AIS Exam 2 (chapters 12-16), AIS CH13, Chapter 13, ais test 3

Cash Collections: Remittance List

A document listing names and amounts of all customer payments received in the mail

One approach to ordering inventory: Economic order quantity (EOQ)

1.Economic quantity ordered (EOQ) is used to minimize costs and stockouts. For example, stores may identify certain inventory items that are sold frequently and may have an EOQ that is different than an inventory item that is not sold as frequently.

One approach to ordering inventory: Just-in-time inventory (JIT)

1.Just-in-time inventory (JIT) responds to actual sales (demand).

One approach to ordering inventory: Materials requirements planning

1.Materials requirements planning (MRP) is based on forecast sales.

Earnings statement

A document given to each employee that shoes gross pay, net pay, and itemizes all deductions both for the current pay period and the year-to-date

Job-order costing

A cost accounting method that assigns costs to specific batches or production runs and is used when the product or service consists of uniquely identifiable items

Production Order

A document that authorizes manufacture of a finished good

Master Production Schedule

A document that specifies how much of a finished good is to be produced during a specific time period

Move ticket

A document that tracks transfer of inventory from one work center to another

Purchase requisition

A document used only internally to initiate the purchase of materials, supplies, or services

Debit Memo

A document used to authorize a reduction in accounts payable because merchandise has been returned to a supplier

materials requisition

A document used to authorize removal of raw materials from inventory.

Payroll register

A list of each employee's gross pay, payroll deductions, and net pay in a multi column format.

Cash collections: Electronic Lockbox

A lockbox arrangement in which the bank electronically sends the company information about the customer account number and the amount remitted as soon as it receives payments.

Throughput

A measure of the number of good units produced in a period of time

Voucher System

A method of maintaining accounts payable that generates one check to pay for a set of invoices from the same supplier.

Cash Collections: Lockbox

A postal address to which customers send their remittances

Evaluated receipts settlement (ERS)

A process for approving supplier invoices based on a two-way match of the receiving report and purchase order

Procurement Card

A special-purpose credit card used to purchase supplies

Blanket purchase order

An agreement to purchase set quantities at specified intervals of items delivered by a supplier.

Payroll service bureau

An organization that processes payroll

Voucher package

Combo of purchase order, receiving report, and supplier invoice that all relate to the same transaction

For good internal control in an ERP system, sales staff should be permitted to ___________ a. Adjust customer credit limits b. Issue credit memos c. Both D. None

D. None

Lean manufacturing

Lean manufacturing is thought of as "pull" manufacturing because goods are produced in response to customer demand.

-Manufacturing resource planning (MRP-II)

MRP-II is thought of as "push" manufacturing because goods are produced in expectation of customer demand.

What is the Revenue Cycle Objectives?

Right Product Right Place Right Time Right Price

Payroll clearing account

Special general ledger account used for payroll processing

Bill of Materials (BOM)

The Bill of Materials (BOM) specifies the part number, description, and quantity of each component used in a product.

Cash Collections: Financial Electronic Data Interchange (FEDI)

The combo of EFT and EDI that enables both remittance data and funds transfer instructions to be included in one electronic package.

What is the expenditure cycle concerned with?

The expenditure cycle is concerned with transacting business between the organization and its suppliers (vendors) for goods and services.

What is the primary objective of the expenditure cycle?

The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and various services the organization needs to function.

Imprest Fund

The method used to maintain the cash balance in the petty cash account

operations list

The operations list is a document that specifies the sequence of steps to follow in making a product.

Cash collections: Electronic Funds Transfer (EFT)

The transfer of fund through the use of online banking software

Receiving Goods or Services Threats and Controls

Threats: 1.Accepting unordered items 2.Mistakes in counting 3.Verifying receipt of services 4.Inventory theft Controls: 1 a. Authorized purchase orders needed before receiving goods 2 a. Bar codes or RFID b. Receiving employees sign receiving report c. Do not inform receiving of quantity ordered 3 a. Budget controls and audits 4 a. Restrict physical access to inventory b. Document all inventory transfers c. Segregate custody vs. receiving of inventory

Approve Supplier Invoice Threats and controls

Threats: 1.Errors in supplier invoice 2.Mistakes in posting to accounts payable Controls: 1 a. Verify invoice accuracy b. Require detailed receipts for p-cards c. Restrict access to supplier master data 2 a. Data entry edit controls b. Reconcile detailed accounts payable records to the general ledger accounts payable account

Cash Disbursements threats and controls

Threats: 1.Failure to take discounts 2.Pay for items not received 3.Duplicate payments 4.Theft of cash 5.Check alteration 6.Cash flow problems Controls: 1 a. File invoices by due date to take advantage of discounts 2 a. Match supplier invoice to supporting documents (purchase order, receiving report) 3 a. Pay only original invoices b. Cancel supporting document when payment is made 4 a. Physical security of checks b. Separation of duties c. Reconcile bank accounts 5 a. Check Protection machines b. special inks / papers 6 a. Cash flow budget

Cost Accounting Threats and Controls

Threats: 1.Inaccurate cost data 2.Inappropriate allocation of overhead costs 3.Misleading reports Controls: 1 a. Source data automation b. Data processing integrity controls 2 a. Time-driven activity-based costing 3 a. Performance metrics

General Issues HRM/Payroll Threats and Controls

Threats: 1.Inaccurate or invalid data 2.Unauthorized disclosure of sensitive information 3.Loss or destruction of data 4.Hiring unqualified or larcenous employees 5.Violations of employment laws Controls: 1 a. Data processing integrity controls b. Restrict access to master data c. Review changes to master data 2 a. Access controls b. Encryption 3 a. Backup and Disaster recovery 4 a. Sound hiring procedures 5 a. Documentation of hiring b. Continuing education on changes to employment laws

General threats and controls of the expenditure cycle?

Threats: 1.Inaccurate or invalid master data 2.Unauthorized disclosure of sensitive information 3.Loss or destruction of data 4.Poor performance Control: 1 a. Data processing integrity controls 1 b. Restriction of access to master data 1 c. Review of all changes to master data 2 a. Access controls b. Encryption 3 a. Backup and disaster recovery procedures 4 a. Managerial reports

General threats and controls to revenue cycle

Threats: 1.Inaccurate or invalid master data 2.Unauthorized disclosure of sensitive information 3.Loss or destruction of data 4.Poor performance Controls: 1 a. Data processing integrity controls b. Restrict access to master data c. Review of all changes to master data 2 a. Access controls b. Encryption c. Tokenization of customer personal information 3 a. Backup and disaster recovery procedures 4 a. Managerial reports

General threats and controls with the production cycle

Threats: 1.Inaccurate/Invalid master data 2.Unauthorized disclosure of sensitive information 3.Loss or destruction of data Controls: 1 a. Data processing integrity controls b. Restrict access to master data c. Review changes to master data 2 a. Access controls b. Encryption 3 a. Backup and disaster recovery procedures

Product Operations Threats and Controls

Threats: 1.Inventory theft 2.Fixed asset theft 3.Poor performance 4.Suboptimal investments in fixed assets 5.Loss of inventory or fixed assets due to fire or disasters 6.Disruption of operations Controls: 1 a. Restrict physical access b. Document movement of inventory c. Segregation of custody duties from authorization and recording 2 a. Restrict access to fixed assets b. Keep detailed records of fixed assets including disposals 3 a. Performance reporting 4 a. Solicit competitive bids 5 a. Insurance and physical safeguards 6 a. Backup and disaster recovery plans

Shipping Process Threats and Controls

Threats: 1.Picking wrong item or quantity to ship 2.Theft 3.Shipping errors (fail to ship the goods, wrong quantities, wrong items, ship to wrong address, duplication) Controls: 1 a. Bar code technology b. Reconcile picking list to sales order 2 a. Restrict physical access to inventory b. Document inventory transfers c. Physical counts of inventory and reconcile to quantities recorded 3 a. Reconcile shipping documents to sales orders, picking lists, and packing slips b. Data entry edit controls

Cash Collection Process Threats and Controls

Threats: 1.Theft of cash 2.Cashflow problems Controls: 1 a. Proper segregation of cash handling and posting to customer accounts, authorize credit memos, or reconcile bank account b. Use lockbox c. Immediately open mail, prompt endorsement and deposit all cash receipts daily d. Use cash registers 2 a. Lockbox b. Discounts for early payment c. Cash flow budgeting

4. Disburse Payroll 5. Disburse Payroll Taxes Threats and Controls

Threats: 1.Theft or fraudulent distribution of paychecks 2.Failure to make required payments 3.Untimely payments 4.Inaccurate payments Controls: 1 a. Restrict access to blank payroll checks and check signing machine b. Use separate account (imprest fund) 2 a. Configure system to make automatic payments on time 3 a. Configure system to make automatic payments on time 4 a. Process integrity controls b. Supervisory review

1. Update Master Payroll Data2. Validate Time and Attendance Data3. Prepare Payroll Threats and Controls

Threats: 1.Unauthorized changes to payroll master data 2.Inaccurate updating of master data 3.Inaccurate time and attendance data 4.Errors in processing payroll Controls: 1 a. Access controls and segregation of duties 2 a. Data processing integrity controls 3 a. Supervisory review b. Source data automation for data capture 4 a. Data processing integrity controls b. Supervisory review

Product Design and Planning and Scheduling Threats and Controls

Threats: Product Design: 1.Poor product design resulting in excess costs Planning and Scheduling: 1.Over and under production Controls: 1 a. Analysis of costs arising from product design choices b. Analysis of warranty and repair costs 2 a. Production planning systems b. Review and approve production orders and schedules c. Restrict access to orders and schedules

Billing Process Threats and Controls

Threats: 1.Failure to bill customer 2.Billing errors 3.Posting errors in accounts receivable 4.Inaccurate or invalid credit memos Controls: 1 a. Reconcile invoices with sales orders and shipping documents b. Separate shipping and billing functions 2 a. Data entry edit controls b. Configure system for automatically enter price data c. Data entry edit controls d. reconciliation of shipping documents to sales orders 3 a. Reconcile subsidiary accounts receivable balance to the amount for accounts receivable in the general ledger b. Mail monthly statements to customers 4 a. Segregation of authorization and recording function for credit memos

Sales Order Entry Processing Threats and Controls

Threats: 1.Incomplete/inaccurate orders 2.Invalid orders 3.Uncollectible accounts 4.Stockouts and excess inventory 5.Loss of customers Controls: 1 a. Data entry edit controls b. Restrict access to master data to maintain accuracy 2 a. Signature to authorize sale 3 a. Credit limits checked and if sale exceeds limit, specific authorization needed b. Aging of accounts receivable 4 a. Perpetual inventory system b. RFID or bar code technology c. Physical inventory counts d. Sales forecast and activity reports

Ordering goods/services threats and controls

Threats: 1.Stockouts and excess inventory 2.Purchasing items not needed 3.Purchasing items at inflated prices 4.Purchasing goods of poor quality 5.Unreliable suppliers 6.Purchasing from unauthorized suppliers 7.Kickbacks Controls: 1 a. Perpetual inventory system b. Bar-coding, RFID c. Periodic physical counts 2 a. Perpetual inventory systems b. Review and approval of purchase requisitions c. Centralized purchasing 3 a. Price lists b. Competitive bids c. Review purchase orders 4 a. Use approved suppliers b. review and approve purchases from new suppliers c. Monitor product quality by supplier d. hold purchasing managers responsible for rework and scrap cost 5 a. Monitor supplier performance b. Require quality certification 6 a. Purchase from approved suppliers b. Review approval from purchases of new suppliers c. EDI specific controls 7 a. Supplier audits b. Prohibit gifts c. Job rotation & mandatory vacations d. Required disclosure of financial and personal interests in suppliers

Time sheet

Used to record the activities performed by a salaried professional for various clients

Time card

Used to record time worked by an hourly-wage employee

Management normally would ask the following questions relating to their human resources:

What skills do our employees possess? What skills do we need to accomplish our strategy? Are their problems with employee turnover, absenteeism, or tardiness?

Computer-integrated manufacturing

a term used to refer to the use of robots and other IT techniques as part of the production process

Which threat is most likely to result in the largest losses in a short period of time? a. Alteration of checks or EFT payments b. Theft of inventory c. Duplicate payments to suppliers d. All of the above e. None

a. Alteration of checks or EFT payments

Which of the following pairs of duties combines the functions of custody and authorization in a manner that would allow an employee to conceal the theft of a customer's payments? a. Handling cash receipts plus maintaining accounts rec. b. Writing checks plus reconciling the bank statement c. Handling cash receipts plus issuing credit memos d. All the above e. Non of the above

a. Handling cash receipts plus maintaining accounts rec.

MRP-II would most likely be used by a company that produces_________ a. different grades of milk (whole, 2% and skim) b. toner cartridges for laser printers c. toys based on a new movie d. all of the above e. none of the above

a. different grades of milk (whole, 2% and skim)

The control procedure of cancelling the document in a voucher package is designed to reduce the risk of________________ a. making duplicate payments b. paying for items not received c. fraudulent cash disbursements d. failure to take advantage of discounts for prompt payments e. theft of inventory

a. making duplicate payments

At which stage of the production process can accountants contribute to significantly reducing the COGS? a. production design b. planning and scheduling c. production operations d. none of the above

a. production design

Which of the following controls would be most effective in mitigating the rick of inventory theft? a. reconciling shipping documents to sale orders, picking lists, and packing slips b. separating the functions of shipping and billing c. Documentation of all transfers of inventory between employees d. use of lockboxes

a. reconciling shipping documents to sale orders, picking lists, and packing slips

The CEO is concerned about the possibility of employees stealing inventory. IN the formal language used for risk analysis, theft if referred to as an _______________ a. risk b. exposure c. expected loss d. threat e. non of the above

a. risk

Which of the following combinations of duties can the same employee perform without violating the principle of segregation of duties? a. Shipping inventory and billing customers b. Issuing credit memos and maintaining accounts receivable c. Taking customers orders and checking inventory availability. d. All three e. None

b. Issuing credit memos and maintaining accounts receivable

Which of the following types of fraud requires access to the accounts receivable master file? a. Lapping b. Kiting c. Theft of inventory d. None of the above

b. Kiting

The control procedure of prohibiting employees from accepting gifts is designed to reduce the risk of ______________ a. theft of inventory b. kickbacks c. fraudulent cash disbursements d. stockouts e. none of the above

b. kickbacks

Which of the follow is an example of the type of fraud referred to as misappropriation of assets? a. embezzlement b. lapping c. inventory theft d. all of the above e. none of the above

b. lapping

Move tickets are a control procedure designed to reduce the risk of _________? a. loss or destruction of production data b. theft of inventory c.disruption of operations d. inappropriate allocation of overhead costs

b. theft of inventory

Which part of the throughput formula provides information about the impact of equipment downtime on overall productivity? a. productive capacity b.productive processing time c. yield d. none of the above

b.productive processing time

Which of the following control procedures is designed to reduce the risk of check alternation fraud? a. ACH blocks on accounts not used for payments b. Use of dedicated computer and browser for online banking c. Establishing "Positive Pay" arrangements with banks d. Access controls for EFT terminals e. Pre-numbering all checks

c. Establishing "Positive Pay" arrangements with banks

Which of the following violates proper segregation of duties? a. The same person maintains both accounts receivable and accounts payable b. The same person approves sale orders that exceed a customers credit limit and processes and reconciles the bank account c. The same person handles customer payments and has access to blank checks. d. All of the above E. None of the above

c. The same person handles customer payments and has access to blank checks.

Tokenization is a control that mitigates the risk of __________ a. inaccurate or invalid master data b. unauthorized disclosure of sensitive data c. Unauthorized changes to payroll master data d. inaccurate time and attendance data e. theft of fraudulent distribution of paychecks

c. Unauthorized changes to payroll master data

Which of the follow statements are true? a. issuing employees procurement cards is an example of the control procedure referred to as "general authorization" b. organizations can reduce the risk of fraudulent disbursements by sending their bank a list of all checks issued, a process referred to as "positive pay" c. both are true d. none are true

c. both are true

In terms of quality control measures, scarp and rework costs are part of __________ a. prevention costs b. inspection costs c. internal failure costs d. external failure costs

c. internal failure costs

For effective internal controls, which of the following duties can the person who handles customer payments also perform? a. Issue credit memos b. Reconcile the bank accounts c. maintain accounts receivable d. all of the above e. none of the above

c. maintain accounts receivable

The control procedure of comparing a voucher package to vendor invoices is designed to reduce the risk of ________ a. a failure to take advantage of discounts for prompt payment b. mistakes in posting to accounts payable c. paying for items not received d. theft of inventory e. making duplicate payments

c. paying for items not received

Which of the following documents is no longer needed if a company uses the evaluated receipts system (ERS) with its suppliers? a. purchase order b. receiving report c. supplier invoice d. debit memo e. none

c. supplier invoice

Which control procedure would be most effective in reducing the risk of over-or-under-production? a. reviewing all changes to mater data b. activity-based costing c. production planning systems d. computer-integrated manufacturing e. reports that highlight the components of throughput

c.production planning systems

Which of the following procedures, by itself, is most effective at preventing employees from stealing cash? a. Restrictively endorsing all checks from customers upon receipts b. Having someone who has no access to cash reconcile the bank accounts c. Sending monthly statements to customers d. Using lockboxes fro customer remittances

d. Using lockboxes fro customer remittances

Kickbacks are a problem because they increase the risk of ___________ a. purchasing inventory that is not needed b. purchasing inferior quality items c. purchasing at inflated prices d. all of the above e. none

d. all of the above

Which of the follow control procedures is designed to reduce the risk of theft of inventory? a. restriction of physical access to inventory b. periodic physical counts of inventory and reconciliation to recorded quantities on hand c. Documentation of all inventory between employees d. all of the above

d. all of the above

Which of the following controls reduce the risk of issuing paychecks to a "phantom" or "ghost" employee? a. restrict physical access to blank paychecks b. prenumber all payroll checks c. use an imprest account to clear payroll checks d. all of the above e. none

d. all of the above

In terms of quality control measures, the costs associated with issuing credit memos to customers who return defective products is part of ____________ a. prevention costs b. inspection costs c.internal failure costs d. external failure costs e. none of the above

d. external failure costs

Which of the following is most likely the cost driver for accounts payable expenses associated with processing supplier invoices? a. number of different parts purchased b. total price of purchases c. number of suppliers used d. number of purchases made e. all of the metrics listed above

d. number of purchases made

Product Design

•Create a product that meets customer requirements •Generates two output documents: -Bill of materials -Operations list Accounting is important in this phase because 60-75% of costs come in on this stage of production.

What Are the Receiving Processes?

•Goods arrive -Verify goods ordered against the purchase order (what, how much, quality) -Source document: receiving report -Quality of goods •At this stage, you would see an increase in the inventory general ledger account and the obligation (accounts payable) increase. At this stage, when the goods are received into the warehouse, the company has a legal obligation to pay the vendor.

What Are The Order Goods (Materials/Supplies) or Services Processing Steps

•Identify what, when, and how much to purchase -Source document: purchase requisition •Choose a supplier -Source document: purchase order At this activity stage of the expenditure cycle, the key objective is to identify exactly what to order, how much do you need, and when do you need it.

Billing Process

•Invoicing the customer Source document: sales invoice •Updating accounts receivable Source document: credit memo and monthly statements

Approve Supplier Invoice and Cash Disbursements Processes

•Match the supplier invoice to: -Purchase order -Receiving report supplier invoice + purchase order + receiving report = voucher •Approve supplier invoice for payment -Source document: disbursement voucher •Pay vendor

What Are The Basic Expenditure Cycle Activities

•Order materials, supplies, and services •Receive materials, supplies, and services •Approve supplier (vendor) invoice •Cash disbursement At each of these cycle activity levels, accounting information may be affected as well as general ledger account information.

Shipping Process

•Pick and pack the order Source documents: picking ticket •Ship the order Source documents: Packing slip, Bill of lading

Cash Collection Process

•Process customer payment and update their account balance Remittance •Deposit payments to the bank

What are the Production Cycle Processes?

•Product Design -Source documents: bill of materials and operations list •Planning and Scheduling -Source documents: Master production schedule, production order, and materials requisition •Production Operations •Cost Accounting -All this information we need is usually housed in an ERP system The production cycle involves activities that are associated with the manufacturing of a product.

Cost Accounting Systems

•Provide information for planning, controlling, and evaluating the performance of production operations •Provide accurate cost data about products for use in pricing and product mix decisions •Collect and process the information used to calculate the inventory and cost of goods sold values that appear in organization's financials

Human Resource Management Process

•Recruit and hire new employees •Training •Job assignment •Compensation (payroll) •Performance evaluation •Discharge of employees (voluntary or involuntary)

Reasons to Outsource Payroll

•Reduce costs -Cost of processing and minimize errors •Broader range of benefits -Administration of benefits •Free up computer resources Many small to medium companies choose to outsource their payroll. Mainly the choice is for convenience because there are companies that specialize in this one activity. Thus, the logic is that if they are great at this activity it reduces the likelihood of errors. Payroll errors (e.g., related to changes in law) can be costly to correct and without the proper experience this can be an added and unnecessary cost for organizations.

What are the Basic Revenue Cycle Activities?

•Sales order entry •Shipping •Billing •Cash Collections

Sales Order Entry Processing Steps

•Take the customer order Source document: sales order •Approve customer credit •Check inventory availability •Respond to customer inquiries

Planning and Scheduling

•Two types of production planning -Manufacturing resource planning (MRP-II) -Lean manufacturing •Documents from Planning and Scheduling -Production order -Materials requisition -Move tickets

What are the payroll cycle activites

•Update payroll master data •Validate time and attendance data -Source document: time sheets •Prepare payroll -Payroll register and deduction register •Disburse payroll •Disburse taxes and miscellaneous deductions

What are the key decisions to be made in the expenditure cycle.

•What is the optimal level of inventory? •Which suppliers provide the best quality at the best price? •How can IT be used to improve efficiency and accuracy of logistics? •How can we take advantage of vendor discounts? •How can we maximize cash flow? Overall key decisions related to the expenditure cycle involve getting the inventory needed at a good price when the organization needs it.