Chapter 12 - Review Questions (Revenue Cycle)

Which method is most likely used when a company offers customers discounts for prompt payment? a. open-invoice method b. balance-forward method c. accounts receivable aging method d. cycle billing method

a. open-invoice method (Correct. The open-invoice method provides a means to offer discounts because it facilitates aging each invoice to verify whether a discount should be granted.)

A bill of lading is a legal contract between the customer and the vendor or seller. a. True b. False

b. False

A credit memo is generated by the receiving department after a customer has returned merchandise. a. True b. False

b. False

Billing errors include pricing mistakes and sending the wrong merchandise to the customer. a. True b. False

b. False

Which of the following is NOT a control for mitigating the risk of posting errors in accounts receivable? a. Data entry controls. b. Set proper credit limits. c. Reconciliation of batch totals. d. Mailing monthly statements to customers.

b. Set proper credit limits.

Which of the following provides a means both to improve the efficiency of processing customer payments and also to enhance control over those payments? a. CRM b. lockboxes c. aging accounts receivable d. EDI

b. lockboxes (Correct. The use of lockboxes eliminates the delays involved in processing customer payments and then depositing them. It also improves control because customer payments are not directly handled by any employees.)

For good internal control over customer remittances, the mailroom clerk should separate the checks from the remittance advices and send the customer payments to which department? a. billing b. accounts receivable c. cashier d. sales

c. cashier (Correct. This is the cashier's job. The cashier function has custody of cash accounts.)

Which of the following provide useful information for evaluating current credit policies and for deciding whether to increase the credit limit for specific customers? a. Cash budget b. Profitability analysis reports c. Sales analysis reports d. Accounts receivable aging schedule e. None of the above.

d. Accounts receivable aging schedule

Steps to reduce the risk of inventory theft include: a. inventory is kept in a secure location, with limited physical access. b. all inventory transfers within the company are documented. c. inventory is released only upon approved sales orders. d. All of the above.

d. All of the above.

The credit approval process involves which of the following? a. Establishing a credit limit b. Investigating the credit history of the customer c. Verifying the customer order does not exceed an authorized limit d. All of the above.

d. All of the above.

Which of the following is NOT a threat associated with billing and accounts receivable? a. Failure to bill customers b. An error in billing c. Posting errors in updating accounts receivable d. Theft of cash

d. Theft of cash

The open invoice method involves which of the following activities? a. customers pay from a balance on a monthly statement. b. remittances are applied against a total account balance. c. customers are required to remit a tear-away stub. d. customers pay specific invoices. e. None of the above.

d. customers pay specific invoices.

The billing cycle includes the following: a. invoicing. b. shipping. c. updating accounts receivable. d. Making bank deposits. e. Answers 1 and 3.

e. Answers 1 and 3.

The integrated database underlying an ERP system results in which of the following general threats to the revenue cycle? a. inaccurate or invalid master data b. unauthorized disclosure of sensitive information c. loss or destruction of data d. all of the above

d. all of the above

Which activity is part of the sales order entry process? a. setting customer credit limits b. preparing a bill of lading c. checking customer credit d. approving sales returns

b. checking customer credit (Correct. Checking customer credit and inventory availability are two key parts of the sales order entry process.)

A back order is created when inventory doesn't exist to fill a customer order. a. True b. False

a. True

A sales order triggers the shipping process. a. True b. False

a. True

Which of the following is a threat to the Sales Order Entry activity of the Revenue Cycle? a. Uncollectible accounts. b. Failure to bill. c. Billing errors. d. Theft of inventory.

a. Uncollectible accounts.

The control known as closed loop verification is associated with: a. accuracy of updating customer accounts. b. preventing the theft of cash. c. encryption controls. d. separation of billing and shipping functions.

a. accuracy of updating customer accounts.

For good internal control, who should approve credit memos? a. credit manager b. sales manager c. billing manager d. controller

a. credit manager (Correct. This is the credit manager's function.)

A credit memo : a. is issued by the customer. b. is issued by the cashier. c. is issued by the credit manager. d. increases accounts receivable.

c. is issued by the credit manager.

Which document often accompanies merchandise shipped to a customer? a. picking ticket b. packing slip c. credit memo d. sales order

b. packing slip (Correct. This document specifies what is being shipped.

Which document is used to authorize the release of merchandise from inventory control (warehouse) to shipping? a. picking ticket b. packing slip c. shipping order d. sales invoice

a. picking ticket (Correct. A picking ticket is generated by sales order entry to authorize removal of inventory to be shipped to the customer.)

An electronic lockbox has which of the following functions? a. Safeguards cash b. Improves cash management c. Minimizes the time customer checks are in the mail d. All of the above.

d. All of the above.

If the information is inaccurate or incomplete on a sales order a. inefficiencies are created in the processing of the sales order. b. negatively affect customer perceptions. c. Both answers 1 and 2 are correct. d. None of the above is correct.

c. Both answers 1 and 2 are correct.

Which of the following techniques is the most efficient way to process customer payments and update accounts receivable? a. EFT b. UPIC c. FEDI d. ACH

c. FEDI (Correct. FEDI integrates EFT, for processing customer payments, with EDI, for processing related remittance data to update accounts receivable.)

Which of the following revenue cycle activities can potentially be eliminated by technology? a. sales order entry b. shipping c. billing d. cash collections

c. billing (Correct. The use of integrated ERP systems makes printing invoices superfluous, because both the seller and customer already know all the information included in the invoice. Some large manufacturers have already moved to invoiceless systems with their major suppliers.)