Deck 12: Salescollection Process

Question 1

Consider the following statements as you answer the next question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice.ii. In purchasing books, Allison filled out a form on a bookstore's web site.iii. The bookstore's web site verified Allison's credit limit.iv. William, a warehouse worker, prepared Allison's books for shipment.Which of the above statements most clearly relates to the third step in the sales / collection process?

A)i
B)ii
C)iii
D)iv

Answer 1

D

Question 2

Which of the following statements about the role and purpose of the sales / collection process is most true?

A)Only organizations that sell goods on credit have a true sales / collection process.
B)Government organizations do not need a sales / collection process.
C)Both A and B are true.
D)Neither A nor B is true.

Answer 2

D

Question 3

Accounting information systems have five generic elements. Which of the following would most appropriately be labeled "storage" within the context of the sales / collection process?

A)A paper file of outstanding customer invoices
B)An electronic database of sales transactions
C)Both A and B
D)Neither A nor B

Answer 3

C

Question 4

Which of the following is an example of the second step in the sales / collection process?

A)A customer completes a form on the Internet.
B)A sales clerk scans the customer's credit card.
C)The accounting department sends an invoice to the customer.
D)The cash receipts department processes the customer's check.

Question 5

The fundamental purpose of the sales / collection process is to:

A)Provide goods and services to clients.
B)Collect payment from them.
C)Both A and B.
D)Neither A nor B.

Question 6

As a form of internal control, a bank reconciliation is most closely related to which step in the sales / collection process?

A)Second
B)Fourth
C)Fifth
D)Sixth

Question 7

The sales / collection process is important in organizations because:

A)Without it, an organization may soon cease to exist.
B)It is the only method an organization has for generating cash flow.
C)Both A and B.
D)Neither A nor B.

Question 8

In a paper on the role and purpose of the sales / collection process, Bumble Beasley wrote: "The sales / collection process is exclusively concerned with selling products on credit and collecting cash from clients." Which of the following should be deleted from his statement?

A)Exclusively
B)Selling products on credit
C)Collecting cash
D)From clients

Question 9

Which of the following exemplifies the role and purpose of the sales / collection process?

A)American Home Shield sells warranties to new homeowners.
B)New homeowners pay cash to American Home Shield for warranties.
C)Both A and B.
D)Neither A nor B.

Question 10

Consider the following statements as you answer the next question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice.ii. In purchasing books, Allison filled out a form on a bookstore's web site.iii. The bookstore's web site verified Allison's credit limit.iv. William, a warehouse worker, prepared Allison's books for shipment.The bookstore may need to complete the last step of the sales / collection process because:

A)It took Allison's order online.
B)It uses the open invoice method of processing receivables.
C)It does not outsource credit approval to a third party.
D)It has inadequate separation of duties.

Question 11

As a form of internal control, pre-numbered documents can be related to which steps in the sales / collection process?

A)First
B)Fifth
C)Both A and B.
D)Neither A nor B.

Question 12

A remittance advice is an example of which generic element of an accounting information system?

A)Document
B)Storage
C)Both A and B
D)Neither A nor B

Question 13

Which of the following internal controls can be applied to the sales / collection process based on the role and purpose of the process?

A)Separation of duties
B)Bank reconciliation
C)Both A and B
D)Neither A nor B

Question 14

Company A sells goods to its customers on credit; Company B sells services to its customers for cash. Which of the following statements is most true?

A)The fundamental role and purpose of the sales / collection process will be the same for both companies.
B)Only Company B has a true sales / collection process because it sells services rather than goods.
C)Only Company A has a true sales / collection process because it sells on credit rather than for cash.
D)None of the above statements is true.

Question 15

Consider the following statements as you answer the next question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice.ii. In purchasing books, Allison filled out a form on a bookstore's web site.iii. The bookstore's web site verified Allison's credit limit.iv. William, a warehouse worker, prepared Allison's books for shipment.Which of the following phrases relates most closely to the sixth step in the sales / collection process?

A)Applied Allison's payment to the invoices indicated
B)Filled out a form
C)Verified Allison's credit limit
D)None of the above phrases is related to the sixth step in the sales / collection process.

Question 16

"The appropriate department processes the customer's check" is an example of which step in the sales / collection process?

A)Third
B)Fifth
C)Sixth
D)Last

Question 17

Company A sells goods to its customers on credit; Company B sells services to its customers for cash. Which of the following statements is most true?

A)The role and purpose of the sales / collection process will be fundamentally different between the two companies.
B)Only Company A has a true sales / collection process because it sells goods rather than services.
C)Only Company B has a true sales / collection process because it sells for cash rather than on credit.
D)None of the above statements is true.

Question 18

Which of the following steps in the sales / collection process occurs last?

A)Bill the customer.
B)Approve the customer's credit.
C)Ship the product.
D)Fill the order based on shipping instructions.

Question 19

Consider the following statements as you answer the next question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice.ii. In purchasing books, Allison filled out a form on a bookstore's web site.iii. The bookstore's web site verified Allison's credit limit.iv. William, a warehouse worker, prepared Allison's books for shipment.All of the following steps in the sales / collection process are represented in the four statements except:

A)The first step.
B)The second step.
C)The sixth step.
D)The last step.

Question 20

The sales / collection process can be related to which form of risk from Brown's taxonomy?

A)Credit risk
B)Liquidity risk
C)Both A and B.
D)Neither A nor B.

Question 21

Internal controls in the sales / collection process include:

A)Pre-numbered documents.
B)Adequate supervision.
C)Bank reconciliations.
D)All of the above.

Question 22

Common transactions in the sales / collection process include:

A)Selling goods on credit.
B)Receiving cash on account.
C)Both A and B.
D)Neither A nor B.

Question 23

The adjective "pre-numbered" is associated with which generic element of an accounting information system?

A)Input
B)Internal control
C)Both A and B
D)Neither A nor B

Question 24

Consider the following information items as you respond to the next question: i. Customer master file
Ii) Journal entry to record the receipt of cash
Iii) Pre-numbered documents
Iv) Schedule of accounts receivable
Accounting information systems have five generic elements. Which of the following statements is most true?

A)All five generic elements are represented in the four information items.
B)The information items omit anything related to outputs of the AIS.
C)The information items omit anything related to processing in the AIS.
D)Both B and C are true.

Question 25

Consider the following short case as you respond to the next question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales / collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales.Based on its risk exposures, SPC would benefit most from implementing which of the following internal controls?

A)Cross-training employees
B)Separation of duties
C)Normalized database files
D)Use of the COSO internal control framework

Question 26

Consider the following information items as you respond to the next question: i. Customer master file
Ii) Journal entry to record the receipt of cash
Iii) Pre-numbered documents
Iv) Schedule of accounts receivable
Accounting information systems have five generic elements. Which of the following is an example of the same element as "pre-numbered documents?"

A)Adequate supervision
B)Balance sheet
C)Both A and B
D)Neither A nor B

Question 27

Consider the following information items as you respond to the next question: i. Customer master file
Ii) Journal entry to record the receipt of cash
Iii) Pre-numbered documents
Iv) Schedule of accounts receivable
Accounting information systems have five generic elements. Which of the following statements is most true?

A)"Pre-numbered documents" can be an example of three of the five elements.
B)"Schedule of accounts receivable" can be an example of all five elements.
C)Both A and B are true.
D)Neither A nor B is true.

Question 28

Consider the following short case as you respond to the next question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2 / 10, n / 30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period.The entries in VLC's accounting information system to record all the preceding events will include all of the following except:

A)Debit Accounts Receivable, $300. Credit Sales, $300.
B)Debit Cost of Goods Sold, $200. Credit Inventory, $200.
C)Debit Delivery Expense, $10. Credit Cash, $10.
D)Debit Cash, $294. Debit Inventory, $6. Credit Accounts Receivable, $300.

Question 29

CRX Corporation uses general ledger software as a processing tool in its accounting information system, which creates certain risk exposures. Internal controls to address those risk exposures include:

A)Daily file backup.
B)Periodic employee training.
C)Both A and B.
D)Neither A nor B.

Question 30

Consider the following short case as you respond to the next question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2 / 10, n / 30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period.Considering all entries VLC would make in its AIS to record all the preceding transactions, how many different balance sheet accounts would be involved?

A)Two
B)Three
C)Four
D)More than four

Question 31

The phrase "primary key" is most closely associated with which generic element of an accounting information system?

A)Storage
B)Database
C)Both A and B
D)Neither A nor B

Question 32

Consider the following short case as you respond to the next question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2 / 10, n / 30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period.Assume VLC's general ledger showed a balance in cash of $600 before the preceding events; assume VLC's balance in inventory was also $600. Which of the following statements is most true?

A)After recording the preceding events, the balance in cash will be equal to the balance in inventory.
B)After recording the preceding events, the balance in cash will be greater than the balance in inventory.
C)After recording the preceding events, the balance in cash will be less than the balance in inventory.
D)After recording the preceding events, the balance in cash will equal the balance in accounts receivable.

Question 33

Consider the following short case as you respond to the next question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales / collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales.Which of the following statements about SPC is most true?

A)Their sales / collection process demonstrates the strongest possible level of internal control.
B)Their risk exposures include credit risk, systems risk and human error risk.
C)Both A and B are true.
D)Neither A nor B is true.

Question 34

Consider the following short case as you respond to the next question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2 / 10, n / 30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period.The entries in VLC's accounting information system to record all the preceding events will include all of the following except:

A)A debit to cost of goods sold.
B)A debit to delivery expense.
C)A credit to gross profit.
D)A credit to inventory.

Question 35

Consider the following short case as you respond to the next question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2 / 10, n / 30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period.Considering all entries VLC would make in its AIS to record all the preceding transactions, how many different income statement accounts would be involved?

A)Three
B)Four
C)Five
D)More than five

Question 36

Which of the following transactions would be appropriately processed in the sales / collection process?

A)THT Corporation purchased merchandise on account from HRS Corporation.
B)HRS Corporation received cash from THT Corporation for a previous sale on account.
C)Both A and B.
D)Neither A nor B.

Question 37

Internal controls that address liquidity risk include:

A)Sales and cash collections budgets.
B)Aggressive collection policies.
C)Both A and B.
D)Neither A nor B.

Question 38

Consider the following short case as you respond to the next question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2 / 10, n / 30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period.Inclusive of all the transactions that affect the income statement, VLC's gross profit on the sale was:

A)$100
B)$90
C)$94
D)$84

Question 39

Consider the following information items as you respond to the next question: i. Customer master file
Ii) Journal entry to record the receipt of cash
Iii) Pre-numbered documents
Iv) Schedule of accounts receivable
Accounting information systems have five generic elements, one of which can be directly applied to the other four. Which information item above best exemplifies that element?

A)Customer master file as an output of the AIS
B)Journal entry to record the receipt of cash as a process of the AIS
C)Pre-numbered documents as an internal control in the AIS
D)None of the above.

Question 40

Sally, a sales representative for WER Corporation, ensures that she does a thorough credit check for customers who want to purchase goods on account. The most important internal control WER should implement is:

A)Separation of duties.
B)Adequate documentation.
C)A risk management plan.
D)Employee training.

Question 41

Several symbols that might be used in a systems flowchart of the sales / collection process are listed below. Indicate which symbol should be used to depict each of the following. Some symbols may be used more than once; others may not be used at all. 1) Bill of lading 2) Customer invoice 3) Electronic sales transaction file 4) Employee master file (computerized) 5) Fill order 6) Grant credit? 7) Manually file by name 8) Manually prepare items for shipment 9) Start 10) To bank

Question 42

Consider the following short case as you respond to the next question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales / collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales.SPC's internal control in the sales / collection process would be strengthened by making changes in:

A)Its method of accounting for receivables.
B)Its organizational structure and division of responsibilities.
C)Both A and B.
D)Neither A nor B.

Question 43

Consider the following set of symbols and the ELM case as you respond to the next question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. In a systems flowchart of ELM's sales / collection process, "conduct preliminary needs assessment" would most likely be depicted with:

A)Symbol C
B)Symbol D
C)Symbol F
D)Some other symbol not shown above

Question 44

Accounting information systems have five generic elements. Which one applies to each item listed below within the context of the sales / collection process? a. Customer check, from the point of view of the seller b. Customer order c. Employee master file d. Invoice e. Maintaining adequate inventory f. Record transactions in the AIS g. Remittance advice, from the point of view of the seller h. Sales / inventory junction table i. Use of the seven steps j. Using information technology to fill orders

Question 45

In a format specified by your instructor, document the following sales / collection process. If the specified format is a data flow diagram, create the Level Zero diagram only. ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

Question 46

Consider the following short case as you respond to the next question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.Which of the following is most likely to be depicted as an external entity in a leveled set of data flow diagrams for ELM's sales / collection process?

A)Insurance company
B)Credit card company
C)Both A and B
D)Neither A nor B

Question 47

Analyze the following narrative. Identify five risk exposures ELM faces; for each exposure, recommend two internal controls. ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

Question 48

Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity. HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. All HCC's sales are for cash; each inventory item is marked up 25% on its cost to determine the selling price. For example, if a product costs $100 to buy, HCC sells it for $125. The two sales employees bring all cash receipts back to HCC's main office; the receptionist deposits the cash in the bank at least once a week. Identify three risk exposures in HCC's sales / collection process. For each risk exposure, suggest two internal controls that will address it. Also identify two risk exposures for the independent contractors' sales / collection process; for each risk, suggest two internal controls that will address it.

Question 49

Consider the following short case as you respond to the next question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales / collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales.Internal control weaknesses for SPC are indicated by which of the following?

A)Sales staff access to the AIS
B)Paying a fee to a lockbox firm
C)Estimating bad debts using total sales
D)All of the above

Question 50

Consider the following short case as you respond to the next question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.A systems flowchart of ELM's sales / collection process would include all of the following column headings except:

A)Client
B)Staff specialist
C)Equipment type
D)Greeter

Question 51

Consider the following set of symbols and the ELM case as you respond to the next question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. ELM's customer database could be represented with:

A)Symbol A only
B)Symbol B only
C)Either Symbol A or Symbol B
D)Neither Symbol A nor Symbol B

Question 52

OTA Corporation completed the following transactions as part of its sales / collection process. For each transaction, indicate the document(s) OTA would use. (Some transactions may require more than one document; other transactions may require no documents.) a. Sold consulting services for cash, $500. b. Sold merchandise with a cost of $100 on account for $300. c. Paid a common carrier $50 to ship the merchandise. d. Collected cash for sale on account, $200. e. Estimated bad debts for the year, $80.

Question 53

Create all necessary database specifications (table names and field names) for ELM Corporation's sales / collection process based on the following narrative. Indicate primary keys by underlining and foreign keys with brackets. ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

Question 54

OTA Corporation completed the following transactions as part of its sales / collection process. Record each transaction in general journal format. a. Sold consulting services for cash, $500. b. Sold merchandise with a cost of $100 on account for $300. c. Paid a common carrier $50 to ship the merchandise. d. Collected cash for sale on account, $200. e. Estimated bad debts for the year, $80.

Question 55

Consider the following short case as you respond to the next question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.Which of the following techniques could be used to document ELM's sales / collection process?

A)Systems flowchart
B)Data flow diagram
C)REA model
D)All of the above

Question 56

Several journal entries common to the sales / collection process are listed below. For each, explain what transaction the entry is recording.

Question 57

Consider the following short case as you respond to the next question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.A REA model of ELM's sales / collection process would include how many internal agents in its rightmost column?

A)Two
B)Three
C)Four
D)More than four

Question 58

Consider the following set of symbols and the ELM case as you respond to the next question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. In a systems flowchart of ELM's sales / collection process, Symbol C could be labeled with any of the following except:

A)Insurance coverage?
B)Needs assessment?
C)Make sale?
D)Additional equipment needed?

Question 59

List, in order, the steps in the sales / collection process discussed in the text.

Question 60

Consider the following short case as you respond to the next question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.Which of the following statements about documentation for ELM's sales / collection process is most true?

A)Agents in a REA model are likely to be column headings in a systems flowchart.
B)A leveled set of data flow diagrams will likely include one level for each agent in a REA model.
C)Both A and B
D)Neither A nor B

Question 61

Prepare a narrative description of the sales / collection process depicted in the systems flowchart below. Then, identify three risk exposures for the company's sales / collection process; for each risk exposure, suggest one internal control you would implement.

Question 62

Use COSO's internal control framework to develop an internal control plan for Homemade Craft Company based on the following narrative. Focus your plan on internal controls for the sales / collection process.Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity.HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. All HCC's sales are for cash; each inventory item is marked up 25% on its cost to determine the selling price. For example, if a product costs $100 to buy, HCC sells it for $125. The two sales employees bring all cash receipts back to HCC's main office; the receptionist deposits the cash in the bank at least once a week.

Question 63

Accounting information systems have five generic elements. Identify and describe one example of each element in the sales / collection process of Homemade Crafts Company based on the following narrative:
Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity.HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. All HCC's sales are for cash; each inventory item is marked up 25% on its cost to determine the selling price. For example, if a product costs $100 to buy, HCC sells it for $125. The two sales employees bring all cash receipts back to HCC's main office; the receptionist deposits the cash in the bank at least once a week.

Question 64

In your own words, explain the role and purpose of the sales / collection process. Do not list the steps in the process as part of your response.