Chapter 4

In most large organizations, the journal voucher file has replaced the formal general journal.

true

In point of sale systems, authorization takes the form of validation of credit card charges.

true

In real-time processing systems, routine credit authorizations are automated.

true

Integrated accounting systems automatically transfer data between modules.

true

Sales orders should be prenumbered documents.

true

Warehouse stock records are the formal accounting records for inventory.

false

Goods are shipped to a customer, but the shipping department does not notify billing and the customer never receives an invoice. Describe a specific internal control procedure that would detect this error.

After a certain amount of time has passed, the billing department should investigate any unmatched invoice, ledger, and file copies of the sales order.

What is automation and why is it used?

Automation involves using technology to improve the efficiency and effectiveness of a task. Automation of the revenue cycle is typically used to reduce overhead costs, make better credit granting decisions, and better collect outstanding accounts receivable.

How is EDI more than technology? What unique control problems may it pose?

EDI represents a unique business arrangement between the buyer and seller in which they agree, in advance, to the terms of their relationship on such items as selling price, quantities, delivery times, payment terms and methods of handling disputes. The terms of agreement are binding. One problem is ensuring that only valid transactions are processed. Another risk is that a non-trading partner will masquerade as a trading partner and access the firm's processing systems.

What makes point-of-sales systems different from revenue cycles of manufacturing firms?

In point-of-sale systems, the customer literally has possession of the items purchased, thus the inventory is in hand. Typically, for manufacturing firms, the order is placed and the good is shipped to the customer at some later time period. Thus, updating inventory at the time of sale is necessary in point-of-sale systems since the inventory is changing hands, while it is not necessary in manufacturing firms until the goods are actually shipped to the customer.

Give three examples of Access Control in a Point-of-Sale (POS) system.

Lock on the cash drawer Internal cash register tape that can be accessed only by the manager Physical security over the inventory.

What task can the accounts receivable department engage in to verify that all checks sent by the customers have been appropriately deposited and recorded?

The company should periodically, perhaps monthly, send an account summary to each customer listing invoices and amounts paid by check number and date. This form allows the customer to verify the accuracy of the records. If any payments are not recorded, they will notify the company of the discrepancy. These reports should not be handled by the accounts receivable clerk or the cashier.

What is the objective of re-engineering?

The objective of re-engineering is to greatly reduce costs by identifying and eliminating non value-added tasks and also by streamlining necessary existing processes.

Distinguish between a packing slip, shipping notice, and a bill of lading.

The packing slip travels with the goods to the customer, and it describes the contents on the order. Upon filling the order, the shipping department sends the shipping notice to the billing department to notify them that the order has been filled and shipped. The shipping notice contains additional information that the packing slip may not contain, such as shipment date, carrier and freight charges. The bill of lading is a formal contract between the seller and the transportation carrier; it shows legal ownership and responsibility for assets in transit.

What function does the receiving department serve in the revenue cycle?

The receiving department counts and inspects items which are returned by customers. The receiving department prepares a return slip of which a copy goes to the warehouse for restocking, and a copy goes to the sales order department so that a credit memo can be issued to the customer.

What are the key segregation of duties related to computer programs that process accounting transactions

The tasks of design, maintenance, and operation of computer programs need to be segregated. The programmers who write the original computer programs should not also be responsible for making program changes. Both of these functions must also be separate from the daily task of operating the system.

What are the three rules that ensure that no single employee or department processes a transaction in its entirety.

The three rules that ensure segregation of functions are: 1. Transaction authorization should be separate from transaction processing 2. Asset custody should be separate from asset record keeping. 3. The organization structure should be such that the perpetration of a fraud requires collusion between 2 or more individuals.

The printer ran out of preprinted sales invoice forms and several sales invoices were not printed. The best internal control to detect this error is a. a batch total of sales invoices to be prepared compared to the actual number of sales invoices prepared b. sequentially numbered sales invoices c. visual verification that all sales invoices were prepared d.none of the above will detect this error

a. a batch total of sales invoices to be prepared compared to the actual number of sales invoices prepared

Good internal controls in the revenue cycle should ensure all of the following except a. all sales are profitable b. all sales are recorded c. credit is authorized d. inventory to be shipped is not stolen

a. all sales are profitable

Internal controls for handling sales returns and allowances do not include a. computing bad debt expense using the percentage of credit sales b. verifying that the goods have been returned c. authorizing the credit memo by management d. using the original sales invoice to prepare the sales returns slip

a. computing bad debt expense using the percentage of credit sales

Which of following functions should be segregated? a. opening the mail and making the journal entry to record cash receipts b. authorizing credit and determining reorder quantities c. maintaining the subsidiary ledgers and handling customer queries d. providing information on inventory levels and reconciling the bank statement

a. opening the mail and making the journal entry to record cash receipts

Copies of the sales order can be used for all of the following except a. purchase order b. credit authorization c. shipping notice d. packing slip

a. purchase order

Which of the following is not a risk exposure in a microcomputer accounting system? a. reliance on paper documentation is increased b. functions that are segregated in a manual environment may be combined in a microcomputer accounting system c. backup procedures require human intervention d. data are easily accessible

a. reliance on paper documentation is increased

The customer open order file is used to a. respond to customer queries b. fill the customer order c. ship the customer order d. authorize customer credit

a. respond to customer queries

A weekly reconciliation of cash receipts would include comparing a. the cash prelist with bank deposit slips b. the cash prelist with remittance advices c. bank deposit slips with remittance advices d. journal vouchers from accounts receivable and general ledger

a. the cash prelist with bank deposit slips

Which situation indicates a weak internal control structure? a. the mailroom clerk authorizes credit memos b. the record keeping clerk maintains both accounts receivable and accounts payable subsidiary ledgers c. the warehouse clerk obtains a signature before releasing goods for shipment d. the accounts receivable clerk prepares customer statements every month

a. the mailroom clerk authorizes credit memos

The billing department is not responsible for a. updating the inventory subsidiary records b. recording the sale in the sales journal c. notifying accounts receivable of the sale d. sending the invoice to the customer

a. updating the inventory subsidiary records

What specific internal control procedure would detect the misplacement of a sales invoice after preparation and not mailed to the customer? The invoice was never found.

all documents should be prenumbered

Periodically, the general ledger department receives all of the following except a. total increases to accounts receivable b. total of all sales backorders c. total of all sales d. total decreases in inventory

b. total of all sales backorders

Commercial accounting systems have fully integrated modules. The word "integrated" means that a. segregation of duties is not possible b. transfer of information among modules occurs automatically c. batch processing is not an option d. separate entries are made in the general ledger accounts and the subsidiary ledgers

b. transfer of information among modules occurs automatically

Which department is least likely to be involved in the revenue cycle? a. credit b. accounts payable c. billing d. shipping

b. accounts payable

Which control does not help to ensure that accurate records are kept of customer accounts and inventory? a. reconcile accounts receivable control to accounts receivable subsidiary b. authorize credit c. segregate custody of inventory from record keeping d. segregate record keeping duties of general ledger from accounts receivable

b. authorize credit

An advantage of real-time processing of sales is a. the cash cycle is lengthened b. current inventory information is available c. hard copy documents provide a permanent record of the transaction d. data entry errors are corrected at the end of each batch

b. current inventory information is available

A remittance advice is a. used to increase (debit) an account receivable by the cash received b. is a turn-around document c. is retained by the customer to show proof of payment d. none of the above

b. is a turn-around document

Usually specific authorization is required for all of the following except a. sales on account which exceed the credit limit b. sales of goods at the list price c. a cash refund for goods returned without a receipt d. write off of an uncollectible account receivable

b. sales of goods at the list price

Customers should be billed for backorders when a. the customer purchase order is received b. the backordered goods are shipped c. the original goods are shipped d. customers are not billed for backorders because a backorder is a lost sale

b. the backordered goods are shipped

Which document triggers the revenue cycle? a. the sales order b. the customer purchase order c. the sales invoice d. the journal voucher

b. the customer purchase order

The revenue cycle consists of a. one subsystem-order entry b. two subsystems-sales order processing and cash receipts c. two subsystems-order entry and inventory control d. three subsystems-sales order processing, credit authorization, and cash receipts

b. two subsystems-sales order processing and cash receipts

What specific internal control procedure would prevent a customer from being billed for all 50 items ordered although only 40 items were shipped?

billing should reconcile the shipping report with the sales order

All of the following are advantages of real-time processing of sales except a. The cash cycle is shortened b. Paper work is reduced c. Incorrect data entry is difficult to detect d. Up-to-date information can provide a competitive advantage in the marketplace

c. Incorrect data entry is difficult to detect

At which point is supervision most critical in the cash receipts system? a. accounts receivable b. general ledger c. mail room d. cash receipts

c. mail room

The credit department a. prepares credit memos when goods are returned b. approves credits to accounts receivable when payments are received c. authorizes the granting of credit to customers d. none of the above

c. authorizes the granting of credit to customers

The purpose of the sales invoice is to a. record reduction of inventory b. transfer goods from seller to shipper c. bill the customer d. select items from inventory for shipment

c. bill the customer

Which document is included with a shipment sent to a customer? a. sales invoice b. stock release form c. packing slip d. shipping notice

c. packing slip

The accounts receivable clerk destroys all invoices for sales made to members of her family and does not record the sale in the accounts receivable subsidiary ledger. Which procedure will not detect this fraud? a. prenumber and sequence check all invoices b. reconcile the accounts receivable control to the accounts receivable subsidiary ledger c. prepare monthly customer statements d. reconcile total sales on account to the debits in the accounts receivable subsidiary ledger

c. prepare monthly customer statements

Which journal is not used in the revenue cycle? a. cash receipts journal b. sales journal c. purchases journal d. general journal

c. purchases journal

The data processing method that can shorten the cash cycle is a. batch, sequential file processing b. batch, direct access file processing c. real-time file processing d. none of the above

c. real-time file processing

Which department prepares the bill of lading? a. sales b. warehouse c. shipping d. credit

c. shipping

The reconciliation that occurs in the shipping department is intended to ensure that a. credit has been approved b. the customer is billed for the exact quantity shipped c. the goods shipped match the goods ordered d. inventory records are reduced for the goods shipped

c. the goods shipped match the goods ordered

Adjustments to accounts receivable for payments received from customers is based upon a. the customer's check b. the cash prelist c. the remittance advice that accompanies payment d. a memo prepared in the mailroom

c. the remittance advice that accompanies payment

What specific internal control procedure would prevent the sale of goods on account to a fictitious customer?

credit check

List two points in the sales processing system when authorization is required.

credit check, sales returns policy, preparation of cash prelist

What specific internal control procedure would prevent an accounts receivable clerk from issuing a fictitious credit memo to a customer (who is also a relative) for goods that were "supposedly" returned from previous sales

credit memo should be authorized after verifying the return of goods based on evidence from the person who received the goods

What specific internal control procedure would prevent an increase in sales returns since salesmen were placed on commission?

customer credit should be verified by the credit department reduce commissions for sales returns

The revenue cycle utilizes all of the following files except a. credit memo file b. sales history file c. shipping report file d. cost data reference file

d. cost data reference file

The shipping notice a. is mailed to the customer b. is a formal contract between the seller and the shipping company c. is always prepared by the shipping clerk d. informs the billing department of the quantities shipped

d. informs the billing department of the quantities shipped

The adjustment to accounting records to reflect the decrease in inventory due to a sale occurs in the a. warehouse b. shipping department c. billing department d. inventory control department

d. inventory control department

A cash prelist is a. a document that records sales returns and allowances b. a document returned by customers with their payments c. the source of information used to prepare monthly statements d. none of the above

d. none of the above

EDI trading partner agreements specify all of the following except a. selling price b. quantities to be sold c. payment terms d. person to authorize transactions

d. person to authorize transactions

The stock release copy of the sales order is not used to a. locate and pick the items from the warehouse shelves b. record any out-of-stock items c. authorize the warehouse clerk to release custody of the inventory to shipping d. record the reduction of inventory

d. record the reduction of inventory

The most effective internal control procedure to prevent or detect the creation of fictitious credit memoranda for sales returns is to a. supervise the accounts receivable department b. limit access to credit memoranda c. prenumber and sequence check all credit memoranda d. require management approval for all credit memoranda

d. require management approval for all credit memoranda

Inventory control has physical custody of inventory

fakse

A bill of lading is a request for payment for shipping charges

false

A written customer purchase order is required to trigger the sales order system.

false

If a customer submits a written purchase order, there is no need to prepare a sales order.

false

In a computerized accounting system, segregation of functions refers to inventory control, accounts receivable, billing, and general ledger tasks.

false

In the revenue cycle, the internal control "limit access" applies to physical assets only.

false

Sales return involves receiving, sales, credit, and billing departments, but not accounts receivable.

false

The bill of lading is a legal contract between the buyer and the seller.

false

The packing slip is also known as the shipping notice.

false

A credit sale is made to a customer, even though the customer's account is four months overdue. Describe a specific internal control procedure that would prevent this from happening.

perform a credit check and require management approval for all sales to accounts that are overdue

A customer payment of $247 was correctly posted in the general ledger but was recorded as $274 in the customer's account receivable. Describe a specific internal control procedure that would detect this error.

reconcile the accounts receivable control account to the accounts receivable subsidiary ledger; compare control totals of cash received with total credits to A/R subsidiary ledger

State two specific functions or jobs that should be segregated in the sales processing `

sales order processing and credit approval; inventory control (record keeping) from warehouse (custody); and general ledger from accounts receivable subsidiary ledger

A clerk embezzles customer payments on account and covers up the theft by making an adjustment to the accounts receivable ledger. Describe a specific internal control procedure that would prevent this fraud.

segregation of duties; do not let one person have custody of payments and the ability to make adjustments to the records; all adjustments to accounts receivable records must be authorized

What specific internal control procedure would prevent the shipping clerk from taking goods from the storeroom and sending them to someone who had not placed an order?

shipping clerk should not have access to the storeroom

The clerk who opens the mail routinely steals remittances. Describe a specific internal control procedure that would prevent or detect this fraud.

supervision (two people) when opening the mail; customer complaints when monthly statements mailed

A remittance advice is a form of turn-around document

true

Another name for the stock release form is the picking ticket.

true

The cash receipts journal is a special journal.

true

The principal source document in the sales order system is the sales order.

true

The purpose of the invoice is to bill the customer.

true