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Revenue Cycle

Terms in this set (197)

A document prepared in the sales department of most firms for recording the description, quantity and related information for goods purchased by their customers is called a:
a. customer order
b. sales order
c. sales invoice
d. purchase order
e. purchase requisition
b
A document that accompanies the bill mailed to the customer and can be returned to the seller with the cash payment is called a:

a. statement
b. voucher
c. collection invoice
d. cash receipts memo
e. remittance advice
e
What does the following flowchart describe?

rectangle -> trapezoid -> squiggle box
a. A manual input was used in a manual process which generated a document.
b. A decision was made regarding keyboard input data and its effect on an output record.
c. Input data was processed by an EDP program and displayed on a CRT tube.
d. Input data was processed by an EDP program and output on a printer.
e. An EDP operation processed manually input information and output the results on a hard disk.
a
A place where gross pay, withholdings, and net pay are recorded for all employees. The amounts are normally totaled and posted to the general ledger monthly. The above is called a:

a. personnel
b. labor distribution report
c. payroll journalrecord
d. employee time card
e. perpetual employee record
c
A document frequently used by organizations to establish a formal means of recording and controlling acquisitions. It is the basis not only for recording acquisitions in the journal but also for making cash disbursements. This document is called:

a. invoice
b. check
c. voucher
d. statement
e. subsidiary ledger
c
When a company receives a check in the mail in payment of an account receivable, the first recording of information about the collection is in the:

a. accounts receivable
b. receiving report
c. cash receipts journal subsidiary ledger
d. general journal
e. check register
c
A document that indicates such things as the description and quantity of goods and services received, the price including freight, the cash discount terms and the date of billing. It is an essential document because it specifies the amount of money owed for an acquisition. This document is a:
a. purchase requisition
b. sales invoice
c. purchase order
d. sales order
e. vendor invoice
B or E
A document indicating a reduction in the amount due from a customer because of returned goods or an allowance granted is called a:

a. debit memo
b. sales return and allowances
c. credit memo
d. sales invoice journal
e. uncollectible account authorization form
c
A document prepared at the time of shipment indicating the description of the merchandise, the quantity shipped and other relevant data. It is a written contract of the receipt and shipment of goods between the seller and the carrier. This document is a:

a. remittance advice
b. bill of lading
c. purchase requisition
d. receiving report
e. sales order
B
A document used to report to the federal government income taxes (federal income taxes and F.I.C.A.) withheld from wages of employees is called a:

a. W-2 form
b. Form 941
c. deduction authorization form
d. earnings record
e. Form 1040
B per Book (I also would accept A)
When a customer of a company inquires about the amount which the customer owes the company, the clerk handling the question would go to the:

a. accounts receivable general ledger
b. original copy of the monthly statement
c. sales journal
d. accounts receivable subsidiary ledger
e. customer service department
d
Your company purchased merchandise from the "X" Corporation. As the "gopher" person in your company, you picked up the merchandise as you delivered the order to buy. You paid for the merchandise instantly with one of your company's checks. Where would this transaction be recorded first by your company?

a. purchase journal
b. accounts payable subsidiary ledger
c. cash disbursements journal
d. general journal
e. general ledger
c
The clerk who opens mail is assigned responsibility for preparing a document which identifies all cash collections received in the mail for a given day. This document is called:

a. remittances prelist form
b. receiving report
c. accounts receivable subsidiary record
d. voucher
e. collection authorization form
A
A client's accounting records are unfamiliar to a new auditor. Where would a new auditor go to learn the names and numbers of the accounts being debited and credited in the transactions.

a. general journal
b. general ledger
c. chart of accounts
d. internal control flowcharts
e. inquire of the client
c
What is a payroll journal?

a. a place where the names, social security numbers, pay rates, exemptions, withholding information, etc., are kept by the personnel department
b. a special journal where payroll hours, dollars and deductions are accumulated for subsequent posting to the general ledger accounts
c. a list of all employees on the payroll
d. the clerical window where paychecks are picked up
e. a list of employees validated by department foremen for payment in the current period
b
What is the normal sequence of recording a transaction where inventory was acquired?

a. purchase order, purchases journal, general journal, general ledger
b. purchases journal, purchase order, general journal, general ledger
c. purchase order, general journal, purchases journal, general ledger
d. purchases journal, purchase order, general ledger
e. purchase order, purchases journal, general ledger
e
The purpose of a bank reconciliation is to:

a. make sure the bank hasn't made a mistake
b. make sure our cash bookkeeper hasn't made a mistake
c. to make sure all cash which our company received got deposited
d. to identify the differences between the bank balance per bank statement and our balance per books
e. to show how much money our company has at any point in time
D per book. (I also think that argument can be made for a, b and c as well.)
If you received a request from a customer who wanted to know how much they owed, you would go to the:

a. accounts receivable - general ledger account
b. accounts receivable - subsidiary ledger
c. sales journal
d. sales invoice file
e. sales department manager
B
Which of the following are not shown on a fixed asset subsidiary ledger?

a. estimated life
b. accumulated depreciation balance
c. cost of the asset
d. final disposition of the asset
e. all of the above are shown on the fixed asset subsidiary ledger
e
Which, if any, of the following is not a reason for preparing an accounts receivable aged trial balance?

a. Reconcile the control and subsidiary accounts.
b. Display activity (cash receipts and sales) for each individual account.
c. Show in a convenient format a listing of accounts receivable for management review.
d. Provide information about the adequacy of the allowance for uncollectible accounts.
e. All of the above are reasons for preparing an accounts receivable aged trial balance.
b
Which items in the following list are required for the preparation of a proper bank reconciliation?

I. Bank statement
II. Cash receipts journal
III. Sales journal
IV. General ledger
V. Prior month's bank reconciliation
VI. Cash disbursements journal
VII. Accounts payable trial balance

a. I, II, III, V, VI
b. I, II, III, IV, V, VI
c. I, II, IV, V, VI, VII
d. I, II, V. VI
e. I, II, IV, V, VI
e
Which of the following documents and records is not required to prepare a reconciliation?

a. prior month's bank reconciliation
b. cash balance per general ledger
c. cash balance per bank
d. prior month's bank statement
e. cash disbursements journal
d
The trial balance worksheet does not provide information sufficient to:

a. compute net income
b. prepare a balance sheet
c. prepare a statement of retained earnings
d. the trial balance worksheet is sufficient for all of the above purposes
e. the trial balance worksheet is not sufficient for any of the above purposes
d
24. An auditor has as his or her objective determining that sales transactions are recorded in the proper period. The document he or she will be most interested in is:

a. sales invoice
b. monthly billing statement
c. cash receipts journal
d. bill of lading
e. customer order form
d
In determining cost of goods sold under the periodic inventory method, which account is not affected?

a. sales discounts
b. purchase returns and allowances
c. purchase discounts
d. freight-in
e. inventory
a
When processing the payment from a customer on an accounts receivable, the accountant needs at his disposal all of the following except:

a. deposit slip
b. sales invoice
c. accounts receivable subsidiary ledger
d. cash receipts journal
e. all of the above are needed
B (argument for A)
Which of the following documents originates outside the company?

a. purchase order
b. cash sale invoice
c. employee time card
d. vendor invoice
e. bill of lading
d
Which of the following errors would not cause the trial balance to be out of balance?

a. failing to post part of a journal entry
b. posting a debit as a credit
c. incorrectly calculating the balance of an account
d. omitting an account from the trial balance
e. failing to record a transaction
E
Which of the following items on a bank reconciliation would require an adjusting journal entry?

a. another company's check deducted by the bank in error
b. deposits in transit
c. outstanding checks
d. another company's deposit credited by the bank in error
e. an error by the company bookkeeper in recording a cash disbursement
e
Which of the following transactions would never be recorded in a cash disbursements journal?

a. purchase of inventory
b. sales return
c. payment of payroll withholdings through the CD journal
d. payment of shipping charges
e. all of the above could be recorded
e
A remittance advice is used to:

a. send or receive billing for asset or service
b. ship or receive asset or service
c. pay or receive cash
d. authorize a transaction
e. record or issue order to sell, buy or employ
c
A balance sheet can be prepared by reference to:

a. post-closing trial balance
b. subsidiary ledgers
c. general and special journals
d. source documents
e. none of the above
a
Benefits of the perpetual inventory method include all but which of the following:

a. provides close control over the actual goods on hand
b. provides a check on the accuracy of cost of goods sold
c. lower record-keeping costs than under the periodic method
d. provides a measure of losses through theft and spoilage
e. provides up-to-date information about the quantity and dollar value of goods on hand
c
The basic source document which is used for recording a credit sale is:

a. bill of lading
b. sales invoice
c. customer order form
d. monthly billing statement
e. debit memo
b
Which of the following statements is false?

a. The perpetual inventory method requires that cost of goods sold be calculated for each sale.
b. Perpetual inventory records reflect the quantity of inventory on hand at any point in time.
c. If perpetual inventory records have been historically accurate, a physical inventory count can be omitted in a given year.
d. Record-keeping errors can cause discrepancies between perpetual and physical count quantities.
e. Significant differences between the physical count and perpetual records should be investigated.
c
If the accountant was asked by management to determine the cost of inventory purchases during the year from a particular vendor, he would most likely examine which of the following to arrive at the answer:

a. purchases journal
b. accounts payable subsidiary ledger
c. chronological file of purchase orders
d. perpetual inventory records
e. cash disbursements journal
B
Which transaction would not affect perpetual inventory records?

a. sale of merchandise
b. purchase of merchandise
c. sales discounts taken
d. sales returns
e. purchase returns
C
Which of the following statements about closing entries is false?

a. Closing entries are prepared only at the end of the organization's year.
b. If there has been a net loss for the year, the Income Summary account is closed by a debit.
c. The total debits and total credits must be equal for each closing entry.
d. Every revenue and expense account must be closed out to zero.
e. Closing entries are prepared after all transactions and adjusting entries have been prepared and posted to the general ledger.
B
Which of the following transactions would not result in an entry to the accounts receivable subsidiary ledger?

a. charge sale
b. write-off of bad debt accounts
c. sales return
d. recording provision for doubtful
e. cash receipts
d
In order to maintain controls over cash receipts, cash is typically deposited _____, while a bank reconciliation is performed _____.

a. daily, weekly
b. daily, monthly
c. weekly, monthly
d. monthly, daily
e. weekly, weekly
b
What document does a customer receive when goods are returned?

a. purchase order
b. credit memo
c. debit memo
d. receiving report
e. bill of lading
B
In the cash disbursements cycle, the vendor invoice is marked paid when a check is issued in order to:

a. file the invoice alphabetically.
b. make the necessary entry in the cash disbursements journal.
c. indicate that the purchase is a fixed asset acquisition.
d. indicate that the purchase has an approved purchase order.
e. avoid duplicate payment of the invoice.
e
43 Time cards alone can be used by the payroll department to do which of the following?

a. keep track of wage and salary information for each employee
b. calculate net pay for each employee for each time period
c. keep track of the hours worked by each employee for each time period
d. calculate gross by for each employee for each time period
e. calculate withholdings for each employee for each pay period
c
The general journal is used to:

a. post all accounting entries not posted in other individual journals.
b. post all accounting entries.
c. post all accounting entries not involving cash.
d. post only month end adjusting journal entries.
e. post only year end adjusting journal entries.
a
Which of the following is subtracted from an employee's gross pay:

a. federal unemployment tax
b. state unemployment tax
c. local unemployment tax
d. employer portion of FICA tax
e. federal income tax withholding
e
At Waren, where is the total net pay from the payroll journal posted?

a. the cash receipts journal
b. the cash disbursements journal
c. the general ledger
d. the general journal
e. the working trial balance
c
Adjusting journal entries are prepared for which of the following?

a. record depreciation expense
b. adjust payroll expense for wages earned but not yet paid
c. record an inventory purchase
d. a and b only
e. all of the above
d
Why is the periodic inventory method used instead of the perpetual method for some companies?

a. the record keeping costs are lower
b. inventory is physically counted less frequently for the periodic method
c. the periodic method provides more detailed information about shrinkage
d. all of the above
e. none of the above
a
What can the fixed asset subsidiary ledger be used to determine?

a. accumulated depreciation for a particular asset
b. the age of an asset
c. the estimated useful life of an asset
d. a and c only
e. a, b and c
e
The pre-closing trial balance contains all information necessary to prepare which of the following?

a. the statement of cash flows
b. the statement of retained earnings
c. the income statement
d. b and c only
e. a, b and c
e
Closing entries are used to zero-out accounts that appear on which of the following statements:

a. the income statement
b. the statement of retained earnings
c. the balance sheet
d. a and b only
e. a, b and c
d
To determine how many of a particular inventory item you have on hand at any particular time, you would:

a. examine the periodic inventory record for the item.
b. examine the perpetual inventory record for the item.
c. examine the monthly postings to the purchase account.
d. examine the total in the purchase account for the year.
e. examine the individual vendor's invoices for the particular item purchased in the current year.
b
An auditor is interested in testing whether a sample of sales to customers in the current year have been recorded. In this case, the auditor would most likely select a sample from which source?

a. customer orders
b. sales invoices
c. entries in sales journal
d. entries in the cash disbursements journal
e. the accounts receivable subsidiary ledger
b
An auditor is interested in testing to see whether all items purchased over $500 were properly capitalized. In this case, the auditor would lost likely select a sample from which source?

a. the fixed asset subsidiary ledger
b. the sales journal
c. the general journal
d. the purchases journal
e. the accounts payable subsidiary ledger
d
An arrow with a dotted line ( ------>) in a systems flowchart indicates which of the following?

a. the direction of processing or data flow
b. a decision is to be made
c. information flow only, no document flow
d. an on-page connector
e. an off-page connector
c
A document shown in a systems flowchart can:

a. come from a source outside the company.
b. be prepared by the department being described in the flowchart.
c. be received from a department not shown in the flowchart.
d. all of the above
e. b or c only
d
The overall objective of the Systems Understanding Aid is to:

a. help aid in the understanding and visualization of the entire accounting process.
b. demonstrate a typical manual accounting system.
c. introduce accounting flowcharts.
d. introduce actual accounting documents.
e. demonstrate a typical computerized accounting system.
a
Interpret the following credit terms: 2/10, Net 30.

a. a 10 percent discount can be taken if the balance is paid within 2 days; otherwise, the balance is due in 30 days.
b. a 2 percent discount can be taken if the balance is paid within 10 days; otherwise, the balance is due in 30 days.
c. 20 percent of the balance is due in 30 days.
d. 20 percent of the balance is due upon receipt, with the remaining balance due in 30 days.
e. a 20 percent discount can be taken if the balance is paid with 30 days.
b
At Waren, how often is the general ledger updated?

a. daily
b. weekly
c. monthly
d. annually
e. never
c
In a cash receipts system, which of the following controls will best ensure that all receipts received are properly recorded?

a. Mailing monthly statements to customers
b. Requiring accounting personnel to receive checks from customers
c. Independently verifying that all recorded receipts appear on the prelist
d. Footing the prelist
e. Operating an effective accounting system for the underlying sales
a
For which of the following forms is an in-house authorization separate from the preparer most important at Waren?

a. Receiving report
b. Credit memo
c. Customer order
d. Deposit slip
e. Prelist
b
Which is the most important assertion relating to cash receipts?

a. All amounts received are properly recorded.
b. All amounts received relate to actual sales.
c. All amounts received are properly disclosed in the footnotes of the financial statements.
d. All amounts received are recorded in the same period in which the sale occurred.
e. All amounts received are from actual customers.
a
Which of the following statements relating to the preparation of the year-end worksheet for Waren is false?

a. The amounts entered in the "unadjusted trial balance" columns are the totals from each of the general ledger accounts prior to adjustments.
b. The amounts entered in the "adjustments" columns are taken directly from the general journal.
c. The amounts entered in the "income statement" columns are the closing entries for each income statement account, with the residual equaling net income for the year.
d. "Debit" columns represent increases to each account, while "credit" columns represent decreases to each account.
e. Amounts computed for the "Balance Sheet" columns are the same amounts that will used for the year-end balance sheet.
d
Which of the following is not adjusted as an accrual by a Company at the end of the year?

a. Taxes payable
b. Allowance for uncollectible accounts
c. Interest payable
d. Accounts payable
e. Accumulated depreciation
d
What does it mean to "cancel" a vendor's invoice?

a. Writing "void" on an invoice that contains a mistake to prevent a Company from billing a customer more than once.
b. Crossing out information on a vendor's invoice for goods not received to prevent payment for such goods.
c. Sending an invoice back to the vendor along with the goods ordered when a credit memorandum is desired by the Company.
d. Contacting a vendor prior to receiving goods in order to cancel a previous order.
e. Writing "paid" on a vendor invoice when making a payment to prevent an invoice from being paid more than once.
e
For the most effective and efficient control environment, payments for supplies purchases should be signed by

a. the president of the company.
b. the manager of accounts payable.
c. the treasurer of the company.
d. the requisitioner of the supplies.
e. the controller of the company.
b
Which of the following reconciling items on a bank reconciliation require an adjustment to the balance of the cash account?

a. A monthly service charge fee
b. Outstanding checks
c. Deposits-in-transit
d. Errors by the bank
e. All of the above require adjustment
a
When estimating uncollectible accounts, which of the following would be least useful?

a. Past experience
b. Industry experience
c. Economic indicators
d. Current-year aging report
e. Sales forecasts
e
Which of the following sequence of steps in the accounting process is correct?

a. Prepare records, record in journals, post to ledgers, and prepare unadjusted trial balance
b. Prepare records, post to ledgers, record in journals, and prepare unadjusted trial balance
c. Prepare records, prepare unadjusted trial balance, record in journals, and post to ledgers
d. Prepare records, record in journals, prepare unadjusted trial balance, and post to ledgers
e. Record in journals, post to ledgers, prepare records, and prepare unadjusted trial balance
a
Using prenumbered sales invoices is the primary control procedure for

a. ensuring that all sales transactions are recorded.
b. ensuring that all recorded sales transactions are valid.
c. ensuring that all recorded sales transactions are accurate.
d. both a and c.
e. both b and c.
a
1. Distinguish between a packing slip, shipping notice, and a bill of lading.
The packing slip travels with the goods to the customer, and it describes the contents on the order. Upon filling the order, the shipping department sends the shipping notice to the billing department to notify them that the order has been filled and shipped. The shipping notice contains additional information that the packing slip may not contain, such as shipment date, carrier and freight charges. The bill of lading is a formal contract between the seller and the transportation carrier; it shows legal ownership and responsibility for assets in transit.
2. State two specific functions or jobs that should be segregated in the sales processing system.
sales order processing and credit approval; inventory control (record keeping) from warehouse (custody); and general ledger from accounts receivable subsidiary ledger
3. State two specific functions or jobs that should be segregated in the cash receipts system.
cash receipts (custody) from accounts receivable (record keeping); and general ledger from accounts receivable subsidiary ledger; mail room (receiving cash) and accounts receivable subsidiary ledger
4. List two points in the sales processing system when authorization is required.
credit check, sales returns policy, preparation of cash prelist
5. For the revenue cycle, state two specific independent verifications that should be performed.
Shipping verifies that the goods sent from the warehouse are correct in type and quantity.
Billing reconciles the shipping notice with the sales order to ensure that customers are billed only for the quantities shipped.
General ledger reconciles journal vouchers submitted by the billing department (sales journal), inventory control (inventory subsidiary ledger), and cash receipts (cash receipts journal).
Treasurer determines that all cash received got to the bank.
6. What task can the accounts receivable department engage in to verify that all checks sent by
customers have been appropriately deposited and recorded?
The company should periodically, perhaps monthly, send an account summary to each customer listing invoices and amounts paid by check number and date. This form allows the customer to verify the accuracy of the records. If any payments are not recorded, they will notify the company of the discrepancy. These reports should not be handled by the accounts receivable clerk or the cashier.
7. What specific internal control procedure would prevent the sale of goods on account to a fictitious customer?
credit check
8. The clerk who opens the mail routinely steals remittances and checks. Describe a specific internal control procedure that would prevent or detect this fraud.
supervision (two people) when opening the mail;
customer complaints when monthly statements mailed
9. A customer payment of $247 was correctly posted in the general ledger but was recorded as $274 in the customer's account receivable. Describe a specific internal control procedure that would detect this error.
Reconcile the accounts receivable control account to the accounts receivable subsidiary ledger; compare control totals of cash received with total credits to A/R subsidiary ledger.
10. Goods are shipped to a customer, but the shipping department does not notify billing and the customer never receives an invoice. Describe a specific internal control procedure that would detect this error.
Billing department matches the stock release copy of the sales order (from shipping) to the invoice, ledger, and file copies of the sales order (sent directly to billing), and then mails the invoice to the customer. After a certain amount of time has passed, the billing department should investigate any unmatched invoice, ledger, and file copies of the sales order.
11. A clerk embezzles customer payments on account and covers up the theft by making an adjustment to the accounts receivable ledger. Describe a specific internal control procedure that would prevent this fraud.
segregation of duties; do not let one person have custody of payments and the ability to make adjustments to the records; all adjustments to accounts receivable records must be authorized
12. A credit sale is made to a customer, even though the customer's account is four months overdue. Describe a specific internal control procedure that would prevent this from happening.
Perform a credit check and require management approval for all sales to accounts that are overdue.
13. What specific internal control procedure would prevent a customer from being billed for all 50 items ordered although only 40 items were shipped?
Billing should reconcile the shipping report with the sales order.
14. What specific internal control procedure would prevent the shipping clerk from taking goods from the storeroom and sending them to someone who had not placed an order?
Shipping clerk should not have access to the storeroom.
15. What specific internal control procedure would prevent an accounts receivable clerk from issuing a fictitious credit memo to a customer (who is also a relative) for goods that were "supposedly" returned from previous sales?
Credit memo should be authorized after verifying the return of goods based on evidence from the person who received the goods.
16. What specific internal control procedure would prevent an increase in sales returns since salesmen were placed on commission?
Customer credit should be verified by the credit department; reduce commissions for sales returns.
17. What specific internal control procedure would detect the misplacement of a sales invoice after preparation and not mailed to the customer? The invoice was never found.
All documents should be prenumbered.
18. What function does the receiving department serve in the revenue cycle?
The receiving department counts and inspects items which are returned by customers. The receiving department prepares a return slip of which a copy goes to the warehouse for restocking, and a copy goes to the sales order department so that a credit memo can be issued to the customer.
19. What are the three rules that ensure that no single employee or department processes a transaction in its entirety.
The three rules that ensure segregation of functions are:
1. Transaction authorization should be separate from transaction processing.
2. Asset custody should be separate from asset record keeping.
3. The organization structure should be such that the perpetration of a fraud requires collusion between 2 or more individuals.
20. What is automation and why is it used?
Automation involves using technology to improve the efficiency and effectiveness of a task. Automation of the revenue cycle is typically used to reduce overhead costs, make better credit granting decisions, and better collect outstanding accounts receivable.
21. What is the objective of re-engineering?
The objective of re-engineering is to greatly reduce costs by identifying and eliminating non value-added tasks and also by streamlining necessary existing processes.
22. What are the key segregation of duties related to computer programs that process accounting transactions?
The tasks of design, maintenance, and operation of computer programs need to be segregated. The programmers who write the original computer programs should not also be responsible for making program changes. Both of these functions must also be separate from the daily task of operating the system.
23. How is EDI more than technology? What unique control problems may it pose?
EDI represents a unique business arrangement between the buyer and seller in which they agree, in advance, to the terms of their relationship on such items as selling price, quantities, delivery times, payment terms and methods of handling disputes. The terms of agreement are binding. One problem is ensuring that only valid transactions are processed. Another risk is that a non-trading partner will masquerade as a trading partner and access the firm's processing systems.
24. What makes point-of-sale systems different from revenue cycles of manufacturing firms?
In point-of-sale systems, the customer literally has possession of the items purchased, thus the inventory is in hand. Typically, for manufacturing firms, the order is placed and the good is shipped to the customer at some later time period. Thus, updating inventory at the time of sale is necessary in point-of-sale systems since the inventory is changing hands, while it is not necessary in manufacturing firms until the goods are actually shipped to the customer.

Also, POS systems are used extensively in grocery stores, department stores, and other types of retail organizations. Generally, only cash, checks, and bank credit card sales are valid. Unlike manufacturing firms, the organization maintains no customer accounts receivable. Unlike some manufacturing firms, inventory is kept on the store's shelves, not in a separate warehouse. The customers personally pick the items they wish to buy and carry them to the checkout location, where the transaction begins. Shipping, packing, bills of lading, etc. are not relevant to POS systems.
25. Give three examples of Access Control in a Point-of-Sale (POS) system.
• Lock on the cash drawer
• Internal cash register tape that can be accessed only by the manager
• Physical security over the inventory, for example: steel cables to secure expensive leather coats to the clothing rack; locked showcases to display jewelry and costly electronic equipment; magnetic tags attached to merchandise that will sound an alarm when removed from the store.

Note to Instructor: Some physical security devices could also be classified as supervision.
26. Describe the key tasks in the sales order process.
Sales order procedures include the tasks involved in receiving and processing a customer order, filling the order and shipping products to the customer, billing the customer at the proper time, and correctly accounting for the transaction.
27. What is the purpose(s) of the stock release document?
the items of inventory that have been sold and must be located and picked from the warehouse shelves. It also provides formal authorization for warehouse personnel to release the specified items.
28. What is the role of the shipping notice?
The shipping notice triggers the billing process. When the goods are shipped the shipping notice is forwarded to the billing function as evidence that the customer's order was filled and shipped. This document conveys pertinent new facts such as the date of shipment, the items and quantities actually shipped, the name of the carrier, and freight charges.
29. What is a bill of lading?
The bill of lading is a formal contract between the seller and the shipping company (carrier) to transport the goods to the customer. This document establishes legal ownership and responsibility for assets in transit.
30. What is the purpose of the credit memo?
This document is the authorization for the customer to receive credit for the merchandise returned. A credit memo may be similar in appearance to a sales order. Some systems may actually use a copy of the sales order marked credit memo.
...
...
1. The revenue cycle consists of
a. one subsystem-order entry
b. two subsystems-sales order processing and cash receipts
c. two subsystems-order entry and inventory control
d. three subsystems-sales order processing, credit authorization, and cash receipts
b. two subsystems-sales order processing and cash receipts
2. The reconciliation that occurs in the shipping department is intended to ensure that
a. credit has been approved
b. the customer is billed for the exact quantity shipped
c. the goods shipped match the goods ordered
d. inventory records are reduced for the goods shipped
c. the goods shipped match the goods ordered
3. The adjustment to accounting records to reflect the decrease in inventory due to a sale occurs in the
a. warehouse
b. shipping department
c. billing department
d. inventory control department
d. inventory control department
4. Which document triggers the revenue cycle?
a. the sales order
b. the customer purchase order
c. the sales invoice
d. the journal voucher
b. the customer purchase order
5. Copies of the sales order can be used for all of the following except
a. purchase order
b. credit authorization
c. shipping notice
d. packing slip
a. purchase order
6. The purpose of the sales invoice is to
a. record reduction of inventory
b. transfer goods from seller to shipper
c. bill the customer
d. select items from inventory for shipment
c. bill the customer
7. The customer open order file is used to
a. respond to customer queries
b. fill the customer order
c. ship the customer order
d. authorize customer credit
a. respond to customer queries
8. The stock release copy of the sales order is not used to
a. locate and pick the items from the warehouse shelves
b. record any out-of-stock items
c. authorize the warehouse clerk to release custody of the inventory to shipping
d. record the reduction of inventory
d. record the reduction of inventory
9. The shipping notice
a. is mailed to the customer
b. is a formal contract between the seller and the shipping company
c. is always prepared by the shipping clerk
d. informs the billing department of the quantities shipped
d. informs the billing department of the quantities shipped
10. The billing department is not responsible for
a. updating the inventory subsidiary records
b. recording the sale in the sales journal
c. notifying accounts receivable of the sale
d. sending the invoice to the customer
a. updating the inventory subsidiary records
11. Customers should be billed for backorders when
a. the customer purchase order is received
b. the backordered goods are shipped
c. the original goods are shipped
d. customers are not billed for backorders because a backorder is a lost sale
b. the backordered goods are shipped
12. Usually specific authorization is required for all of the following except
a. sales on account which exceed the credit limit
b. sales of goods at the list price
c. a cash refund for goods returned without a receipt
d. write off of an uncollectible account receivable
b. sales of goods at the list price
13. Which of following functions should be segregated?
a. opening the mail and making the journal entry to record cash receipts
b. authorizing credit and determining reorder quantities
c. maintaining the subsidiary ledgers and handling customer queries
d. providing information on inventory levels and reconciling the bank statement
a. opening the mail and making the journal entry to record cash receipts
14. Which situation indicates a weak internal control structure?
a. the mailroom clerk authorizes credit memos
b. the record keeping clerk maintains both accounts receivable and accounts payable subsidiary ledgers
c. the warehouse clerk obtains a signature before releasing goods for shipment
d. the accounts receivable clerk prepares customer statements every month
a. the mailroom clerk authorizes credit memos
15. The most effective internal control procedure to prevent or detect the creation of fictitious credit memoranda for sales returns is to
a. supervise the accounts receivable department
b. limit access to credit memoranda
c. prenumber and sequence check all credit memoranda
d. require management approval for all credit memoranda
d. require management approval for all credit memoranda
16. The accounts receivable clerk destroys all invoices for sales made to members of her family and does not record the sale in the accounts receivable subsidiary ledger. Which procedure will not detect this fraud?
a. prenumber and sequence check all invoices
b. reconcile the accounts receivable control to the accounts receivable subsidiary ledger
c. prepare monthly customer statements
d. reconcile total sales on account to the debits in the accounts receivable subsidiary ledger
c. prepare monthly customer statements
17. Which department is least likely to be involved in the revenue cycle?
a. credit
b. accounts payable
c. billing
d. shipping
b. accounts payable
18. Which document is included with a shipment sent to a customer?
a. sales invoice
b. stock release form
c. packing slip
d. shipping notice
c. packing slip
19. Good internal controls in the revenue cycle should ensure all of the following except
a. all sales are profitable
b. all sales are recorded
c. credit is authorized
d. inventory to be shipped is not stolen
a. all sales are profitable
20. Which control does not help to ensure that accurate records are kept of customer accounts and inventory?
a. reconcile accounts receivable control to accounts receivable subsidiary
b. authorize credit
c. segregate custody of inventory from record keeping
d. segregate record keeping duties of general ledger from accounts receivable
b. authorize credit
21. Internal controls for handling sales returns and allowances do not include
a. computing bad debt expense using the percentage of credit sales
b. verifying that the goods have been returned
c. authorizing the credit memo by management
d. using the original sales invoice to prepare the sales returns slip
a. computing bad debt expense using the percentage of credit sales
2. The printer ran out of preprinted sales invoice forms and several sales invoices were not printed. The best internal control to detect this error is
a. a batch total of sales invoices to be prepared compared to the actual number of sales invoices prepared
b. sequentially numbered sales invoices
c. visual verification that all sales invoices were prepared
d. none of the above will detect this error
a. a batch total of sales invoices to be prepared compared to the actual number of sales invoices prepared
23. Which department prepares the bill of lading?
a. sales
b. warehouse
c. shipping
d. credit
c. shipping
24. A remittance advice is
a. used to increase (debit) an account receivable by the cash received
b. is a turn-around document
c. is retained by the customer to show proof of payment
d. none of the above
b. is a turn-around document
25. A weekly reconciliation of cash receipts would include comparing
a. the cash prelist with bank deposit slips
b. the cash prelist with remittance advices
c. bank deposit slips with remittance advices
d. journal vouchers from accounts receivable and general ledger
a. the cash prelist with bank deposit slips
26. At which point is supervision most critical in the cash receipts system?
a. accounts receivable
b. general ledger
c. mail room
d. cash receipts
c. mail room
27. EDI trading partner agreements specify all of the following except
a. selling price
b. quantities to be sold
c. payment terms
d. person to authorize transactions
d. person to authorize transactions
28. A cash prelist is
a. a document that records sales returns and allowances
b. a document returned by customers with their payments
c. the source of information used to prepare monthly statements
d. none of the above
d. none of the above
29. An advantage of real-time processing of sales is
a. the cash cycle is lengthened
b. current inventory information is available
c. hard copy documents provide a permanent record of the transaction
d. data entry errors are corrected at the end of each batch
b. current inventory information is available
30. Commercial accounting systems have fully integrated modules. The word "integrated" means that
a. segregation of duties is not possible
b. transfer of information among modules occurs automatically
c. batch processing is not an option
d. separate entries are made in the general ledger accounts and the subsidiary ledgers
b. transfer of information among modules occurs automatically
31. The data processing method that can shorten the cash cycle is
a. batch, sequential file processing
b. batch, direct access file processing
c. real-time file processing
d. none of the above
c. real-time file processing
32. Which of the following is not a risk exposure in a microcomputer accounting system?
a. reliance on paper documentation is increased
b. functions that are segregated in a manual environment may be combined in a microcomputer accounting system
c. backup procedures require human intervention
d. data are easily accessible
a. reliance on paper documentation is increased
33. Which journal is not used in the revenue cycle?
a. cash receipts journal
b. sales journal
c. purchases journal
d. general journal
c. purchases journal
4. Periodically, the general ledger department receives all of the following except
a. total increases to accounts receivable
b. total of all sales backorders
c. total of all sales
d. total decreases in inventory
b. total of all sales backorders
35. The credit department
a. prepares credit memos when goods are returned
b. approves credits to accounts receivable when payments are received
c. authorizes the granting of credit to customers
d. none of the above
c. authorizes the granting of credit to customers
36. Adjustments to accounts receivable for payments received from customers is based upon
a. the customer's check
b. the cash prelist
c. the remittance advice that accompanies payment
d. a memo prepared in the mailroom
c. the remittance advice that accompanies payment
37. The revenue cycle utilizes all of the following files except
a. credit memo file
b. sales history file
c. shipping report file
d. cost data reference file
d. cost data reference file
38. All of the following are advantages of real-time processing of sales except
a. The cash cycle is shortened
b. Paper work is reduced
c. Incorrect data entry is difficult to detect
d. Up-to-date information can provide a competitive advantage in the marketplace
c. Incorrect data entry is difficult to detect
EDI (electronic data interchange)
the use of computerized communications and a standard coding scheme to submit business documents electronically in a format that can be automatically processed by the recipient's information system
credit limit
maximum allowable credit account balance for each customer, based on past credit history and ability to pay
accounts receivable aging report
a report listing customer account balances by length of time outstanding
back order
document authorizing the purchase or production of items that is created when there is insufficient inventory to meet customer orders
picking ticket
lists the items and quantities of each item that the customer ordered
CRM systems (customer relationship management)
software that organizes information about customers in a manner that facilitates efficient and personalized service
packing slip
lists the quantity and description of each item included in a shipment
bill of lading
a legal contract that defines responsibility for goods when they are in transit
sales invoice
a document notifying customers of the amount of a sale and where to send the payment
open-invoice method
method for maintaing accounts receivable in which customers typically pay according to each invoice
remittance advice
a copy of the sales invoice returned with a customers payment that indicates the invoices, statements, or other items being paid
balance-forward method
method of maintaining a/r in which customers typically pay according to the amount shown on a monthly statement; remittances are applied against total account balance
monthly statement
lists all transactions that occurred during the past month, informing customers of their current account balance
cycle billing
producing monthly statements for subsets of customers at different times
credit memo
a document, approved by the credit manager, authorizing the billing department to credit a customer's account
remittance list
a document listing al the names and amounts of all customer payments received in the mail
lockbox
a postal address to which customers send their remittances
electronic lockbox
a lockbox arrangement in which the bank electronically sends the company information about the customer account number and the amount remitted as soon as it receives payments
EFT (electronic funds transfer)
the transfer of funds through the use of online banking software
FEDI (financial electronic data interchange)
the combination of EFT and EDI that enables both remittance data and funds transfer instructions to be included in one package
UPIC (universal payment identification code)
a number that enables customers to remit payments via an ACH credit without requiring the seller to divulge detailed information about its bank account
cash flow budget
a budget that show projected cash inflows and outflows for a specified period
Suppose management wanted to increase the speed of processing customer payments. One way to speed up payment transaction processing is to
use a FEDI.
A monthly statement sent to customers serves a control purpose by
providing an opportunity for customers to verify the balance owed and activity on the account.
A way to incorporate the advantages of Electronic Data Interchange with the Electronic Funds Transfer is
Financial Electronic Data Interchange.
The benefits of a lockbox arrangement with a bank are maximized when
several banks around the country are used, in order to minimize the time payments spend in the mail.
Because it is the most fungible of all assets, the management of cash has always been the most difficult of all control issues. The most important of cash controls is
segregation of duties.
A number that enables customers to remit payments via an ACH credit without requiring the seller to divulge detailed information about its bank account is called
UPIC.
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?
Establish a lockbox arrangement with a bank.

Have customers send a remittance advice with their payment.

Have mailroom personnel prepare a remittance list which can be forwarded to accounts receivable.

All of these
When a proper segregation of duties exists in the area of handling cash receipts, the ________, who reports to the ________, actually handles the cash and is not the same person who posts cash receipts to customer accounts.
cashier; treasurer
Customers that send their payments electronically directly to the billing company's bank are using
electronic funds transfer (EFT).
Which of the following is not one of the controls when customer payments are commingled with other mail?
requiring the controller to be personally present when mail is received and opened
The cashier deposits checks for Benedek Incorporated and also prepares payments to vendors. Of the following, who is best able to reconcile the bank statement to Benedek's records on a regular basis?
internal audit department
An ________ is an arrangement where a bank receives customer payments and transmits payment data to the organization.
electronic lockbox
open-invoice method
method for maintaining account receivable in which customers typically pay according to each invoice.
Remittance advice
A copy of the sales invoice returned with a customer's payment that indicates the invoices, statements, or other items being paid.
Balance-forward method
Method of maintaining accounts receivable in which customers typically pay according to the amount shown on a monthly statement, rather than by individual invoices. Remittances are applied against the total account balance, rather than specific invoices
Monthly statement
A document listing all transactions that occurred during the past month and informing customers of their current account balance
Cycle billing
producing monthly statement for subsets of customers at different times.
Credit memo
A document, approved by the credit manager, authorizing the billing department to credit a customer's account.
Remittance list
a document listing names and amounts of all customer payments received in the mail
lockbox
A postal address to which customers send their remittances
Electronic lockbox
A lockbox arrangement in which the bank electronically sends the company information about the customer account number and the amount remitted as soon as it receives payments
electronic funds transfer (EFT)
the transfer of funds through use of online banking software
Financial electronic data interchange (FEDI)
the combination of EFT and EDI that enables both remittance data and funds transfer instructions to be included in one electronic package.
Universal payment identification code (UPIC)
a number that enables customers to remit payment via an ACH credit without requiring the seller to divulge detailed information about its bank account
cash flow budget
a budget that shows projected cash inflows and outflows for a specified period.
Sales invoice
Document notifying customers of the amount of a sale and where to send payment.
Bill of lading
legal contract that defines responsibility for goods while they're in transit.
Packing slip
document listing quantity and description of each item in a shipment.
Customer relationship management (CRM) systems
software that organized info about customers in a manner that facilitates efficient and personalized service.
Picking ticket
documentation lists items and quantities sent to inventory control function to release merchandise to shipping department.
account receivable aging report
list customer account balances by length of time outstanding
Electronic data interchange (EDI)
xài computerized communications and standard coding scheme to submit document electronically in a form that can be read by the recipient's information system.
back order
A document authorizing the purchase or production of items that is created when there is insufficient inventory to meet customer orders.
sales order
The document created during sales order entry listing the item numbers, quantities, prices, and terms of the sale
credit limit
The maximum allowable credit account balance for each customer, based on past credit history and ability to pay.
revenue cycle
The recurring set of business activities and data processing operations associated with providing goods and services to customers and collecting cash in payment for those sales.
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