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