AIS - Exam 2 - Ch. 5 - Revenue Cycle

Question 1

Basic segregation of duties requires the credit manager reports to the ________ and the treasurer report to the ________.

A) treasurer; controller
B) treasurer; vice president of finance
C) controller; vice president of finance
D) marketing manager; vice president of finance

Answer 1

B) treasurer; vice president of finance

Question 2

The ________ normally triggers the billing process in the revenue cycle.

A) sales order received from the sales department
B) picking ticket received from the sales department
C) packing slip received from the shipping department
D) journal voucher received from the shipping department

Answer 2

C) packing slip received from the shipping department

Question 3

The ________ normally triggers the customer payment recording process.

A) sales invoice
B) deposit slip
C) remittance advice
D) customer monthly statement

Answer 3

C) remittance advice

Question 4

The ________ should always be included with a merchandise shipment to a customer.

A) picking ticket
B) packing slip
C) sales invoice
D) remittance advice

Answer 4

B) packing slip

Question 5

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.

Answer 5

C) inventory becomes the legal property of the customer.

Question 6

________ is not a basic activity of the revenue cycle.

A) Sales order entry
B) Shipping
C) Receiving
D) Billing

Answer 6

C) Receiving

Question 7

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.
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.

Answer 7

A) The customer’s available credit should be checked.

Question 8

How is credit approval generally handled for established customers with a documented payment history?

A) A new credit application is requested.
B) General authorization by a sales clerk
C) Specific authorization by the credit manager
D) A formal credit check should be made for each sale.

Answer 8

B) General authorization by a sales clerk

Question 9

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?

A) General authorization to approve the order is given to sales clerks.
B) Specific authorization must be granted by the credit manager.
C) The sale should be rejected.
D) The sales clerk should order a report from a credit bureau before approving the order.

Answer 9

B) Specific authorization must be granted by the credit manager.

Question 10

Checking the quantity of inventory available before accepting a sales order is a good practice for all of the reasons except to

A) determine which items may need to be back ordered.
B) verify the accuracy of the perpetual inventory records.
C) inform the customer about availability and delivery times.
D) update inventory records to reduce the quantity available by the number of items ordered.

Answer 10

B) verify the accuracy of the perpetual inventory records.

Question 11

Special software packages called ________ can help an organization manage customer service.

A) EDI systems
B) CRM systems
C) POS systems
D) VMI systems

Answer 11

B) CRM systems

Question 12

The ________ is a legal contract that defines responsibility for goods that are in transit.

A) bill of lading
B) packing slip
C) back order
D) picking list

Answer 12

A) bill of lading

Question 13

Two documents usually accompany goods shipped to a customer. What are the 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

Answer 13

B) a packing slip and a bill of lading

Question 14

The basic document created in the billing process is call a ________.

A) bill of lading
B) sales invoice
C) sales order
D) packing list

Answer 14

B) sales invoice

Question 15

A company uses the method for tracking accounts receivable where customers pay according to individual sales invoices.
This describes the ________ method.

A) monthly statement
B) open-invoice
C) balance forward
D) cycle billing

Answer 15

B) open-invoice

Question 16

A method for tracking accounts receivable that matches specific invoices and payments from the customer is called a(n) ________ method.

A) specific identification
B) balance forward
C) cycle billing
D) open-invoice

Answer 16

D) open-invoice

Question 17

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.

Answer 17

A) remittance advice.

Question 18

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.

A) specific identification
B) open-invoice
C) balance forward
D) remittance advice

Answer 18

C) balance forward

Question 19

When a customer pays off the balance on an invoice, the payment is credited to the ________ file.

A) customer master
B) sales transaction
C) cash receipts master
D) All of the above are correct.

Answer 19

A) customer master

Question 20

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

Answer 20

D) turnaround

Question 21

A document typically encountered in the revenue cycle that is both an output document and a source document is the

A) sales invoice.
B) customer purchase order.
C) sales order.
D) packing slip.

Answer 21

A) sales invoice.

Question 22

A(n) ________ system prepares and mails monthly statements to customers throughout the entire month, instead of just at the end of the month.

A) continuous
B) open-invoice
C) cycle billing
D) balance forward

Answer 22

C) cycle billing

Question 23

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.

Answer 23

A) sales order entry process.

Question 24

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.
B) bill of lading.
C) packing slip.
D) sales order.

Answer 24

A) picking ticket.

Question 25

The shipping department at Eka Toys 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 shipping agreements are documented on

A) picking tickets.
B) packing slips.
C) bills of lading.
D) RFID tags.

Answer 25

C) bills of lading.

Question 26

The accounts receivable management method typically used by credit card companies is

A) balance forward.
B) postbilling.
C) monthly statement.
D) open-invoice.

Answer 26

A) balance forward.

Question 27

If a firm does not use an ERP, the best way to mitigate the risk of the destruction of master data is to

A) implement backup and disaster recovery procedures.
B) use an ERP.
C) proper segregation of duties.
D) use of multiple master data files.

Answer 27

A) implement backup and disaster recovery procedures.

Question 28

If a firm uses an ERP, the best way to mitigate the risk of the destruction of master data is to

A) frequently update the ERP system.
B) implement the ERP system in three separate instances.
C) periodically audit the ERP system.
D) integrate the ERP system with all IT functions.

Answer 28

B) implement the ERP system in three separate instances.

Question 29

Identify a useful tool for monitoring accounts receivable.

A) ERP exception report
B) accounts receivable aging report
C) accounts receivable tolerance report
D) customer credit limit report

Answer 29

B) accounts receivable aging report

Question 30

An accounts receivable aging report is useful for doing everything except

A) estimating bad debts.
B) estimating future sales.
C) projecting the timing of future cash flows.
D) deciding whether to increase a specific customer’s credit limit.

Answer 30

B) estimating future sales.

Question 31

It costs ________ times as much to acquire a new customer as it does to make a sale to an existing customer.

A) two
B) five
C) eight
D) ten

Answer 31

B) five

Question 32

Research suggests which of the following is key to improving total customer satisfaction?

A) price of product
B) speed of shipping
C) quality and nature of customer contact after the sale
D) quality and nature of customer contact before the sale

Answer 32

C) quality and nature of customer contact after the sale

Question 33

A picking ticket is generated by the

A) shipping process.
B) sales order entry process.
C) packing process.
D) billing process.

Answer 33

B) sales order entry process.

Question 34

A picking ticket is generated by the

A) shipping process.
B) sales order entry process.
C) packing process.
D) billing process.

Answer 34

B) sales order entry process.

Question 35

The packing slip

A) lists the quantity, price, and description of each item included in the shipment.
B) lists the price and description of each item included in the shipment.
C) lists the quantity and description of each item included in the shipment.
D) lists the quantity and price of each item included in the shipment.

Answer 35

C) lists the quantity and description of each item included in the shipment.

Question 36

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?

Answer 36

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

Question 37

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

Answer 37

A) inventory records

Question 38

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?

Answer 38

D) Which vendor should inventory be purchased from?

Question 39

Regularly reviewing an accounts receivable aging report can help management do what?

A) spot firms who are falling behind in their payments
B) identify customers who have not purchased anything lately
C) improve the speed which customers make payments
D) determine whether the firm’s pricing policy is effective

Answer 39

A) spot firms who are falling behind in their payments

Question 40

Regularly reviewing an accounts receivable aging report can help management do what?

A) identify customers who have not purchased anything lately
B) determine whether changes are needed in the firm’s credit policies
C) improve the speed which customers make payments
D) determine whether the firm’s pricing policy is effective

Answer 40

B) determine whether changes are needed in the firm’s credit policies

Question 41

By using an ERP to merge the billing, sales, and marketing functions, the firm may be able to

A) bill the customer right after the sale occurs.
B) market products and services on bills sent to customers.
C) use customer’s past purchase history to send information about related products and services the customer may be interested in.
D) eliminate the need for a firm to have a billing, sales, and marketing department.

Answer 41

C) use customer’s past purchase history to send information about related products and services the customer may be interested in.

Question 42

Suppose management wanted to increase the speed of processing customer payments. One way to speed up payment transaction processing is to

A) use a FEDI.
B) use JEDI analysis software.
C) eliminate credit sales.
D) extend the amount of credit offered to customers.

Answer 42

A) use a FEDI.

Question 43

True or False: Shipping efficiency can often be improved by replacing RFID tags with bar codes.

Answer 43

FALSE

Question 44

Before a shipping notice is prepared during the revenue cycle, shipping department personnel should match the inventory received from the warehouse to the

A) sales order.
B) picking tickets.
C) picking ticket and sales order.
D) sales order and bill of lading.

Answer 44

C) picking ticket and sales order.

Question 45

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.

Answer 45

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

Question 46

The cashier deposits checks for Benedek Incorporated and also prepares payments to vendors. Of the following, who is best able to reconcile the bank statement to Benedek’s records on a regular basis?

A) cashier
B) internal audit department
C) treasurer
D) external auditor

Answer 46

B) internal audit department

Question 47

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.

Answer 47

A) providing an opportunity for customers to verify the balance owed and activity on the account.

Question 48

Which of the following is not one of the controls when customer payments are commingled with other mail?

A) preparing a remittance list as mail is opened
B) restrictively endorsing checks when received
C) requiring two mail room clerks to open mail together
D) requiring the controller to be personally present when mail is received and opened

Answer 48

D) requiring the controller to be personally present when mail is received and opened

Question 49

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.

Answer 49

D) validity check.

Question 50

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

Answer 50

D) reasonableness test

Question 51

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

Answer 51

A) completeness test

Question 52

The best solution for maintaining accurate automated perpetual inventory system is to use

A) closed-loop verification when inventory is received from vendors and recorded.
B) point of sale devices integrated with inventory records.
C) periodic physical counts to reconcile with perpetual inventory records.
D) RFID tags.

Answer 52

D) RFID tags.

Question 53

Segregation of duties controls dictates that the collection and recording functions be kept separate from each other. However, the accounts receivable department needs to know when customers pay their invoices. What is a solution to this potential internal control problem?

A) Establish a lockbox arrangement with a bank.
B) Have customers send a remittance advice with their payment.
C) Have mailroom personnel prepare a remittance list which can be forwarded to accounts receivable.
D) all of the above

Answer 53

D) all of the above

Question 54

The benefits of a lockbox arrangement with a bank are maximized when

A) the bank is located nearby to the company, so remittance advices can be delivered to the company every day.
B) several banks around the country are used, in order to minimize the time payments spend in the mail.
C) an arrangement is made with only one bank, so all remittance advices can be batched for processing.
D) the bank deposits the payments and accesses the customer’s information system to record the payments.

Answer 54

B) several banks around the country are used, in order to minimize the time payments spend in the mail.

Question 55

An ________ is an arrangement where a bank receives customer payments and transmits payment data to the organization.

A) e-commerce.
B) electronic funds transfer (EFT).
C) electronic lockbox.
D) electronic data interchange (EDI).

Answer 55

C) electronic lockbox.

Question 56

Customers that send their payments electronically directly to the billing company’s bank are using

A) electronic funds transfer (EFT).
B) electronic data interchange (EDI).
C) procurement cards.
D) an electronic lockbox.

Answer 56

A) electronic funds transfer (EFT).

Question 57

A way to incorporate the advantages of Electronic Data Interchange with the Electronic Funds Transfer is

A) Financial Electronic Data Interchange.
B) e-commerce.
C) to use procurement cards.
D) an electronic lockbox.

Answer 57

A) Financial Electronic Data Interchange.

Question 58

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

Answer 58

C) credit manager

Question 59

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.

A) shipping; billing duties
B) credit approval; marketing
C) billing; credit approval
D) marketing; accounts receivable

Answer 59

B) credit approval; marketing

Question 60

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.

Answer 60

A) The company may be shipping the wrong merchandise.

Question 61

Separating the shipping and billing functions is designed to reduce the threat of

A) failure to bill customers.
B) billing customers for wrong quantities.
C) billing customers before merchandise has been shipped.
D) shipping the wrong merchandise.

Answer 61

A) failure to bill customers.

Question 62

All of the following edit checks for online editing of accounts receivable transactions would probably be included except

A) validity checks on customer ID and invoice numbers.
B) check digit verification on the amount of the sale.
C) closed loop verification on the customer ID.
D) field checks on the values in dollar fields.

Answer 62

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

Question 63

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

Answer 63

A) cashier; treasurer

Question 64

In a revenue cycle with proper controls, the ________ who reports to the ________, is not involved in any cash handling activities.

A) accounts receivable clerk; treasurer
B) accounts receivable clerk; controller
C) cashier; controller
D) cashier; treasurer

Answer 64

B) accounts receivable clerk; controller

Question 65

A serious exposure in the revenue cycle is loss of assets. What is the related threat and applicable control procedure that address 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) making sales that turn out to be uncollectible; force sales people to make collection calls on customers with past due balances
D) poor performance; preparation and review of performance reports

Answer 65

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

Question 66

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

Answer 66

D) handling cash receipts and mailing vendor payments

Question 67

Internal file labels can be used to prevent the loss of data in the revenue cycle since they

A) record off-site storage locations.
B) keep competitors from accessing files.
C) organize the on-site physical storage site.
D) reduce the possibility of erasing important files.

Answer 67

D) reduce the possibility of erasing important files.

Question 68

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.
B) validity check.
C) limit check.
D) closed-loop verification.

Answer 68

A) reasonableness test.

Question 69

The manager of Cezary Foods was purchasing inventory from Bogumil Distributors online. The manager entered the items and quantities, completed the checkout and payment process, but received the following error message before the order could be processed: “Please enter your phone number.” This message is likely the result of a

A) validity check.
B) completeness test.
C) closed-loop verification.
D) customer relationship management software application.

Answer 69

B) completeness test.

Question 70

Bogumil Distributors is an Internet-based wholesaler. Customers enter their orders online. The manager of Cezary Foods was entering an order when the following error message popped up: “Your order exceeds your available credit. You will be contacted within 8 hours.” This message is the result of a

A) sign check.
B) validity check.
C) reasonableness test.
D) limit check.

Answer 70

D) limit check.

Question 71

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

A) minimization of cash handling.
B) lockbox arrangements.
C) segregation of duties.
D) frequent reconciliation of records.

Answer 71

C) segregation of duties.

Question 72

A clerk at a grocery store scanned the bar code for a low cost bag of frozen chicken wings then gave his friend an expensive brand-name bag of frozen chicken wings.Which of the following controls would best prevent the clerk from getting away with doing this?

A) physical inventory count
B) segregation of duties
C) limited physical access to bar codes
D) use of RFID tags

Answer 72

D) use of RFID tags

Question 73

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.
B) Reconcile sales invoices in the billing department to the total debits to accounts receivable subsidiary ledgers.
C) Sequentially prenumber all invoices and prepare a sequence check at the end of each day.
D) Reconcile the accounts receivable control account to the accounts receivable subsidiary ledger.

Answer 73

A) Send monthly statements to all customers with balances owed.

Question 74

Which of the following poses an internal control problem?

A) Physical inspection of inventory quantity and condition is outsourced to a firm that specializes in this service.
B) Products are released from inventory after a warehouse employee and a shipping clerk both sign the pick list.
C) Sales representatives have authority to increase customers’ credit limits in $1,000 increments.
D) When customer payments are received in the mail, checks are sent to the cashier’s office and remittance advices are sent to the accounts receivable department.

Answer 74

C) Sales representatives have authority to increase customers’ credit limits in $1,000 increments.

Question 75

The least effective control for preventing an organization from processing fraudulent credit memo is to

A) match each credit memo with a receiving report.
B) require approval for each credit memo by the credit manager.
C) reconcile total of credit memos to total debits posted to customers’ subsidiary ledgers.
D) sequentially prenumber all credit memos and perform a sequence check at the end of each day.

Answer 75

C) reconcile total of credit memos to total debits posted to customers’ subsidiary ledgers.

Question 76

Which of the following is not a threat to the revenue cycle sales order entry process?

A) incomplete orders
B) invalid orders
C) cash flow problems
D) uncollectible accounts

Answer 76

C) cash flow problems

Question 77

Which of the following is not a threat to the revenue cycle shipping process?

A) incomplete orders
B) inventory theft
C) picking the wrong items
D) wrong shipping address

Answer 77

A) incomplete orders

Question 78

Which of the following is not a threat to the revenue cycle billing process?

A) accounts receivable errors
B) loss of customers
C) failure to bill
D) inaccurate credit memos

Answer 78

B) loss of customers

Question 79

Which of the following is not a general threat to the revenue cycle?

A) inaccurate master data
B) loss of customers
C) poor performance
D) unauthorized disclosure of sensitive information

Answer 79

B) loss of customers

Question 80

Which of the following is not a general threat to the revenue cycle?

A) inaccurate master data
B) loss of customers
C) poor performance
D) unauthorized disclosure of sensitive information

Answer 80

B) loss of customers

Question 81

The legitimacy of customer orders is established by ________ in paper-based customer orders.

A) the customer’s signature
B) the customer’s pin number
C) the customer’s verbal authorization
D) prior experience with the customer

Answer 81

A) the customer’s signature

Question 82

The legitimacy of customer orders is established by ________ in Internet-based customer orders.

A) digital signatures
B) the customer’s pin number
C) the customer’s credit card number
D) prior experience with the customer

Answer 82

A) digital signatures

Question 83

For strongest segregation of duties, the credit manager should never report to

A) the marketing department.
B) the accounting department.
C) the credit department.
D) the IT department.

Answer 83

A) the marketing department.

Question 84

For strongest segregation of duties, a sales representative should never be allowed to

A) discuss the company’s products.
B) negotiate the sales price.
C) approve a sale on credit.
D) send a customer a gift.

Answer 84

C) approve a sale on credit.

Question 85

True or False: A credit sale should always be denied if it exceeds the customer’s credit limit.

Answer 85

FALSE

Question 86

True or False: A credit sale should always be reviewed by a credit manager if it exceeds the customer’s credit limit.

Answer 86

TRUE