CHAPTER 12 The Revenue Cycle: Sales to Cash Collections

Question 1

1. Sensitive data should be encrypted in storage to prevent IT employees without access to
   the ERP system from using operating system utilities to access it.
   a. True
   b. False

Answer 1

a. True (Correct.)

Question 2

2. An ERP can be used as a mitigation tool for threats to the revenue cycle concerning the
   loss or destruction of master data.
   a. True
   b. False

Answer 2

a. True (Correct. A best practice is to implement the ERP system as three separate instances—
production, used to process daily activity; a second for testing and development;
and a third instance should be maintained as an online backup to the production
system to provide near real-time recovery.)

Question 3

3. A document authorizing the purchase or production of items that is created when there is insufficient inventory to meet customer orders is referred to as
   a. a back order.
   b. a picking ticket.

Answer 3

a. a back order. (Correct. A document authorizing the purchase or production of items
that is created when there is insufficient inventory to meet customer orders.)

Question 4

4. Customers typically pay according to each invoice with the
   a. open-invoice method.
   b. balance-forward method.
   c. monthly statement.

Answer 4

a. open-invoice method. (Correct. Method for maintaining accounts receivable in which
customers typically pay according to each invoice).

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. )