Deck 12: The Revenue Cycle: Sales to Cash Collections

Question 1

If a firm uses an ERP,the best way to mitigate the risk of the destruction of master data is to

A)frequently update the ERP system.
B)implement the ERP system in three separate instances.
C)periodically audit the ERP system.
D)integrate the ERP system with all IT functions.

Answer 1

B

Question 2

Which of the following controls can minimize the threat of incomplete/inaccurate orders?

A)Separation of billing and shipping functions.
B)Use of cash registers.
C)Bar-code and RFID technology.
D)Restriction of access to master data.

Answer 2

D

Question 3

Which of the following is not a general threat to the revenue cycle?

A)inaccurate master data
B)loss of customers
C)poor performance
D)unauthorized disclosure of sensitive information

Answer 3

B

Question 4

Describe four threats in the revenue cycle and identify appropriate controls for each threat.

Question 5

If a firm does not use an ERP,the best way to mitigate the risk of the destruction of master data is to

A)implement backup and disaster recovery procedures.
B)use an ERP.
C)proper segregation of duties.
D)use multiple master data files.

Question 6

Which of the following controls can minimize the threat of theft of cash?

A)Separation of billing and shipping functions.
B)Use of cash registers.
C)Bar-code and RFID technology.
D)Restriction of access to master data.

Question 7

Discuss the general control issue of the loss of data,as it relates to the revenue cycle.

Question 8

Which of the following controls can minimize the threat of theft of inventory?

A)Separation of billing and shipping functions.
B)Use of cash registers.
C)Bar-code and RFID technology.
D)Restriction of access to master data.

Question 9

Describe the basic revenue cycle activities.

Question 10

Discuss the revenue cycle threat of stockouts,carrying costs,and markdowns.

Question 11

Which of the following is not a general threat to the revenue cycle?

A)inaccurate master data
B)loss of customers
C)poor performance
D)unauthorized disclosure of sensitive information

Question 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?

Question 13

Which of the following controls can minimize the threat of failure to bill?

A)Separation of billing and shipping functions.
B)Use of cash registers.
C)Bar-code and RFID technology.
D)Restriction of access to master data.

Question 14

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.

Question 15

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

Question 16

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

Question 17

The revenue cycle's primary objective is to

A)maximize the company's profit.
B)provide quality product in order to maximize market share.
C)lower expenses.
D)provide the right product in the right place at the right time for the right price.

Question 18

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

Question 19

________ is not a basic activity of the revenue cycle.

A)Sales order entry
B)Shipping
C)Receiving
D)Billing

Question 20

Which of the following is not a key decision that needs to be made in the revenue cycle?

A)How should merchandise be delivered to customers?
B)Should credit be extended to customers?
C)How can customer payments be processed to maximize cash flow?
D)Which vendor should inventory be purchased from?

Question 21

The manager of Cezary Foods was purchasing inventory from Bogumil Distributors online.The manager entered the items and quantities,completed the checkout and payment process,but received the following error message before the order could be processed: "Please enter your phone number." This message is likely the result of a

A)validity check.
B)completeness test.
C)closed-loop verification.
D)customer relationship management software application.

Question 22

Shipping efficiency can often be improved by replacing RFID tags with bar codes.

Question 23

Which of the following poses an internal control problem?

A)Physical inspection of inventory quantity and condition is outsourced to a firm that specializes in this service.
B)Products are released from inventory after a warehouse employee and a shipping clerk both sign the pick list.
C)Sales representatives have authority to increase customers' credit limits in $1,000 increments.
D)When customer payments are received in the mail,checks are sent to the cashier's office and remittance advices are sent to the accounts receivable department.

Question 24

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

Question 25

Explain how to effectively segregate duties in the sales order activity.

Question 26

The legitimacy of customer orders is established by ________ in Internet-based customer orders.

A)digital signatures
B)the customer's pin number
C)the customer's credit card number
D)prior experience with the customer

Question 27

The least effective control for preventing an organization from processing fraudulent credit memo is to

A)match each credit memo with a receiving report.
B)require approval for each credit memo by the credit manager.
C)reconcile total of credit memos to total debits posted to customers' subsidiary ledgers.
D)sequentially prenumber all credit memos and perform a sequence check at the end of each day.

Question 28

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

Question 29

The legitimacy of customer orders is established by ________ in paper-based customer orders.

A)the customer's signature
B)the customer's pin number
C)the customer's verbal authorization
D)prior experience with the customer

Question 30

Bogumil Distributors is an Internet-based wholesaler.Customers enter their orders online.The manager of Cezary Foods was entering an order when the following error message popped up: "Your order exceeds your available credit.You will be contacted within 8 hours." This message is the result of a

A)sign check.
B)validity check.
C)reasonableness test.
D)limit check.

Question 31

The best solution for maintaining accurate automated perpetual inventory system is to use

A)closed-loop verification when inventory is received from vendors and recorded.
B)point of sale devices integrated with inventory records.
C)periodic physical counts to reconcile with perpetual inventory records.
D)RFID tags.

Question 32

Which of the following is not a threat to the revenue cycle sales order entry process?

A)incomplete orders
B)invalid orders
C)cash flow problems
D)uncollectible accounts

Question 33

Regularly reviewing an accounts receivable aging report can help management do what?

A)identify customers who have not purchased anything lately
B)determine whether changes are needed in the firm's credit policies
C)improve the speed which customers make payments
D)determine whether the firm's pricing policy is effective

Question 34

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

Question 35

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

Question 36

A clerk at a grocery store scanned the bar code for a low cost bag of frozen chicken wings then gave his friend an expensive brand-name bag of frozen chicken wings.Which of the following controls would best prevent the clerk from getting away with doing this?

A)Physical inventory count.
B)Segregation of duties.
C)Limited physical access to bar codes.
D)Use of RFID tags.

Question 37

Explain how validity checks,completeness tests and reasonableness tests can be implemented to ensure accuracy of customer orders.

Question 38

You have been hired by a catalog company to computerize its sales order entry process.Approximately 70% of all orders are received over the telephone by a sales person.The other 30% of orders are received by a sales person through mail or fax.The catalog company wants the phone orders processed real-time.The mail and fax orders will be processed in batches of 50 orders.The following attributes are collected for every sales order:
Customer number (if the order is from a new customer,a new number needs to be assigned)
Customer name
Address
Payment method (credit card for phone and fax orders and check for mailed orders)
Credit card number and expiration date
Items ordered and quantity of each
Unit price of each item ordered
Identify and describe at least ten specific control policies and procedures you will implement for the sales order process.Be very specific describing the controls and number each new control you suggest.

Question 39

Regularly reviewing an accounts receivable aging report can help management do what?

A)spot firms who are falling behind in their payments
B)identify customers who have not purchased anything lately
C)improve the speed which customers make payments
D)determine whether the firm's pricing policy is effective

Question 40

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.

Question 41

For strongest segregation of duties,the credit manager should never report to

A)the marketing department.
B)the accounting department.
C)the credit department.
D)the IT department.

Question 42

For strongest segregation of duties,a sales representative should never be allowed to

A)discuss the company's products.
B)negotiate the sales price.
C)approve a sale on credit.
D)send a customer a gift.

Question 43

A picking ticket is generated by the

A)shipping process.
B)sales order entry process.
C)packing process.
D)billing process.

Question 44

Describe typical credit approval procedures.

Question 45

Research suggests which of the following is key to improving total customer satisfaction?

A)price of product
B)speed of shipping
C)quality and nature of customer contact after the sale
D)quality and nature of customer contact before the sale

Question 46

What is a typical procedure for processing sales orders from new customers or customers making a purchase that causes their credit limit to be exceeded?

A)General authorization to approve the order is given to sales clerks.
B)Specific authorization must be granted by the credit manager.
C)The sale should be rejected.
D)The sales clerk should order a report from a credit bureau before approving the order.

Question 47

An accounts receivable aging report is useful for doing everything except

A)estimating bad debts.
B)estimating future sales.
C)projecting the timing of future cash flows.
D)deciding whether to increase a specific customer's credit limit.

Question 48

Identify a useful tool for monitoring accounts receivable.

A)ERP exception report
B)accounts receivable aging report
C)accounts receivable tolerance report
D)customer credit limit report

Question 49

Special software packages called ________ can help an organization manage customer service.

A)EDI systems
B)CRM systems
C)POS systems
D)VMI systems

Question 50

Define and describe benefits of a CRM system.

Question 51

A credit sale should always be reviewed by a credit manager if it exceeds the customer's credit limit.

Question 52

It costs ________ times as much to acquire a new customer as it does to make a sale to an existing customer.

A)two
B)five
C)eight
D)ten

Question 53

Checking the quantity of inventory available before accepting a sales order is a good practice for all of the reasons except to

A)determine which items may need to be back ordered.
B)verify the accuracy of the perpetual inventory records.
C)inform the customer about availability and delivery times.
D)update inventory records to reduce the quantity available by the number of items ordered.

Question 54

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.

Question 55

What is QR codes and can companies use them to improve interactions with their customers?

Question 56

A credit sale should always be denied if it exceeds the customer's credit limit.

Question 57

How is credit approval generally handled for established customers with a documented payment history?

A)A new credit application is requested.
B)General authorization by a sales clerk
C)Specific authorization by the credit manager
D)A formal credit check should be made for each sale.

Question 58

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.

Question 59

Basic segregation of duties requires the credit manager reports to the ________ and the treasurer report to the ________.

A)treasurer;controller
B)treasurer;vice president of finance
C)controller;vice president of finance
D)marketing manager;vice president of finance

Question 60

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.

Question 61

The ________ is a legal contract that defines responsibility for goods that are in transit.

A)bill of lading
B)packing slip
C)back order
D)picking list

Question 62

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.

Question 63

The bill of lading is a legal contract that defines responsibility for the goods in the company's warehouse.

Question 64

The shipping department at Eka Toys 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 shipping agreements are documented on

A)picking tickets.
B)packing slips.
C)bills of lading.
D)RFID tags.

Question 65

A company uses the method for tracking accounts receivable where customers pay according to individual sales invoices.This describes the ________ method.

A)monthly statement
B)open-invoice
C)balance forward
D)cycle billing

Question 66

The document a customer returns with their payment and that identifies the source and the amount of the payment is called a

A)remittance advice.
B)remittance list.
C)credit memorandum.
D)debit memorandum.

Question 67

Two documents usually accompany goods shipped to a customer.What are the two documents?

A)a bill of lading and an invoice
B)a packing slip and a bill of lading
C)an invoice and a packing slip
D)an invoice and a sales order

Question 68

The basic document created in the billing process is call a ________.

A)bill of lading
B)sales invoice
C)sales order
D)packing list

Question 69

A type of business document in which part of the original document is returned to the source for further processing is called a ________ document.

A)feedback
B)returnable
C)closed-loop
D)turnaround

Question 70

Before a shipping notice is prepared during the revenue cycle,shipping department personnel should match the inventory received from the warehouse to the

A)sales order.
B)picking tickets.
C)picking ticket and sales order.
D)sales order and bill of lading.

Question 71

The ________ should always be included with a merchandise shipment to a customer.

A)picking ticket
B)packing slip
C)sales invoice
D)remittance advice

Question 72

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

Question 73

What is RFID tags and how do companies use them to improve their shipping process?

Question 74

A method for tracking accounts receivable that matches specific invoices and payments from the customer is called a(n)________ method.

A)specific identification
B)balance forward
C)cycle billing
D)open-invoice

Question 75

In the ________ method of tracking accounts receivable,customers pay according to the amount showing on their monthly statement and payments are applied against the total account balance.

A)specific identification
B)open-invoice
C)balance forward
D)remittance advice

Question 76

The packing slip

A)lists the quantity,price,and description of each item included in the shipment.
B)lists the price and description of each item included in the shipment.
C)lists the quantity and description of each item included in the shipment.
D)lists the quantity and price of each item included in the shipment.

Question 77

When a customer pays off the balance on an invoice,the payment is credited to the ________ file.

A)customer master
B)sales transaction
C)cash receipts master
D)All of the above are correct.

Question 78

By using an ERP to merge the billing,sales,and marketing functions,the firm may be able to

A)bill the customer right after the sale occurs.
B)market products and services on bills sent to customers.
C)use customer's past purchase history to send information about related products and services the customer may be interested in.
D)eliminate the need for a firm to have a billing,sales,and marketing department.

Question 79

Which of the following is not a threat to the revenue cycle shipping process?

A)incomplete orders
B)inventory theft
C)picking the wrong items
D)wrong shipping address

Question 80

The ________ normally triggers the billing process in the revenue cycle.

A)sales order received from the sales department
B)picking ticket received from the sales department
C)packing slip received from the shipping department
D)journal voucher received from the shipping department