Deck 10: The Revenue Cycle: Sales an Cash Collections

Question 1

Customer inquiries during the sales order process are best handled by

A)a sales order and customer service person.
B)accounting personnel.
C)the credit manager.
D)A and C above

Answer 1

A

Question 2

A number of edit checks should be performed to ensure that all of the data required to process an order have been collected and accurately recorded.The edit check that compares a quantity being ordered to past history for that item and customer is called

A)a validity check.
B)a reasonableness test.
C)a completeness test.
D)a limit check.

Answer 2

B

Question 3

The maximum allowable account balance for a given customer is called the

A)credit checkpoint.
B)credit limit.
C)reorder point.
D)backorder point.

Answer 3

B

Question 4

What is the normal procedure for new customers or customers making a purchase that causes their credit limit to be exceeded?

A)routine approval is granted without authorization
B)specific approval must be granted by the credit manager
C)reject the sale in either case without question
D)check the credit bureau for a credit rating on the customer

Question 5

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

Question 6

In the revenue cycle,a customer places an order for a certain product.Before the order is checked for inventory availability,what step should be taken?

A)The customer's credit should be checked for a sale on account.
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 7

Mucho Regalia manufactures clothing items.When an inventory item that is not in stock has been ordered by a customer,a back order is sent to the

A)production department.
B)purchasing department.
C)billing department.
D)A and B above

Question 8

In addition to the sales order entry process there are three other processes in the revenue cycle.Which of the following is not one of them?

A)shipping
B)billing
C)general ledger
D)cash collections

Question 9

Why should inventory quantities on hand be checked before a sale is actually made?

A)to inform the customer about availability and delivery times
B)to know which items must be back ordered
C)to inform inventory control of mistakes in the inventory records
D)A and B above

Question 10

To accomplish the objectives set forth in the revenue cycle,a number of key management decisions must be addressed.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 11

Which of the activities listed below is not part of the revenue cycle?

A)sales order entry
B)shipping
C)receiving
D)billing

Question 12

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 13

The revenue cycle is a recurring set of business activities and related information processing operations associated with providing goods and services to customers and collecting cash in payment for those sales.With whom is the primary external exchange of information?

A)competitors
B)creditors
C)customers
D)marketing organizations

Question 14

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

Question 15

Matching customer accounts and inventory item numbers to the information 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 16

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

A)specific authorization by the credit manager
B)routine approval is usually granted
C)a new credit application is taken
D)a formal credit check is made for each sale

Question 17

One way to improve sales order entry efficiency is by allowing customers to enter sales order data themselves.For example,retail stores would send their orders directly to a sales order system in a format that would eliminate the need for data entry.This could be achieved using

A)VMI.
B)EDI.
C)POS.
D)VAN.

Question 18

One way to improve sales order entry efficiency is by allowing customers to enter sales order data themselves.This can be accomplished for both in-store,mail order,and Web site sales.Such interactive sales order entry systems are referred to as

A)bulletin boards.
B)smorgasbords.
C)catalogue boards.
D)choiceboards.

Question 19

Responding to customer inquiries and general customer service is an important aspect in the revenue cycle.Since customer service is so important,software programs have been created to help manage this function.These special software packages are called

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

Question 20

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 21

For a given order,assume that goods have been picked for shipment and the items and quantities have been entered into the system.Which system update below is not triggered by these actions?

A)any back orders are initiated
B)inventory quantities are updated
C)the customer accounts receivable is posted
D)shipping documents such as the bill of lading are produced

Question 22

Another essential part of the revenue cycle is filling customer orders and shipping merchandise to customers.Automating warehouse systems cut costs,improve efficiency,and enable more customer-responsive shipments.The essential element(s)required for an automated perpetual inventory system consist(s)of

A)conveyor belts and forklifts
B)conveyor belts and forklifts equipped with RFDC
C)conveyor belts
D)bar-code scanners

Question 23

Once a customer order has been approved,which document is produced next?

A)the sales invoice
B)the packing slip
C)the remittance advice
D)the purchase order

Question 24

With a(n)__________ system,customers pay according to the amount showing on their monthly statement and payments are simply applied against the total account balance.

A)closed invoice
B)open invoice
C)balance forward
D)invoice forward

Question 25

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 26

A __________ system spreads out the monthly statements to customers over the entire month with the idea being that the processing load and cash flow will be more even.

A)closed invoice
B)open invoice
C)cycle billing
D)balance forward

Question 27

Automating the cash collection process is a desirable goal of the organization.A way to incorporate the advantages of EDI with the electronic funds transfer process is

A)FEDI.
B)EFT.
C)to use procurement cards.
D)an electronic lockbox.

Question 28

When customers send their remittances electronically to the company's bank,this is called

A)FEDI.
B)EFT.
C)to use procurement cards.
D)an electronic lockbox.

Question 29

In a shipping department,a __________ is a legal contract that defines responsibility for goods that are in transit.

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

Question 30

A company uses an invoice method whereby customers typically pay according to each invoice.This is the __________ method.

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

Question 31

The third basic activity in the revenue cycle involves billing customers and maintaining accounts receivable.What is the basic document created in the billing process?

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

Question 32

The last step in the revenue cycle is cash collections.The accounts receivable department must know when customers pay their invoices,yet segregation of duty controls dictate that the collection and recording functions be kept separate from each other.What is a solution to this potential internal control problem?

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

Question 33

The benefits of a cash lockbox system are maximized when

A)the bank is located close to the company.
B)several banks around the country are used.
C)only one bank is designated.
D)EFT is used.

Question 34

In billing systems,the __________ is sent to the customer that summarizes all transactions occurring during a given period of time and it indicates the amount due.

A)remittance list
B)monthly statement
C)invoice
D)aging report

Question 35

A type of accounts receivable system that matches specific invoices and payments from the customer is called a(n)__________ system.

A)closed invoice
B)balance forward
C)cycle billing
D)open invoice

Question 36

A system where the bank electronically notifies a company about customers' remittances received through the postal system is known an

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

Question 37

Two documents usually accompany goods sent from the vendor to the customer.What are these 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 38

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

A)bill of lading
B)freight bill
C)sales order
D)order acknowledgement

Question 39

A customer returns a document along with cash payment.The document identifies the source and the amount of the cash payment.It is called a

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

Question 40

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

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

Question 41

One applicable control procedure is to separate the shipping and billing functions within an organization.This control feature is designed to neutralize the threat of

A)the failure to bill customers.
B)billing errors.
C)loss of data.
D)poor performance.

Question 42

In the shipping area of the company,the __________ is used to obtain the goods from the warehouse facility and prepare them for shipment to the customer.

A)picking ticket
B)packing slip
C)bill of lading
D)invoice

Question 43

The Squishy Things Toy Company was established in 1948.It sells to retail toy stores all over the country.Until recently,the family-run business had resisted changing its sales order entry system,which involves telephone calls from outside sales people and paper documents.A simple way for the firm to increase the efficiency of this system is

A)vendor-managed inventory.
B)sales force automation.
C)computer data interchange.
D)optical character recognition.

Question 44

It has been discovered that credit sales have been made to customers with a poor credit rating.If this activity continues,the company may face uncollectible sales and losses due to bad debts.What applicable control procedure may help the company to gain control over this situation?

A)separation of shipping and billing duties
B)credit approval by a credit manager and not marketing personnel
C)data entry application controls
D)price lists

Question 45

The Squishy Things Toy Company was established in 1948.It recently signed a large contract with a chain of retail toy stores.As a condition of the contract,the Squishy will be required to track and forecast product sales by linking in to the chain's sales database.Squishy will then be responsible for shipping products to the chain's regional warehouses as needed.The relationship between Squishy and the chain is an example of

A)vendor-managed inventory.
B)sales force automation.
C)electronic data interchange.
D)optical character recognition.

Question 46

To ensure proper separation of duties the __________ makes decisions concerning issuance of credit memos.

A)accounts receivable supervisor
B)warehouse manager
C)credit manager
D)cashier

Question 47

In a cash collection system with proper controls,the __________ function,responsible to the __________,is separate and distinct from the cash handling activities.

A)accounts receivable; treasurer
B)accounts receivable; controller
C)cashier; controller
D)cashier; treasurer

Question 48

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 49

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 50

Well-designed AIS controls must ensure that all transactions are authorized,valid,and properly recorded.In addition,there are three other AIS objectives.Which is not an AIS objective?

A)transactions are recorded accurately
B)transactions are matched into the proper time period
C)assets are safeguarded from loss or theft
D)business activities are performed efficiently and effectively

Question 51

Many Internet retailers allow customers to customize products by presenting them with various alternative options.These interactive sales order entry systems are called

A)choiceboards.
B)orderboards.
C)optionboards.
D)waterboards.

Question 52

A company fails to bill customers due to a lack of controls.The exposure the company faces is

A)customer dissatisfaction.
B)an overstated accounts receivable balance.
C)a loss of inventory and revenue.
D)uncollectible sales and losses due to bad debts.

Question 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.

Question 54

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 55

A serious exposure for an organization that is connected with the revenue cycle is the loss of assets.What is the related threat and applicable control procedure association with 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)loss of data; backup and recovery procedures
D)poor performance; preparation and review of performance reports

Question 56

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 57

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 and book inventories

Question 58

All of the following edit checks for online editing of accounts receivable transactions would probably be included except

A)validity checks on customer and invoice numbers.
B)check digit verification on the amount of the sale.
C)closed loop verification on the customer name to ensure the proper account is being updated.
D)field checks on the values in dollar fields.

Question 59

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 60

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

Question 61

Sad Clown Pajamas is an Internet-based wholesaler.The customer account manager at Sad Clown received a call from the manager at Callow Youth Clothing.The firm was entering bankruptcy liquidation and it was unlikely that they would be able to pay the outstanding balance on their account.The account manager decided to write off the account,so he issued a

A)picking ticket.
B)bill of lading.
C)packing slip.
D)remittance advice.
E)credit memo.

Question 62

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.He encloses a paper form in the box when the order is complete.The form is called a

A)picking ticket.
B)bill of lading.
C)packing slip.
D)remittance advice.
E)credit memo.

Question 63

Using the _______ method of maintaining accounts receivable,customers typically pay a sales invoice that lists all transactions during a given time period represented,referred to as a _______.

A)open invoice; monthly statement
B)open invoice; remittance advice
C)balance-forward; monthly statement
D)balance-forward; remittance advice

Question 64

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.

Question 65

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 it was received,he received a

A)picking ticket.
B)bill of lading.
C)packing slip.
D)remittance advice.
E)credit memo.

Question 66

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: Did you mean to enter a quantity of 1000 for your order? This message is the result of a

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

Question 67

The Squishy Things Toy Company was established in 1948.It recently signed a large contract with a chain of retail toy stores.As a condition of the contract,the Squishy will be required to track and forecast product sales by linking in to the chain's sales database.Squishy will then be responsible for shipping products to the chain's regional warehouses as needed.The technology that is used for communication between Squishy and the chain is

A)vendor-managed inventory.
B)sales force automation.
C)electronic data interchange.
D)optical character recognition.

Question 68

Sad Clown Pajamas is an Internet-based wholesaler.Customers enter their orders online.The manager of Callow Youth Clothing was entering and order when the following error message popped up: Your total order exceeds your available credit.Please contact our Credit Department.This message is the result of a

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

Question 69

Which of the following poses an internal control problem?

A)Credit memos are approved by the Sales Manager.
B)Disbursements of cash are approved by the Finance Manager.
C)Raw material deliveries are compared with the relevant purchase orders clerks in the Shipping and Receiving Department.
D)Bank accounts are reconciled by the Finance Department.

Question 70

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 define an order's

A)picking ticket.
B)bill of lading.
C)packing slip.
D)remittance advice.
E)credit memo.

Question 71

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

Question 72

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 sign the pick list.
C)Sales representatives set up new customer accounts and determine their credit limits.
D)When payments are received,they are sent to the cashier's office and remittance data are sent to the accounts receivable department.

Question 73

Sad Clown Pajamas is an Internet-based wholesaler.Customers enter their orders online.The manager of Callow Youth Clothing was entering and order when the following error message popped up: Please enter your email address.This message is the result of a

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

Question 74

Using the _______ method,customers typically pay a sales invoice that reflects a single transaction,referred to as a _______.

A)open invoice; monthly statement
B)open invoice; remittance advice
C)balance-forward; monthly statement
D)balance-forward; remittance advice

Question 75

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 76

a)Define revenue cycle.
b)What are the basic revenue cycle activities?

Question 77

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)remittance advice.
E)credit memo.

Question 78

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 help to prevent this sort of fraud?

A)RFID
B)Physical inventory checking
C)Segregation of duties
D)An electronic lockbox

Question 79

Which of the following is an example of a wireless technology used to increase the efficiency of picking and packing products for shipment?

A)Bar codes
B)RFID
C)OCR
D)laser scans

Question 80

What is a CRM system?