AIS Chapter 4

The two major activities of the receiving department are: 1. Deciding whether to _______ delivery 2. Verifying the _______ and _________ of delivered goods

Accept quantity quality

Under the VP of Marketing, _______ ______, responds to customer inquiries

Customer Service

The __________ __________ is a recurring set of business activities and related information processing operations associated with: 1. Purchasing goods, supplies, or services from vendors 2. Making cash payments for goods, supplies, or services

Expenditure Cycle

True or False: Accounts Receivable personnel should have access to cash (including checks)

False

A _______ ________ is a document or electronic form that formally requests a supplier to sell and deliver specified products at specified prices.

Purchase Order

What are the three expenditure cycle business activities in the Expenditure Cycle subsystem?

Purchase/Requisition Order Receiving/Inspection Cash Payments

True or False: Accepting credit cards or procurement cards from customers speeds collection because credit card issuers usually transfer funds within two days. Typically costs 2-4% of gross sales price

True

The primary objective of the expenditure cycle is to: ________ the total cost of acquiring and maintaining inventory, supplies, and services

minimize

Any contract for a hot site must include a provision for _________ testing

periodic

Because cash and checks are highly __________, controls should be in place to discourage theft

vulnerable

A _____ _____ is a compromise between a cold and hot site, combining features of both

warm site

What are the two activities for Receiving Goods?

Accepting Delivery Counting and Inspecting Goods

Under the VP of Finance and the Controller, ______ _______ maintains the customer's account: Increases customer's account when sales are made and decreases account when cash is collected

Accounts Receivable

Under the VP of Finance and the Treasurer, the ____________ deposits cash received from customers

Cashier

The ________, who reports to the _________, handles customer remittances and deposits them in the bank

Cashier Treasurer

What are the two types of credit authorization?

General Authorization Specific Authorization d

What are the two shipping activities ?

Picking and packing order Shipping the order

What type of control is used? Threat: Making errors in counting 1. Applicable Control: Use of bar coding technology 2. Applicable Control: Document employee performance 3. Applicable Control: Incentives for accurate counts

Preventive Detective and Corrective Preventive

What are the two activities in the Order Costs process?

Receive Purchase Requisition Prepare Purchase Order

The __________ report is the primary document used in the counting and inspecting goods process

Receiving

True or False: The PO is both a contract and a promise to pay

True

True or False: The expenditure cycle involves interactions with your suppliers. Give Cash and Get Goods

True

True or False: The picked inventory is then transferred to the shipping department

True

If there are discrepancies during the shipping process, a _______ ________ is initiated

back order

Payment of the invoices is done by the __________, who reports to the treasurer

cashier

A _______ _____ is a shell facility with sufficient electrical power, environmental controls, and communication lines to permit the organization to install its own newly acquired equipment

cold site

Approval of vendor invoices is done by the accounts payable department, which reports to the _________

controller

Internal control can be _______, __________, or ___________ by nature

detective corrective preventive

A _____ _____ is a fully operational processing facility that is immediately available. This organization generally contracts with a service provider

hot site

A hot site solution is the _______ risky and _______ expensive

least most

On an ongoing basis, a cold site solution is much _____ expensive than a hot site solution

less

Advanced inventory control systems automatically initiate purchase request when _______ falls below the reorder point

quantity

The primary external exchange of information is with ____________. (Expenditure Cycle)

suppliers

Objective of ________ ________: Authorize payment only for goods and services that were ordered and actually received Requires information from: 1. Purchasing- about existence of valid purchase order 2. Receiving- for receiving report indicating goods were received 3. Vendor Invoice

Accounts Payable

What are the two activities for the paying of goods process

Approve Vendor Invoices Pay Invoices

Under the VP of Finance and the Controller, the ________ department invoices the customer

Billing

A ________ _______ is a commitment to buy specified items at specified prices from a particular supplier for a set time period. 1. Reduces buyer's uncertainty about reliable material resources 2. Helps supplier plan capacity and operations

Blanket Order

What are the two cash collection activities?

Collect cash and checks Update accounts receivable

____________ controls are designed to correct errors or irregularities that have been detected

Corrective

What are the three sale order entry activities?

Create Sales Order Check the Customer's Credit Check Inventory Availability

Under the VP of Finance and the Treasurer, the _______ ________ approves credit for new customers or existing customers with issues. Authorizes credits to customer accounts for returns, allowances, and write-offs

Credit Manager

___________ controls are designed to detect errors or irregularities that may have occurred

Detective

What type of control is used? Threat: Shipping errors: Wrong merchandise, quantities, address 1. Applicable Control: Compare sales order with packing list and shipping documents 2. Applicable Control: Bar Coding

Detective Preventive

What type of control is used? Threat: Poor Performance 1. Applicable Control: Development and periodic review of appropriate performance metrics

Detective and Corrective

What type of control is used? Threat: Poor Performance Applicable Control: Development and periodic review of appropriate performance metrics

Detective and Corrective

What type of control is used? Threat: Billing Errors 1. Applicable Control: Comparison of sales orders, shipping documents, and invoices 2. Applicable Control: Various edit checks

Detective and Corrective Detective and Corrective

True or False: Only one purchase order may be completed for one purchase requisition

False (Multiple POs may be completed for one purchase requisition if multiple vendors will fill the request)

What type of credit authorization is this? For existing customers below their credit limit who don't have past-due balances. Credit limits vary by customer based on past history and ability to pay. ____________ authorization involves checking the customer master file to verify to account and status.

General Authorization

Certification that suppliers meet ____ _____ quality standards is important. This certification recognizes that the supplier has adequate quality control processes

ISO 9000

One of the key factors affecting the Ordering Goods process is the _________ ________ _______ to be used. Examples: 1. Manual 2. Economic Order Quantity (EOQ) 3. Just in Time Inventory (JIT) 4. Materials Requirements Planning (MRP)

Inventory Control Method

What are the two billing activities?

Invoice Update Accounts Receivable

What type of control is used? Threat: Incomplete or Inaccurate customer orders Applicable Control: Various data entry edit controls

Preventive

What type of control is used? Threat: Receiving unordered goods Applicable Control: Require receiving to verify existence of valid purchase order

Preventive

____________ controls are designed to keep errors or irregularities form occurring in the first place

Preventive

What type of control is used? Threat: Legitimacy of order 1. Applicable control: Authorized customer purchase order 2. Applicable Control: Checking signatures (after the fact)

Preventive Detective

What type of control is used? Threat: Lost Sales due to stockouts, excessive carrying costs, and lost revenue due to markdowns 1. Applicable Control: Inventory control systems 2. Applicable Control: Periodic physical inventory counts 3. Applicable Control: Improve sales forecast 4. Applicable Control: Better supply chain management

Preventive Detective Preventive Preventive, Detective, and Corrective

What type of control is used? Threat: Theft of Inventory 1. Applicable Control: Physical access controls 2. Applicable Control: Documentation of all inventory movements 3. Applicable Control: Periodic physical inventory counts

Preventive Detective Detective

What type of control is used? Threat: Failure to Bill 1. Applicable Control: Segregation of shipping and billing functions 2. Applicable Control: One-for-one matching of invoices against shipping documents

Preventive Detective and Corrective

What type of control is used? Threat: Purchasing from unauthorized suppliers 1. Applicable Control: Approval of Purchase Orders 2. Applicable Control: Restrict access to supplier master file

Preventive Preventive

What type of control is used? Threat: Requiring unnecessary items 1. Applicable Control: Accurate perpetual inventory 2. Approval of Purchase Requisition

Preventive Preventive

What type of control is used? Threat: Errors in maintaining and customer accounts 1. Applicable Control: Data entry edit checks 2. Applicable control: Use of remittance advices 3. Applicable Control: Monthly statements to customers

Preventive Preventive Detective and Corrective

What type of control is used? Threat: Purchasing goods at inflated prices 1. Applicable Control: Solicit competitive bids 2. Applicable Control: Use of Approved Suppliers 3. Applicable Control: Approval of Purchase Orders 4. Applicable Control: Budgetary controls

Preventive Preventive Preventive Detective and Corrective

What type of control is used? Threat: Loss of Data 1. Applicable Control: Backup Procedures 2. Applicable Control: Disaster recovery plans 3. Applicable Control: Physical and logical access controls

Preventive Preventive Preventive

What type of control is used? Threat: Stealing Inventory 1. Applicable Control:: Physical access controls 2. Applicable Control: Periodic counts of inventory and reconciliation of physical counts to records 3. Applicable Control: Document all transfers of inventory

Preventive Detective and Corrective Detective and Corrective

What type of control is used? Threat: Credit Sales to customers with poor credit 1. Applicable Control: Proper credit approval 2. Applicable Control: Accurate, current customer data

Preventive Preventive

What type of control is used? Threat: Theft of Cash 1. Applicable Control: Segregation of cash handling and accounts receivable functions 2. Applicable Control: Use of lockboxes or EFT 3. Applicable Control: Preparing of Bank account reconciliation by someone not involved in cash receipts processing 4. Applicable Control: Segregation of bad debt/credit memo authorization from cash handling and accounts receivable functions

Preventive Preventive Detective and Corrective Preventive

What type of control is used? Threat: Purchasing goods of inferior quality 1. Applicable Control: Use of Approved Vendors 2. Applicable Control: Approval of Purchase Orders 3. Applicable Control: Monitor vendor performance 4. Applicable Control: Budgetary controls

Preventive Preventive Detective and Corrective Detective and Corrective

What type of control is used? Threat: 1. Applicable Control: Backup Procedures 2. Applicable Control: Disaster recovery plans 3. Applicable Control: Physical and logical access controls

Preventive Preventive Preventive

What type of control is used? Threat: Kickbacks 1. Applicable Control: Policies 2. Applicable Control: Require purchasing employees to disclose financial interests in suppliers 3. Vendor audits

Preventive Preventive Detective and Corrective

What type of control is used? Threat: Preventing stockouts and/or excess inventory 1. Applicable Controls: Inventory control systems 2. Applicable Control: Perpetual inventory records 3. Applicable Control: Bar Code Technology 4. Applicable Control: Periodic Counts of Inventory

Preventive Preventive Preventive Detective and Corrective

A crucial decision is the selection of a supplier. The three key considerations are:

Price Quality Dependability

The primary objectives of the sales order entry process: 1. Accurately and efficiently _________ customer orders. 2. Ensure that all sales are ____________ and that the company gets paid for all sales 3. __________ revenue loss arising from poor inventory management

Process Legitimate Minimize

The _______ _________ is a paper document or electronic form that identifies: 1. Who is requesting the goods 2. Where they should be delivered 3. When they're needed 4. Item numbers, descriptions, quantities, and prices 5. Possibly a suggested supplier 6. Department number and account number to be charged

Purchase requisition

The ________ _________ is a recurring set of business activities and related information processing operations associated with: 1. Providing goods and services to customers 2. Collecting their cash payments

Revenue Cycle

Under the VP of Marketing, _______ ________ takes customer orders, authorizes credit for existing customers in good standing, checks inventory availability

Sales Order

What is the revenue cycle subsystem? (the four steps)

Sales Order Entry Shipping Billing/Accounts Receivable Cash Collection

Under the VP of Manufacturing, the _________ department ships the order

Shipping

What type of credit authorization is this? For customers who are new, or have past-due balances. Are placing orders that would exceed their credit limit. _____________ authorization is done by the credit manager, who reports to the treasurer

Specific Authorization

True or False: The primary external of information is with customers (revenue cycle)

True

Under the VP of Manufacturing, the __________ picks and packs the order

Warehouse

What is the primary objective of the revenue cycle? Provide the _____ product, in the ______ place, at the ______ time, for the ________ price

right

When paying vendor invoices, the cashier receives a _______ ________, which consists of the vendor invoice and supporting documentation, such as the purchase order and receiving report

voucher package