Chapter 12 – ‘The Revenue Cycle: Sales to Cash Collections’

Question 1

1. Which activity is part of the sales order entry process? 
   a. setting customer credit limits
   b. preparing a bill of lading
   c. checking customer credit
   d. approving sales returns

Answer 1

c. checking customer credit (Correct. Checking customer credit and inventory
availability are two key parts of the sales order entry process.)

Question 2

2. Which document often accompanies merchandise shipped to a
customer? 
a. picking ticket 
b. packing slip 
c. credit memo 
d. sales order

Answer 2

b. packing slip (Correct. This document specifies what is being shipped.)

Question 3

3.Which method is most likely used when a company offers customers
discounts for prompt payment?
a. open-invoice method 
b. balance-forward method 
c. accounts receivable aging method 
d. cycle billing method

Answer 3

a. open-invoice method (Correct. The open-invoice method provides a means
to offer discounts because it facilitates aging each invoice to verify whether a
discount should be granted.)

Question 4

4. Which of the following techniques is the most efficient way to process
   customer payments and update accounts receivable?
   a. EFT
   b. UPIC
   c. FEDI
   d. ACH

Answer 4

c. FEDI (Correct. FEDI integrates EFT, for processing customer payments,
with EDI, for processing related remittance data to update accounts
receivable.)

Question 5

5. Which of the following revenue cycle activities can potentially be
eliminated by technology?
a. sales order entry 
b. shipping 
c. billing
d. cash collections

Answer 5

c. billing (Correct. The use of integrated ERP systems makes printing invoices
superfluous, because both the seller and customer already know all the
information included in the invoice. Some large manufacturers have already
moved to invoiceless systems with their major suppliers.)

Question 6

6. The integrated database underlying an ERP system results in which of
   the following general threats to the revenue cycle?
   a. Inaccurate or invalid master data
   b. unauthorized disclosure of sensitive information
   c. loss or destruction of data
   d. all of the above

Answer 6

d. all of the above (Correct.)

Question 7

7. Which document is used to authorize the release of merchandise from
   the inventory control (warehouse) to shipping?
   a. picking ticket
   b. packing slip
   c. shipping order  
   d. sales invoice

Answer 7

a. picking ticket (Correct. A picking ticket is generated by sales order entry to
authorize removal of inventory to be shipped to the customer.)

Question 8

8. Which of the following provides a means to both improve the efficiency
   of processing customer payments and also enhance control over those
   payments? 
   a. CRM
   b. lockboxes
   c. aging accounts receivable
   d. EDI

Answer 8

b. lockboxes (Correct. The use of lockboxes eliminates the delays involved in
processing customer payments and then depositing them. It also improves
control because customer payments are not directly handled by any
employees.) 

Question 9

9. For good internal control, who should approve credit memos? 
   a. credit manager
   b. sales manager
   c. billing manager
   d. controller

Answer 9

a. credit manager (Correct. This is the credit manager’s function.)

Question 10

10. For good internal control over customer remittances, the mailroom
    clerk should separate the checks from the remittance advices and send the
    customer payments to which department?
    a. billing  
    b. accounts receivable
    c. cashier
    d. sales

Answer 10

c. cashier (Correct. This is the cashier’s job. The cashier function has custody
of cash accounts.)