rating. If this continues, the A) accounts receivable clerk; treasurer 56) Sad Clown Pajamas is an Internet-based wholesaler.
company will face increasing uncollectible receivables and B) accounts receivable clerk; controller Customers enter their orders online. The manager of Callow
losses due to bad debts. Separation of duties between ________ C) cashier; controller Youth Clothing was entering an order when the following error
and ________ should help resolve the problem. D) cashier; treasurer message popped up: "Your total order exceeds your available
credit. A Credit Department representative will contact you 61) A customer service manager at Sad Clown Pajamas, Bob, 66) Which of the following poses an internal control problem?
within 24 hours." This message is the result of a received a call from the manager at Callow Youth Clothing, who A) Physical inspection of inventory quantity and condition is
A) validity check. informed Bob that Callow was entering bankruptcy liquidation outsourced to a firm that specializes in this service.
B) reasonableness test. and it was unlikely that they would be able to pay the B) Products are released from inventory after a warehouse
C) limit check. outstanding balance on their account. Bob should employee and a shipping clerk both sign the pick list.
D) sign check. A) document the phone conversation and forward it to the C) Sales representatives have authority to increase
billing department manager. customers' credit limits in $1,000 increments.
57) In Petaluma, California, electric power is provided to B) prepare a credit memo. D) When customer payments are received in the mail, checks
consumers by the Power To The People Electrical Company, a C) approve a credit memo. are sent to the cashier's office and remittance advices are sent to
local co-op. Each month PTTP mails bills to 70,000 households D) document the phone conversation and forward it to the the accounts receivable department.
and then processes payments as they are received. The credit department manager.
customers are provided with a remittance advice, which is a 67) For sales returns, the least effective control to prevent
A) warning that failure to pay by the due date will result in a late 62) Because it is the most fungible of all assets, the management fraudulent processing of a credit memo is to
charge. of cash has always been the most difficult of all control issues. A) reconcile total of credit memos to total debits posted to
B) confirmation of the firm's privacy policy. The most important of cash controls is customers' subsidiary ledgers.
C) turnaround document. A) minimization of cash handling. B) require approval for each credit memo by the credit manager.
D) bill. B) lockbox arrangements. C) sequentially prenumber all credit memos and perform a
C) segregation of duties. sequence check at the end of each day.
58) Laz Chance wears roller blades and headphones when he is D) frequent reconciliation of records. D) match each credit memo with a receiving report.
at work at the Squishy Things Toy Company. He is a product
packer. The headphones give him computer-generated 63) A sales clerk at an electronics store scanned the bar code for
instructions so he knows the location of each item and quantity a low cost set of headphones and then substituted a high cost set
that should be included in the order. These instructions are the of headphones for his friend, who paid the lower price. Which of
equivalent of a the following controls would best help to prevent this sort of
A) picking ticket. fraud?
B) bill of lading. A) Use of RFID tags
C) packing slip. B) Physical inventory count
D) sales order. C) Segregation of duties
D) Limited physical access to bar codes
59) The shipping department at Squishy Things Toy Company
follows policies that determine which carrier will deliver orders 64) The accounts receivable management method typically used
according to the size, weight, and destination of the shipment. It by credit card companies is
maintains standing agreements with shippers that specify legal A) balance forward.
responsibility for the shipment while it is in transit. The terms of B) postbilling.
the agreements are documented on C) monthly statement.
A) picking tickets. D) open-invoice.
B) bills of lading.
C) packing slips. 65) The accounts receivable clerk destroys all invoices for sales
D) RFID tags. made to family and friends and does not record the sales in the
accounts receivable subsidiary ledgers. The family and friends
60) Sad Clown Pajamas is an Internet-based wholesaler. The usually give the clerk cash as a "thank you". Which procedure
manager of Callow Youth Clothing received an order from Sad will not prevent or detect this fraud?
Clown and found that the wrong product had been shipped. He A) Send monthly statements to all customers with balances
repackaged the order and sent it back for a refund. When Sad owed.
Clown Pajamas received the returned product, they mailed a B) Reconcile sales invoices in the billing department to the total
______ to Callow Youth Clothing's manager. debits to accounts receivable subsidiary ledgers.
A) packing slip C) Sequentially prenumber all invoices and prepare a sequence
B) letter requesting an explanation check at the end of each day.
C) remittance advice D) Reconcile the accounts receivable control account to the
D) credit memo accounts receivable subsidiary ledger.