AIS-Chapter 12

The applicable control procedure for the threat of incomplete or inaccurate customer orders is: A. data entry edit controls B. segregation of duties C. Encryption D. reconciliation of sales order with the picking ticket

A. data entry edit controls

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

A.remittance advice

1. 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.

B.Use the information from the packing slip to prepare the sales invoice.

1. A picking ticket is generated by the A.shipping process. B.sales order entry process. C.packing process. D.billing process.

B.sales order entry process.

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

C.credit manager

1. 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.

C.inventory becomes the legal property of the customer.

1. 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?

D.Which vendor should inventory be purchased from?

1. 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.

D.validity check.

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

c) customers

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

c) cycle billing

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

c) general ledger

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

c) periodically back up all perpetual inventory records

Which of the activities listed below is not part of the revenue cycle? a) sales order entry b) shipping c) receiving d) billing

c) receiving

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

c) the customer accounts receivable is posted

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

c) to provide the right product in the right place at the right time at the right price

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

d) A and B above

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.

d) All of the above threats may apply to this scenario.

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.

d) CRM systems.

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

d) all of the above

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

d) bar-code scanners

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.

d) choiceboards.

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

d) handling cash receipts and mailing vendor payments

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

d) open invoice

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

d) reasonableness test

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.

d) reduce the possibility of erasing important files.

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

d) the sales invoice

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

d) treasurer; vice president of finance

. 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

d) turnaround

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

d) validity check

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.

A) providing an opportunity for customers to verify the balance

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.

c) a loss of inventory and revenue.

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

c) adequate controls

. 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

c) balance forward

The following lists the quantity and description of each item included in the shipment:

Packing Slip

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) cashie

c) credit manager

The following are the business activities performed in the revenue cycle (order): 1) Shipping 2) Cash collections 3) Sales order entry 4) Billing

Sales Oder Entry, Shipping, Billing, and Cash Collections

. 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

b) credit approval by a credit manager and not marketing personnel

. The maximum allowable account balance for a given customer is called the a) credit checkpoint. b) credit limit. c) reorder point. d) backorder point

b) credit limit.

. 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).

b) electronic lockbox.

. 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

b) monthly statement

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

b) open-invoice

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.

a) FEDI

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.

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

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

a) a sales order and customer service person.

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

a) bill of lading

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

a) cashier; treasurer

. 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

a) completeness test

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.

a) customer master

. 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

a) inventory records

. 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

a) picking ticket

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

a) production department.

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.

a) remittance advice.

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

a) sales order entry process

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.

a) the failure to bill customers.

. 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

b) routine approval is usually granted

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.

b) several banks around the country are used.

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

b) specific approval must be granted by the credit manager

. 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

b) the packing slip

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

b) theft of cash; segregation of duties and minimization of cash handling

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

b) EDI.

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.

b) EFT.

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?

b) How often should accounts receivable be subjected to audit?

. 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

b) a packing slip and a bill of lading

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.

b) a reasonableness test.

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

b) accounts receivable; controller

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

b) bill of lading

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.

b) check digit verification on the amount of the sale.

. 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

b) transactions are matched into the proper time period