QB Chapter 6: Revenue System Flashcards
Which three of the following are risks associated with the sales system?
A Orders may be taken from customers who are not able to pay
B Goods may be despatched but not invoiced
C The full credit period offered might not be taken
D Money might be received at the premises but not banked
A,B,D
Option C is not correct as it is a benefit to the company if its customers do not take the
full credit period and pay sooner. This would be a risk in the purchases system as it
would benefit the company to take the full credit period extended to it by its suppliers
Which two of the following controls best mitigate the risk that customers might not be able
to pay?
A Authorisation of credit terms to customers
B Obtaining customers’ signatures on delivery documentation
C Regular preparation of trade receivables statements
D Checking the ageing of the current receivables ledger balance before to accepting
orders
A,D Authorisations of credit terms to customers and checking the ageing of current
receivables ledger balance before accepting orders in order to assess the
creditworthiness and history of payments. Options B and C are not correct as they are
procedures that take place after the customer has made the purchase.
Which three of the following controls best prevent misappropriation of customers’
remittances?
A Segregation of duties between cash handling and recording
B Post opening by two people
C Investigation of differences between till records and cash collected
D Regular banking
A,B,D
Option C, investigation of differences between till records and cash collected, is not a
preventative control activity but a detective activity ie, it happens after the fact.
The following describes the processes which make up the sales system in operation at
Sheraton and Co.
For each process, select whether it represents a strength or a deficiency of the system.
Orders are placed by telephone. When a call is received, the person receiving the order
checks the customer’s credit status and that the customer’s current balance is below the
maximum level, checks that the item is in inventory, and then immediately inputs the order
into the system.
A Strength
B Deficiency
The order automatically generates a message to the distribution centre which despatches
the goods and to the accounts department, which immediately raises an invoice and sends
it to the customer.
C Strength
D Deficiency
Customer queries are dealt with by reception staff.
E Strength
F Deficiency
A,D,F
Option D applies as there is no link between despatch and invoice (goods could be
invoiced without being despatched), and there is no link between order and despatch
(orders may not be fulfilled). Option F is correct as reception staff are unconnected
with any of the departments with whom customers might have a query – ordering,
warehouse or accounts.
Select whether each of the following statements is true or false.
In the sales system, the following duties should be segregated:
Recording sales and access to remittances from customers
A True
B False
Credit control and invoicing
C True
D False
A,C The duties of authorisation, recording and custody of assets should be segregated
The internal auditor at Windsor Ltd has identified the following deficiencies within that
organisation’s sales system.
For each deficiency, select the most likely consequence which might arise as a result of that
deficiency.
Invoices are matched to orders but not warehouse records.
A Customers may not pay promptly
B Invoices may be raised in error
C Orders may be accepted from customers who are unable to pay
Receivables statements are not sent to customers.
D Customers may not pay promptly
E Invoices may be raised in error
F Orders may be accepted from customers who are unable to pay
B,D If invoices are matched to orders but not warehouse records, invoices may be raised in
error. If receivables statements are not sent to customers, customers may not pay
promptly.
The external auditor at Reading Ltd has identified the following deficiencies within that
organisation’s sales system.
For each deficiency, select the most likely consequence which might arise as a result of that
deficiency.
Overdue accounts are not followed up.
A Invoiced sales might not be properly recorded
B Credit notes might not be properly recorded
C Debts might be included on the receivables ledger that are not collectable
Invoices are not in numerical sequence.
D Invoiced sales might not be properly recorded
E Credit notes might not be properly recorded
F Debts might be included on the receivables ledger that are not collectable
C,D If overdue accounts are not followed up, debts might be included on the receivables
ledger that are not collectable. Where invoices are not in numerical sequence, invoiced
sales might not be properly recorded.
Which two of the following are risks associated with the sales system?
A Orders may be taken from customers who are not able to pay
B Invoices may be cancelled by valid credit notes
C Goods may be received but not invoiced
D Sales might be recorded in the wrong customer accounts
A,D If credit notes are valid then the related invoice is cancelled. Goods received are part
of the purchases system. As such, options B and C are not risks associated with the
sales system.
Bourne Ltd operates a number of control procedures in its sales system.
Assuming that all controls are operating effectively, which one of the following control
procedures is most likely to ensure that customers are invoiced for goods received?
A Use of pre-printed sequentially numbered sales order documentation
B Matching of sales orders with despatch records
C Matching of despatch records with sales invoices
D Requiring customers to sign for goods received
C Despatch records are evidence of goods delivered. If there are sales invoices for each
of these all sales will be invoiced. Options A and B are incorrect as they relate to the
completeness of sales orders and ensure that all orders are subsequently despatched
respectively. Option D is also incorrect as requiring customers to sign for goods
confirms delivery only
The following describes aspects of the sales system in operation at Barrow plc.
For each process, select whether it represents a strength or a deficiency of the system.
Sales invoices are matched to despatch records and sales orders. The calculations on the
invoices are checked by the accounts clerk.
A Strength
B Deficiency
The receivables ledger clerk posts the sales invoices and cash received to the receivables
ledger. The receivables ledger clerk also reconciles the receivables ledger to the control
account on a monthly basis.
C Strength
D Deficiency
The condition of goods returned is checked and a goods returned record is produced. A
copy of this is sent to the accounts department and a credit note is raised by the chief
accountant.
E Strength
F Deficiency
A,D,E
In process 2 there is insufficient segregation of duties. The same individual should not
be responsible for processing invoices, posting cash and performing the control
account reconciliation.
The following deficiencies have been identified in two separate sales systems.
For each deficiency, select the most likely consequence which might arise as a result of that
deficiency.
Despatch documentation is not sequentially pre-numbered.
A Sales may be made to customers who cannot pay
B Invoices may not be raised for all goods despatched
C Customers may not pay promptly
Customers are not required to evidence receipt of goods.
D Sales may be made to customers who cannot pay
E Invoices may not be raised for all goods despatched
F Customers may not pay promptly
B,F If despatch records are not pre-numbered they may be lost and therefore no invoice
raised. If customers do not evidence receipt of goods disputes may arise leading to
slow payment.
Which two of the following are objectives of the sales ordering part of the sales system?
A Sales are only made to credit worthy customers
B Goods are correctly invoiced
C Cut-off is correct
D Orders can be fulfilled
A,D Correct invoicing is an objective of the invoicing stage of the sales system. Cut-off
affects the recording stage of the sales cycle.
The following describes processes which make up the sales system at Raffles Ltd.
For each process, select whether it represents a strength or a deficiency of the system.
Orders are placed by telephone. On receipt of a call, following credit checks, the order is
immediately entered onto the system.
A Strength
B Deficiency
The order generates a despatch record which is sent to the warehouse, and an invoice
which is sent to accounts receivable. Goods in inventory are despatched immediately and
the despatch record is amended manually for unavailable goods.
C Strength
D Deficiency
A copy of any despatch records with incomplete orders is placed in an ‘unfulfilled orders’
file. This file is reviewed daily and the order filled as soon as inventory is available.
E Strength
F Deficiency
A,D,E
Strength – that orders placed by telephone, once credit checked, are entered into the
system is a strength as it ensures the prompt recording of an order. Also the customer
is checked for creditworthiness before the order being generated – indicating that the
company is protecting itself from loss.
Deficiency – the order should only be accepted once it has been confirmed that the
goods ordered are available. The invoice should be generated once it is confirmed
that the goods have reached the customer (as evidenced by the customer signing the
despatch record).
Strength – a copy of any despatch records with incomplete orders filed and reviewed
daily will ensure that orders are filled at a later date. SAMPLE PAPE
Which one of the following is a control objective relating to the sales system?
A Credit notes are only issued for valid reasons.
B Sales invoices are checked to goods despatched records by accounts staff.
C Customer accounts are scrutinised to see if credit limits have been observed.
D Orders are made only to authorised suppliers.
A Statement B is a control activity, not a control objective. Statement C is a test of
controls, not a control objective. Statement D is a control objective relating to the
purchases system, not the sales system.
Which one of the following controls would provide the most positive assurance regarding
the completeness of the sales figure recorded in the financial statements of a manufacturing
company?
A Segregation of duties between the preparation of goods despatched records and the
preparation of the sales invoices
B The issue of pre-numbered sales invoices for every sales transaction and internal
checking for completion of processing
C The use of a pre-numbered goods despatched record for every sales transaction and
internal checking for completeness of processing
D Authorisation of all sales invoices by the sales manager before processing
C A sale should be recognised as soon as goods have been safely despatched to a
customer and every despatch should be accompanied with a goods despatched
record. Consequently to obtain assurance about the completeness of sales, the auditor
needs to be confident that all despatch records have been recorded in the accounting
system (option C). Checking that all sales invoices have been processed merely
confirms that ‘all sales invoices have been processed’ (option B) and similarly the
existence of authorisation controls merely provides assurance as to whether
transactions have been authorised (option D). The existence of segregation of duty
controls (option A) does not in itself provide assurance as to completeness of
recording of sales transactions
