Chapter 12 The Revenue Cycle: Sales to Cash Collections 1) In organizations with at least basic segregation of duties, the credit

manager reports to the ________ and the treasurer reports to the ________. D) treasurer; vice president of finance 2) In the revenue cycle, before a shipping notice is prepared, the shipping department personnel should match the inventory received from the warehouse to details from D) picking ticket and sales order. 3) Which is the best control to prevent invoicing customers for the quantity ordered, which was more than the quantity shipped due to items on backorder? A) Use the information from the packing slip to prepare the sales invoice. 4) The cashier deposits checks in the bank for Very Large Corporation (VLC) and also prepares payments to vendors. Of the following, who is best to reconcile the bank statement to VLC's records on a regular basis? A) Internal audit department 5) Which of the following documents normally triggers the billing process in the revenue cycle? A) Packing slip received from the shipping department 6) Which of the following documents would normally trigger the process to record a customer payment? A) Remittance advice 7) Which document should always be included with a merchandise shipment to a customer? A) Packing slip 8) 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. 9) Accounting recognizes a sale when A) inventory becomes the legal property of the customer. 10) Which of the following is not one of the controls for the mail room where customer payments are commingled with other mail? A) Requiring the controller to be personally present when mail is received and opened 11) What is the primary objective of the revenue cycle? C) to provide the right product in the right place at the right time at the right price 12) Which of the decisions below is not ordinarily found as part of the revenue cycle? B) How often should accounts receivable be subjected to audit? 13) Which of the following is not a basic activity of the revenue cycle? C) receiving 14) Retail stores could send their orders directly to the manufacturer's sales order system in a format that would eliminate the need for data entry, using B) Electronic Data Interchange. 15) Matching customer account numbers and inventory item numbers to the numbers in the customer and inventory master files is an example of a D) validity check. 16) During the sales order entry process, a ________ is performed to compare the quantity ordered with the standard amounts normally ordered. D) reasonableness test 17) During the sales order entry process, a ________ is performed to verify that each transaction record contains all appropriate data items. A) completeness test 18) When a customer places an order (on account) for a certain product, what should be done before the order is checked for inventory availability? A) The customer's available credit should be checked. 19) How is credit approval generally handled for established customers with a documented payment history? B) General authorization by a sales clerk 20) What is a typical procedure for processing sales orders from new customers or customers making a purchase that causes their credit limit to be exceeded?

B) Specific authorization must be granted by the credit manager. 21) A company should check inventory quantities before accepting a sales order for all the following reasons except to A) verify the accuracy of the perpetual inventory records. 22) 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 D) CRM systems. 23) The best solution for maintaining accurate automated perpetual inventory system is to use D) RFID tags. 24) This document is a legal contract that defines responsibility for goods that are in transit. B) bill of lading 25) Two documents usually accompany goods shipped to a customer. What are the two documents? B) a packing slip and a bill of lading 26) What is the basic document created in the billing process? D) sales invoice 27) A company uses the method for tracking accounts receivable where customers pay according to individual sales invoices. This describes the ________ method. B) open-invoice 28) A method for tracking accounts receivable that matches specific invoices and payments from the customer is called a(n) ________ method. D) open-invoice 29) 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. 30) In the ________ method of tracking accounts receivable, customers pay according to the amount showing on their monthly statement and payments are applied against the total account balance. C) balance forward 31) When a customer pays off the balance on an invoice, the payment is credited to the ________ file. A) customer master 32) A type of business document in which part of the original document is returned to the source for further processing is called a ________ document. D) turnaround 33) A document typically encountered in the revenue cycle that is both an output document and a source document is the A) sales invoice. 34) A ________ system prepares and mails monthly statements to customers throughout the entire month, instead of just at the end of the month. C) cycle billing 35) The accounts receivable department must know when customers pay their invoices, yet segregation of duties 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 36) The benefits of a lockbox arrangement with a bank are maximized when B) several banks around the country are used, in order to minimize the time payments spend in the mail. 37) An arrangement where a bank receives customer payments through the postal system, scans the remittance advices, and transmits payment data to the business electronically is known as B) an electronic lockbox.

38) Customers that send their payments electronically directly to the company's bank are using B) electronic funds transfer (EFT). 39) A way to incorporate the advantages of Electronic Data Interchange with the Electronic Funds Transfer is A) Financial Electronic Data Interchange. 40) 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 41) 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? C) adequate controls 42) The activities involved in soliciting and processing customer orders within the revenue cycle are known as the ________. A) sales order entry process 43) To ensure proper segregation of duties, only the ________ has authority to issue credit memos. C) credit manager 44) It has been discovered that credit sales have been made to customers with a poor credit rating. If this continues, the company will face increasing uncollectible receivables and losses due to bad debts. Separation of duties between ________ and ________ should help resolve the problem. B) credit approval; marketing 45) 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. 46) Which of the following would be the least effective control to minimize the loss of inventory? C) Periodically back up all perpetual inventory records. 47) Separating the shipping and billing functions is designed to reduce the threat of A) failure to bill customers. 48) All of the following edit checks for online editing of accounts receivable transactions would probably be included except B) check digit verification on the amount of the sale. 49) 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 50) In a revenue cycle with proper controls, the ________ who reports to the ________, is not involved in any cash handling activities. B) accounts receivable clerk; controller 51) A serious exposure in the revenue cycle is loss of assets. What is the related threat and applicable control procedure that address this exposure? B) theft of cash; segregation of duties and minimization of cash handling 52) Which of the following duties could be performed by the same individual and not violate segregation of duty controls? D) handling cash receipts and mailing vendor payments 53) To prevent the loss of valuable data in the revenue cycle, internal file labels can be used to D) reduce the possibility of erasing important files. 54) The manager of Callow Youth Clothing was entering an order online from Sad Clown Pajamas. He ordered 100 one-size fits all pajama bottoms, but when he ordered 1000 one-size fits all pajama tops, the following error message popped up: "Did you mean to enter a quantity of 1000 for your order?" This message is the result of a A) reasonableness test.

55) The manager of Callow Youth Clothing was entering an order online from Sad Clown Pajamas. He entered all the items and quantities, completed the checkout and payment process, but the following error message popped up when he tried to exit the site: "Please enter your email address." This message is likely the result of a C) completeness test. 56) Sad Clown Pajamas is an Internet-based wholesaler. Customers enter their orders online. The manager of Callow Youth Clothing was entering an order when the following error message popped up: "Your total order exceeds your available credit. A Credit Department representative will contact you within 24 hours." This message is the result of a C) limit check. 57) In Petaluma, California, electric power is provided to consumers by the Power To The People Electrical Company, a local co-op. Each month PTTP mails bills to 70,000 households and then processes payments as they are received. The customers are provided with a remittance advice, which is a C) turnaround document. 58) Laz Chance wears roller blades and headphones when he is at work at the Squishy Things Toy Company. He is a product packer. The headphones give him computer-generated instructions so he knows the location of each item and quantity that should be included in the order. These instructions are the equivalent of a A) picking ticket. 59) The shipping department at Squishy Things Toy Company follows policies that determine which carrier will deliver orders according to the size, weight, and destination of the shipment. It maintains standing agreements with shippers that specify legal responsibility for the shipment while it is in transit. The terms of the agreements are documented on B) bills of lading. 60) Sad Clown Pajamas is an Internet-based wholesaler. The manager of Callow Youth Clothing received an order from Sad Clown and found that the wrong product had been shipped. He repackaged the order and sent it back for a refund. When Sad Clown Pajamas received the returned product, they mailed a ______ to Callow Youth Clothing's manager. D) credit memo 61) A customer service manager at Sad Clown Pajamas, Bob, received a call from the manager at Callow Youth Clothing, who informed Bob that Callow was entering bankruptcy liquidation and it was unlikely that they would be able to pay the outstanding balance on their account. Bob should D) document the phone conversation and forward it to the credit department manager. 62) Because it is the most fungible of all assets, the management of cash has always been the most difficult of all control issues. The most important of cash controls is C) segregation of duties. 63) A sales clerk at an electronics store scanned the bar code for a low cost set of headphones and then substituted a high cost set of headphones for his friend, who paid the lower price. Which of the following controls would best help to prevent this sort of fraud? A) Use of RFID tags 64) The accounts receivable management method typically used by credit card companies is A) balance forward. 65) The accounts receivable clerk destroys all invoices for sales made to family and friends and does not record the sales in the accounts receivable subsidiary ledgers. The family and friends usually give the clerk cash as a "thank you". Which procedure will not prevent or detect this fraud? A) Send monthly statements to all customers with balances owed. 66) Which of the following poses an internal control problem? C) Sales representatives have authority to increase customers' credit limits in $1,000 increments. 67) For sales returns, the least effective control to prevent fraudulent processing of a credit memo is to A) reconcile total of credit memos to total debits posted to customers' subsidiary ledgers.