Deck 12: The Revenue Cycle: Sales to Cash Collections

Question 1

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.

Answer 1

B

Question 2

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.

Answer 2

A

Question 3

According to generally accepted accounting principles,a sale is recognized when

A)cash is received from the customer.
B)inventory is removed from the warehouse.
C)inventory becomes the legal property of the customer.
D)a sales order is approved by sales,inventory control,and credit departments.

Answer 3

C

Question 4

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 5

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 6

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 7

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 8

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 9

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 10

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

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

Question 11

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 12

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

Question 13

The ________ normally triggers the customer payment recording process.

A)sales invoice
B)deposit slip
C)remittance advice
D)customer monthly statement

Question 14

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 15

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 16

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 17

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 18

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 19

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 20

________ is not a basic activity of the revenue cycle.

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

Question 21

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 of multiple master data files.

Question 22

A(n)________ system prepares and mails monthly statements to customers throughout the entire month,instead of just at the end of the month.

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

Question 23

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 24

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 25

Describe the basic revenue cycle activities.

Question 26

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 27

Discuss ways in which technology can be used to streamline cash collections.

Question 28

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 29

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 30

Describe the two methods to manage accounts receivable.

Question 31

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 32

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 33

Define and describe benefits of a CRM system.

Question 34

A picking ticket is generated by the

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

Question 35

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.

Question 36

How can Electronic Data Interchange (EDI)facilitate the billing and accounts receivable process?

Question 37

The accounts receivable management method typically used by credit card companies is

A)balance forward.
B)postbilling.
C)monthly statement.
D)open-invoice.

Question 38

A document typically encountered in the revenue cycle that is both an output document and a source document is the

A)sales invoice.
B)customer purchase order.
C)sales order.
D)packing slip.

Question 39

Describe typical credit approval procedures.

Question 40

Describe cycle billing and identify how an organization might benefit by using cycle billing.

Question 41

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?

A)cashier
B)internal audit department
C)treasurer
D)external auditor

Question 42

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 43

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 44

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.

Question 45

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 46

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 47

Which of the following is not one of the controls when customer payments are commingled with other mail?

A)preparing a remittance list as mail is opened
B)restrictively endorsing checks when received
C)requiring two mail room clerks to open mail together
D)requiring the controller to be personally present when mail is received and opened

Question 48

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?

A)Establish a lockbox arrangement with a bank.
B)Have customers send a remittance advice with their payment.
C)Have mailroom personnel prepare a remittance list which can be forwarded to accounts receivable.
D)all of the above

Question 49

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 50

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 51

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 52

Suppose management wanted to increase the speed of processing customer payments.One way to speed up payment transaction processing is to

A)use a FEDI.
B)use JEDI analysis software.
C)eliminate credit sales.
D)extend the amount of credit offered to customers.

Question 53

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 54

A picking ticket is generated by the

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

Question 55

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 56

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 57

True or False: Shipping efficiency can often be improved by replacing RFID tags with bar codes.

Question 58

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 59

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 60

Which is the best control to prevent invoicing customers for more than the actual quantity shipped?

A)Use the information from the sales order to prepare the sales invoice.
B)Use the information from the packing slip 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 picking ticket to prepare the sales invoice.

Question 61

Customers that send their payments electronically directly to the billing company's bank are using

A)electronic funds transfer (EFT).
B)electronic data interchange (EDI).
C)procurement cards.
D)an electronic lockbox.

Question 62

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 63

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

A)minimization of cash handling.
B)lockbox arrangements.
C)segregation of duties.
D)frequent reconciliation of records.

Question 64

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 65

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.

Question 66

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.

Question 67

The benefits of a lockbox arrangement with a bank are maximized when

A)the bank is located nearby to the company,so remittance advices can be delivered to the company every day.
B)several banks around the country are used,in order to minimize the time payments spend in the mail.
C)an arrangement is made with only one bank,so all remittance advices can be batched for processing.
D)the bank deposits the payments and accesses the customer's information system to record the payments.

Question 68

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 69

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.

Question 70

Internal file labels can be used to prevent the loss of data in the revenue cycle since they

A)record off-site storage locations.
B)keep competitors from accessing files.
C)organize the on-site physical storage site.
D)reduce the possibility of erasing important files.

Question 71

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 72

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 73

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 74

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 75

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 76

An ________ is an arrangement where a bank receives customer payments and transmits payment data to the organization.

A)e-commerce.
B)electronic funds transfer (EFT).
C)electronic lockbox.
D)electronic data interchange (EDI).

Question 77

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 78

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 79

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

Question 80

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.