ACCT 460 Chapter 8

A special journal used to record all cash collections is called a(n): a. Cash Receipts Journal b. Remittance Advice c. Check Register Journal d. Customer Subsidiary Journal

a. Cash Receipts Journal

When a company sells items over the Internet, there are many IT risks. The risk of hardware and software failures that prevent website sales would be a(n): a. Availability risk b. Processing integrity risk c. Security risk d. Confidentiality risk

a. Availability risk

Examples of characteristics that indicate a company may be more risky with respect to the revenue process include of all the following, except: a. Changes in sales price or customers are infrequent b. The pricing structure is complex or is based estimates c. There is a large volume of transactions is carried out d. The company dependents on a single or on very few customers

a. Changes in sales price or customers are infrequent

This type of highly integrated IT system incorporates electronic processing of sales-related activities and, generally, the sales processes are transacted over the internet. a. E-commerce b. Virtual commerce c. Electronic data interchange d. Point of sale

a. E-commerce

A control that limits the risk of network break-ins is the coding of data that makes data unreadable to those without the appropriate key. This process does not stop the breaches, but will make the data useless. a. Encryption b. Encoding c. Repudiation d. Hacking

a. Encryption

This section of the commons forms used as the standard format in EDI data transmission contains data about the file or transmission and identify the end of a particular transaction. a. Header and Trailer Data b. Labeling interchanges c. Data Segments d. Footer Data

a. Header and Trailer Data

The separation of the custody of cash from the accounts receivable record keeping will help to minimize the related risk of: a. Invalid cash receipts b. Incorrect amounts c. Invalid transactions d. Duplicate transactions

a. Invalid cash receipts

Sales orders are calculated based on current selling prices of the items sold. The source of these prices, which would include the entire set of preestablished and approved prices for each product, is referred to as a(n): a. Price list b. Purchase order c. Packing slip d. Pick list

a. Price list

Under a system of sound internal controls, if a company sold defective good, the return of those goods from the customer should be accepted by the: a. Receiving Clerk b. Sales Clerk c. Purchasing Clerk d. Inventory Control Clerk

a. Receiving Clerk

A document prepared that lists the chronological sequence of all returned items is referred to as a(n): a. Receiving log b. Receiving report c. Invoice d. Packing list

a. Receiving log

Circumstances within a company, related to sales returns, that indicates a high level of risk include all of the following, except: a. Returns are received at one location with credit memos issued at the same location b. Quantities of products returned are often difficult to determine c. There is a high volume of credit memo activity d. Returns are received by consignees or under other arrangements not directly controlled by the company.

a. Returns are received at one location with credit memos issued at the same location

This document is prepared and sent to the customer once the shipment has occurred. The document provides the details of the sale and requests payment. a. Sales Invoices b. Accounts Receivable Statement c. Bill of Lading d. Sales Order

a. Sales Invoice

Important characteristics of electronic data interchange (EDI) include all of the following, except: a. Sales register is used to record all transactions b. Inter-company refers to two or more companies conducting business electronically c. Computer-to-computer aspect indicates that each company's computers are connected via a network d. A standard business format is necessary so that companies can interact and trade with a variety of buyers and sellers

a. Sales register is used to record all transactions

The purpose of tracing shipping documents to prenumbered sales invoices would be to provide evidence that: a. Shipments to customers were properly invoiced b. No duplicate shipments or billings occurred c. Goods billed to customers were shipped d. All prenumbered sales invoices were accounted for

a. Shipments to customers were properly invoiced

Within the revenue processes, a signed approval of sales order indicates all of the following except: a. The date of delivery b. The sale is to an accepted customer c. The customer's credit has been approved d. The sales price is correct

a. The date of delivery

The internal control activity related to the adequate records and documents, related to sales, includes which of the following? a. Those responsible for recording sales should ensure that the supporting documentation is retained and organized b. Information systems duties included in the revenue process includes the preparation of sales orders and shipping logs c. All records are to be prepared by someone other than the person who has custody of the assets. d. The authorization process is to remain separate from the recording process

a. Those responsible for recording sales should ensure that the supporting documentation is retained and organized

When a sale occurs, the information resulting from that sale must flow into the sales recording systems, the accounts receivable and cash collection systems, and the inventory tracking systems. In IT accounting systems, these recording and processing systems are referred to as: a. Transaction Processing Systems b. Revenue and Cash Processing Systems c. Point of Sale System d. E-business System

a. Transaction Processing Systems

The risks that may affect the revenue and cash collection processes include all of the following, except: a. Transactions recorded by the wrong company b. Valid transactions may have been omitted from the records c. Transactions may not have been recorded in a timely manner d. Recorded transactions may not be valid or complete

a. Transactions recorded by the wrong company

Immediately upon receiving checks from customers in the mail, a responsible employee working in an environment of adequate internal control should prepare a listing of receipts and forward it to the company's cashier. A copy of this cash receipts listing should also be sent to the company's: a. Treasurer for comparison with the monthly bank statement b. Internal auditor for investigation of any unusual transaction c. Accounts receivable clerk for updating of the accounts receivable subsidiary ledger. d. Bank for comparison with deposit slips

a. Treasurer for comparison with the monthly bank statement

The custody responsibilities for cash responsibilities for cash receipts includes all of the following, except: a. Updating accounts receivable records b. Opening mail c. Preparing a list of collections d. Handling receipts of currency and checks

a. Updating accounts receivable records

The sales and cash collections process begins when: a. Merchandise is shipped to a customers b. A customer places an order with the company c. Merchandise is purchased d. A vendor places an order with the company

b. A customer places an order with the company

General controls of the IT system would include all of the following, except: a. Authentication of users b. Accuracy c. Physical access controls d. Business continuity planning

b. Accuracy

The risks of e-commerce, or e-business, include all of the following, except: a. Confidentiality b. Accuracy c. Security d. Processing Integrity

b. Accuracy

Application controls of the IT system would include: a. Availability b. Accuracy and Completeness c. Security d. Processing Integrity

b. Accuracy and Completeness

The segregation of duties related to sales returns would ideally separate the function of performing the credit memo activity and all of the following, except: a. Credit approval b. Approve the credit memos c. Billing d. Data entry

b. Approve the credit memos

The terms of agreement between the company and the common carrier are documented in a(n): a. Pick List b. Bill of Lading c. Invoice d. Packing Slip

b. Bill of Lading

Independent checks and reconciliations, related to cash receipts, include all of the following, except: a. Cash counts should occur on a surprise basis and be conducted by someone not responsible for cash receipts functions. b. Cash collections should be deposited in the bank in a timely manner to prevent the risk of theft c. Physical count of cash needs to be conducted from time to time in order to compare actual cash on hand with the amounts in the accounting records d. Daily bank deposits should be compared with the detail on the related remittance advice and in the cash receipts journal.

b. Cash collections should be deposited in the bank in a timely manner to prevent the risk of theft

Independent checks and reconciliations, related to cash receipts, include all of the following, except: a. Cash counts occur on a surprise basis and be conducted by someone not responsible for cash receipts functions b. Cash collections should be deposited in the bank in a timely manner to prevent the risk of theft c. Physical count of cash needs to be conducted from time to time in order to compare actual cash on hand with the amounts in the accounting records. d. Daily bank deposits should be compared with the detail on the related remittance advice and in the cash receipts journal.

b. Cash collections should be deposited in the bank in a timely manner to prevent the risk of theft

The following circumstances may indicate risk related to cash collections, except: a. High volume of cash collections b. Centralized cash collections c. Lack of consistency in the volume or source of collections d. Presence of cash collections denominated in foreign currencies

b. Centralized cash collections

A document completed to prepare a record of the sales return and to adjust the amount of the customer's credit status is called a(n): a. Receiving log b. Credit memorandum c. Sales invoice d. Sales journal

b. Credit memorandum

The separation of the responsibility for the authorization of new customers from the custody of inventory will help to minimize the related risk of: a. Invalid sales b. Fictitious customers c. Incorrect amounts d. Timing issues

b. Fictitious customers

The separation of the responsibility for custody of cash from the responsibility for reconciling the bank accounts will help to minimize the related risk of: a. Wrong customers b. Incorrect amounts c. Invalid bank account d. Invalid transactions

b. Incorrect amounts

The separation of the custody of inventory from the accounts receivable record keeping will help to minimize the related risk of: a. Incorrect amounts b. Invalid returns c. Fictitious customers d. Timing issues

b. Invalid returns

The standard format for common forms used in the United States for electronic data interchange (EDI) data transmission is divided into three parts. Which of the following is one of those "parts"? a. Availability Systems b. Labeling interchanges c. Security Trailer d. Processing Data

b. Labeling interchanges

This term refers to moving the current accounting period's cut-off date forward to include sales that correctly occur in a future period. This activity occurs so that the selling company can inflate their sales in the current period. a. Channel stuffing b. Leaving sales open c. Shipping reversal d. Sales deferral

b. Leaving sales open

Which of the following relationships does not violate the rules of segregation of duties? a. Credit authorization and preparation of the sales order b. Preparation of the sales order and sales invoice c. Preparing goods for shipment and accounting for inventory d. Entering sales in the sales journal and handling the inventory

b. Preparation of the sales order and sales invoice

In order to ensure that all records are updated only for authorized transactions, appropriate individuals should be assigned all of the following duties, except: a. Opening and closing all bank accounts b. Preparing the bank reconciliation c. Approving bank deposits d. Approving electronic transfers of funds

b. Preparing the bank reconciliation

The recording responsibilities for cash receipts includes all of the following, except: a. Opening and closing all bank accounts b. Preparing the bank reconciliation c. Approving bank deposits d. Approving electronic transfers of funds

b. Preparing the bank reconciliation

the policies and procedures that employees follow when completing the sale, capturing customer data and sales quantities, and routing the resulting sales documents to the right departments within the company are referred to as: a. Transactions b. Processes c. Posting d. Systems

b. Processes

When a company sells items over the Internet, it is usually called e-commerce: There are many IT risks related to Internet sales. The risk of invalid data entered by a customer would be a(n): a. Availability risk b. Processing integrity risk c. Security risk d. Confidentiality risk

b. Processing integrity risk

The business processes that are common in company-to-company sales business are divided into three groups. Which of the following is not one of those groups? a. Sales processes, including ordering, delivery, and billing b. Purchase of inventory, including ordering, delivery, and billing c. Sales Returns processes d. Cash Collection processes

b. Purchase of inventory, including ordering, delivery, and billing

When a sales transaction has been authorized, by the signature of the designated employee, it means that the designated employee has done all of the following, except: a. Verified the sale is to an accepted customer b. The vendor's credit has been approved c. The price is correct d. Approval documented by a signature of initials of the designated employee

b. The vendor's credit has been approved

EDI systems have many advantages within the revenue and cash collection processes. Which of the following is not one of those benefits? a. Reduction or elimination of data keying b. Trading partners gaining access to data c. Elimination of postage costs d. Competitive advantage through better customer service

b. Trading partners gaining access to data

This occurs when the IT system automatically makes a list of users and the actions they take within the IT system. a. Control Totals b. Transaction Logging c. Encryption Keys d. Acknowledgement

b. Transaction Logging

Common types of independent checks within the revenue process include all of the following, except: a. Verification of information in the sales journal and on sales invoices b. Verification of the bank statement and the cash account in the general journal c. Reconciliation of accounts receivable detail with invoices and with the general ledger d. Reconciliation of inventory records with actual (counted) quantities on hand.

b. Verification of the bank statement and the cash account in the general journal

Which of the following is not one of the stated physical controls for inventory in a warehouse? a. Surveillance Cameras b. Alarm Systems c. Backup Copies d. Security Guards

c. Backup Copies

Bank reconciliation tasks include: a. Procedures to ensure that deposits are examined for proper dates b. Procedures to ensure that all reconciling items are reviewed and explained c. Both of the above d. None of the above

c. Both of the above

The source document that initiates the recording of the return and the adjustment to the customer's credit status is the: a. Pick list b. Sales journal c. Credit memorandum d. Sales invoice

c. Credit memorandum

This type of highly integrated IT system, inter-company, computer-computer, communicates sales documents electronically with a standard business format. a. E-commerce b. Virtual commerce c. Electronic data interchange d. Point of sale

c. Electronic data interchange

The purpose of tracing sales invoices to shipping documents would be to provide evidence that: a. Shipments to customers were properly incurred b. No duplicate shipments or billings occurred c. Goods billed to customers were shipped d. All prenumbered sales invoices were accounted for

c. Goods billed to customers were shipped

The risks that may affect the revenue and cash collection processes include all of the following, except: a. Transactions may have been recorded in the wrong customer account. b. Transactions may be recorded in the wrong amount. c. Invalid transactions may have been omitted from the records d. Transactions may not have been accumulated or transferred to the accounting records correctly

c. Invalid transactions may have been omitted from the records

Features that assist management and accountants, as the result of the point-of-sale systems, include all of the following, except: a. Bar code scanning eliminates the need to manually enter product codes, quantities, or prices. b. Real-time update of cash, sales, and inventory records allows for immediate analysis of sales trends, inventory needs, and cash on hand. c. List prices can be changed by the check-out clerks to take advantage of any price changes. d. Credit card authorization during the sale save time and help prevent credit card fraud

c. List prices can be changed by the check-out clerks to take advantage of any price changes

The security of having cash receipts deposited in the bank on a daily basis will help to minimize the related risk of: a. Invalid receipts b. Invalid bank account c. Lost or stolen cash d. Duplicate transactions

c. Lost of stolen cash

The comparison of the shipping records with the sales journal and invoices is completed to minimize the related risk of: a. Invalid transactions b. Fictitious customers c. Omitted transactions d. Duplicate transactions

c. Omitted transactions

The Point-of-sales (POS) systems capture all relevant sales data at the point of sale- the cash register. The data that is captured includes all of the following, except: a. Prices are determined by accessing inventory and price list data b. Sales revenue is recorded c. Ordering for low-inventory items d. Inventory values are updated

c. Ordering for low-inventory items

This item documents the quantities and descriptions of items ordered. Items from this document should be pulled from the warehouse shelves and packaged for the customer. A. Packing Slip b. Price List c. Pick List d. Purchase Order

c. Pick List

An IT system that uses touch screens, bar coded products, and credit card authorization during the sale is called a(n): a. Electronic data interchange system b. E-commerce system c. Point of sales system d. E-payables system

c. Point of sales system

An example of an independent verification in the sale process is: a. Preparation of packing lists on prenumbered forms. b. Initiating the sales order c. Proof of recorded dates, quantities, and prices on an invoice d. Physical controls in record storage areas

c. Proof recorded dates, quantities, and prices on an invoice

The form, or source document, that conveys the details about a customer's order, prepared by the customer, is referred to as: a. Sales Order b. Sales Invoice c. Purchase Order d. Purchase Invoice

c. Purchase Order

A source document prepared by the personnel in the receiving dock that documents the quantity and condition of the items received is called a(n): a. Invoice b. Receiving log c. Receiving report d. Credit memorandum

c. Receiving report

The advantages of e-commerce, or e-business, include all of the following, except: a. Reduced cost through lower marketing, employee, and paperwork costs b. Shorter sales cycles c. Repudiation of sales transactions d. Increased accuracy and reliability of sales data

c. Repudiation of sales transactions

A special journal that is used to record sales transactions and is periodically posted to the general ledger. a. General Journal b. Subsidiary Journal c. Sales Journal d. Accounts Receivable Journal

c. Sales Journal

Differences between a sales return and sales allowance include: a. The issuance of a credit memorandum b. The existence of defective merchandise c. The documentation in a receiving report d. All of the above

c. The documentation in a receiving report

Which of the following would represent proper segregation of duties? a. The employee who has custody of cash also does accounts receivable record keeping b. The employee who has custody of cash completes the bank reconciliation c. The employee who opens mail containing checks prepares a list of checks received d. The employee who opens mail containing checks records transactions in the general ledger.

c. The employee who opens mail containing checks prepares a list of checks received

The business processes that are common in company-to-company sales business types include all of the following except: a. Collect order data b. Record receivable and bill the customer c. Update affected records, such as accounts payable and cash d. Handle any product returns from the customer

c. Updated affected records, such as accounts payable and cash

Because it can be expensive to develop and maintain a system that links two companies directly, the companies often use a third-party network. This third-party network provides other valuable services such as translation and encryption of the EDI data and authentication of a valid and authorized training partner. These third-party networks are called: a. EDI Mailboxes b. American National Standards Provider c. Value Added Networks d. Secured EDI Networks

c. Value Added Networks

Common means of presenting the revenue and cash collections processes pictorially include: a. Data Flow Diagram b. Document Flowchart c. Business Process Map d. All of the above

d. All of the above

In a large company, there are hundreds, possibly thousands, of sales transactions each day. The company needs to have in place, systems and processes to: a. Capture the results of the sales transactions b. Record the proper and complete sales transactions c. Summarize and report the results of the transactions d. All of the above

d. All of the above

If a company does not prepare an aging of accounts receivable, which of the following accounts is most likely to be misstated? a. Sales revenues b. Accounts receivables c. Sales returns and allowances d. Allowance for uncollectible accounts

d. Allowance for uncollectible accounts

The standards formal used with electronic data interchange (EDI) allows all vendors and buyers to speak the same language. This group has developed the standard format for the common documents used in the sales process. a. Electronic Data Systems b. American Common Forms Institute c. Association of Naturalized Documents d. American National Standards Institute

d. American National Standards Institute

The process of user identification to ensure that only authorized users are accessing the IT system, which occurs through the use of user ID, password, and other unique identifiers, is called: a. Processing Integrity b. Virtualization c. Availability d. Authenication

d. Authenication

The maximum dollar amount that a customer is allowed to carry as an accounts receivable balance: a. Maximum Limit b. Credit Balance c. Maximum Balance d. Credit Limit

d. Credit Limit

This document is prepared on a regular basis to accumulated and summarize all the transactions that have taken place between the customer and the company within the period. a. Accounts Receivable Journal b. Sales Invoice c. Subsidiary Journal d. Customer Account Statements

d. Customer Account Statements

Availability risks of e-commerce, or e-business, include all of the following except: a. Hardware and software system failures b. Virus and work attacks c. Denial-of-service attacks by hackers d. Incomplete audit trail

d. Incomplete audit trail

Whenever a company grants credit to customers, there is a danger that customers will not pay. In fact, most companies have occasional problems with customers who fail to pay which leads to writing off the accounts receivable. Proper controls related to these uncollectible accounts include all of the following, except: a. Segregation of responsibilities so that no one has the opportunity to write off an account to cover up stolen cash b. Thorough guidelines are to be established for determining the amount of an allowance for uncollectible accounts c. An accounts receivable aging report should be generated to analyze all customer balances and the lengths of time that have elapsed since the payments were due. d. Mathematical verification of the cash receipts journal and the accounts receivable ledger.

d. Mathematical verification of the cash receipts journal and the accounts receivable ledger.

The preparation of deposit slips on prenumbered forms will help to minimize the related risk of: a. Invalid transactions b. Incorrect amounts c. Duplicate transactions d. Omitted transactions

d. Omitted transactions

The preparation of packing lists and shipping records on prenumbered forms will help to minimize the related risk of: a. Incorrect amounts b. Invalid sales c. Wrong customers d. Omitted transactions

d. Omitted transactions

Which of the following is not a document that is part of the cash collections process? a. Remittance advice b. Cash receipts journal c. Bank deposit slip d. Packing slip

d. Packing slip

This type of highly integrated IT system processes sales at a cash register in retail stores. a. E-commerce b. Virtual commerce c. Electronic data interchange d. Point of sale

d. Point of sale

Which of the following is not a method of unethically inflating sales revenue? a. Channel stuffing b. Holding sales open c. Premature recognition of contingent sales d. Promotional price discounts

d. Promotional price discounts

The authorization of sales returns requires that certain individuals within the company be assigned the authority for all of the following except: a. Authorize Sales Returns b. Approve Credit Memos c. Develop Sales Return Policies d. Record the Credit Memos

d. Record the Credit Memos

The documentation accompanying payment that identifies the customer account number and invoice to which the payment applies is referred to as a(n): a. Cash Receipts Journal b. Promissory Note c. Deposit List d. Remittance Advice

d. Remittance Advice

A chronological listing of shipments that allows management to track the status of sales and to answer customer inquiries regarding order status is called a(n): a. Invoice b. Bill of Lading c. Pick List d. Shipping Log

d. Shipping Log

The use of electronic data interchange (EDI) to conduct sales electronically has both risks and benefits. Which of the following is a benefit of EDI, rather than a risk? a. Incomplete audit trail b. Repudiation of sales transactions c. Unauthorized access d. Shorter inventory cycle time

d. Shorter inventory cycle time

In order to protect data files, production programs, and accounting records from unauthorized access, each of the following may be used, except: a. Passwords b. Physical controls (locked cabinets) c. Backup copies d. Surveillance cameras

d. Surveillance cameras

To ensure that all credit sales transactions of an entity are recorded, which of the following controls would be most effective? a. On a monthly basis, the accounting department supervisor reconciles the accounts receivable subsidiary ledger to the accounts receivable control account. b. The supervisor of the accounting department investigates any account balance differences reported by customers. c. The supervisor of the billing department sends copies of approved sales orders to the credit department for comparison of authorized credit limits and current customer balances d. The supervisor of the billing department matches prenumbered shipping documents with entries recorded in the sale journal

d. The supervisor of the billing department matches prenumbered shipping documents with entries recorded in the sale journal