Question 1

The use of electronic data interchange (EDI) to conduct sales electronically has both risks and benefits.Which of the following is a benefit of EDI, rather than a risk?
A)Incomplete audit trail
B)Repudiation of sales transactions
C)Unauthorized access
D)Shorter inventory cycle time

Accepted Answer

Shorter inventory cycle time is a benefit of EDI, as it allows for faster communication of sales and inventory data, reducing the time needed for inventory management and restocking. In contrast, incomplete audit trails, repudiation of transactions, and unauthorized access are all risks associated with the use of EDI.

Question 2

If a company does not prepare an aging of accounts receivable, which of the following accounts is most likely to be misstated?
A)Sales revenues
B)Accounts receivable
C)Sales returns and allowances
D)Allowance for uncollectible accounts

Accepted Answer

An aging of accounts receivable is primarily used to estimate the amount of receivables that may not be collectible. Without it, the Allowance for Uncollectible Accounts is most likely to be misstated because the company would lack a detailed analysis to support its estimate of bad debts.

Question 3

Within the revenue processes, a signed approval of a sales order indicates all of the following except:
A)The date of delivery
B)The sale is to an accepted customer.
C)The customer's credit has been approved.
D)The sales price is correct.

Accepted Answer

A signed approval of a sales order typically confirms that the sale is to an accepted customer (B), the customer's credit has been approved (C), and the sales price is correct (D). It does not necessarily indicate the date of delivery (A), as this detail is often arranged separately and may depend on various factors such as availability, shipping logistics, and customer preference.

Question 4

When a sale occurs, the information resulting from that sale must flow into the sales recording systems, the accounts receivable and cash collection systems, and the inventory tracking systems.In IT accounting systems, these recording and processing systems are referred to as:
A)Transaction Processing Systems
B)Revenue and Cash Processing Systems
C)Point of Sale System
D)E-business System

Accepted Answer

Transaction Processing Systems are responsible for recording and processing transactions such as sales, accounts receivable, cash collection, and inventory tracking. They are designed to handle high-volume, routine transactions efficiently and accurately. Therefore, this is the most appropriate answer. Option B is incorrect as it only covers revenue and cash processing, while Option C and D are too specific and do not cover all the necessary accounting functions.

Question 5

The purpose of tracing sales invoices to shipping documents would be to provide evidence that:
A)Shipments to customers were properly invoiced.
B)No duplicate shipments or billings occurred.
C)Goods billed to customers were shipped.
D)All prenumbered sales invoices were accounted for.

Accepted Answer

Tracing sales invoices to shipping documents provides evidence that goods billed to customers were actually shipped, ensuring accuracy and completeness of revenue recognition.

Question 6

Immediately upon receiving checks from customers in the mail, a responsible employee working in an environment of adequate internal control should prepare a listing of receipts and forward it to the company's cashier.A copy of this cash receipts listing should also be sent to the company's
A)Treasurer for comparison with the monthly bank statement 
B)Internal auditor for investigation of any unusual transactions
C)Accounts receivable clerk for updating of the accounts receivable subsidiary ledger
D)Bank for comparison with deposit slips

Accepted Answer

The treasurer is responsible for managing the company's cash and investments, and for ensuring that the company's financial records are accurate. The cash receipts listing provides the treasurer with a record of all checks received from customers, which can be used to compare with the monthly bank statement to ensure that all checks have been deposited.

Question 7

The purpose of tracing shipping documents to prenumbered sales invoices would be to provide evidence that:
A)Shipments to customers were properly invoiced.
B)No duplicate shipments or billings occurred.
C)Goods billed to customers were shipped.
D)All prenumbered sales invoices were accounted for.

Accepted Answer

Tracing shipping documents to prenumbered sales invoices ensures that every shipment to customers corresponds to a proper invoice. This helps prevent errors such as duplicate shipments or billings, and verifies that goods billed to customers were actually shipped. It does not necessarily guarantee that all prenumbered sales invoices were accounted for, as some may have been cancelled or voided.

Question 8

To ensure that all credit sales transactions of an entity are recorded, which of the following controls would be most effective?
A)On a monthly basis, the accounting department supervisor reconciles the accounts receivable subsidiary ledger to the accounts receivable control account. 
B)The supervisor of the accounting department investigates any account balance differences reported by customers. 
C)The supervisor of the billing department sends copies of approved sales orders to the credit department for comparison of authorized credit limits and current customer balances
D)The supervisor of the billing department matches prenumbered shipping documents with entries recorded in the sale journal.

Accepted Answer

Matching prenumbered shipping documents with entries recorded in the sales journal ensures that all credit sales transactions are recorded, as it directly links the physical shipment of goods (evidence of a sale) with the recording of the sale in the company's books.

Question 9

Under a system of sound internal controls, if a company sold defective goods, the return of those goods from the customer should be accepted by the:
A)Receiving Clerk
B)Sales Clerk
C)Purchasing Clerk
D)Inventory Control Clerk

Accepted Answer

The Receiving Clerk is responsible for accepting returns, as they are typically in charge of receiving goods and ensuring that returns are properly documented and handled, maintaining the integrity of inventory and internal controls.

Question 10

Which of the following would represent proper segregation of duties?
A)The employee who has custody of cash also does accounts receivable record keeping. 
B)The employee who has custody of cash completes the bank reconciliation.
C)The employee who opens mail containing checks prepares a list of checks received.
D)The employee who opens mail containing checks records transactions in the general ledger.

Accepted Answer

Segregation of duties is a key internal control that helps to prevent fraud and errors. This principle dictates that no single employee should be responsible for both recording and controlling or custody of assets. Option C is correct because the employee who opens mail containing checks and prepares a list of checks received is not also recording transactions in the general ledger or having custody of cash, which separates the duties of handling assets and record-keeping.

Question 11

When a company sells items over the Internet, it is usually called e-commerce.There are many IT risks related to Internet sales.The risk of invalid data entered by a customer would be a(n):
A)Availability risk
B)Processing integrity risk
C)Security risk
D)Confidentiality risk

Accepted Answer

Processing integrity risk refers to the risk of errors or fraud that may arise during processing of data. In case of e-commerce, invalid data entered by a customer may lead to incorrect processing of transactions and can result in loss of revenue or reputation for the company.

Question 12

Which of the following displays the correct order of operations within the sales process?
A)Verify prices, prepare sales order, verify credit limit, verify item is in stock
B)Verify prices, verify credit limit, prepare sales order, verify item is in stock
C)Verify prices, verify credit limit, verify item is in stock, prepare sales order
D)Verify item is in stock, verify prices, verify credit limit, prepare sales order

Accepted Answer

The answer of Which of the following displays the correct...

Question 13

When a company sells items over the Internet, there are many IT risks.The risk of hardware and software failures that prevent website sales would be a(n):
A)Availability risk
B)Processing integrity risk
C)Security risk
D)Confidentiality risk

Accepted Answer

Availability risk refers to the risk of disruption of service, system or network failure, which could prevent customers from accessing the website and making purchases. In this case, hardware and software failures would impact the availability of the website and the ability of customers to buy items online. Processing integrity risk refers to the risk of incorrect processing of data or transactions, which is not relevant in this scenario. Security risk and confidentiality risk are related to the protection of sensitive data from unauthorized access, theft or disclosure, but do not pertain to the risk of website outage or technical malfunction.

Question 14

Which of the following is not a method of unethically inflating sales revenue?
A)Channel stuffing
B)Holding sales open
C)Premature recognition of contingent sales
D)Promotional price discounts

Accepted Answer

Promotional price discounts may lead to lower revenue and profits in the short term but it is not an unethical way to inflate sales revenue. Channel stuffing, holding sales open, and premature recognition of contingent sales all involve manipulating sales numbers and are considered unethical.

Question 15

The business processes that are common in company-to-company sales business types include all of the following, except:
A)Collect order data
B)Record receivable and bill the customer
C)Update affected records, such as accounts payable and cash
D)Handle any product returns from the customer

Accepted Answer

Updating affected records such as accounts payable and cash is typically associated with the company's internal financial processes, especially in the context of managing its own expenses and payments, rather than being directly involved in company-to-company sales processes. Options A, B, and D are directly related to sales transactions between companies.

Question 16

An example of an independent verification in the sale process is:
A)Preparation of packing lists on prenumbered forms
B)Initialing the sales order
C)Proof of recorded dates, quantities, and prices on an invoice
D)Physical controls in record storage areas

Accepted Answer

Proof of recorded dates, quantities, and prices on an invoice is an example of independent verification as it confirms that the information provided in the sales process is accurate and can be relied upon. This verification can be done by a third-party or by cross-checking the information with other documents. The other options listed do provide some level of control in the sales process but do not necessarily provide independent verification of the accuracy of the data.

Question 17

Which of the following is not a document that is part of the cash collection process?
A)Remittance advice
B)Cash receipts journal
C)Bank deposit slip
D)Packing slip

Accepted Answer

A packing slip is a document that accompanies a shipment of goods and lists the contents of the package. It is not directly related to the cash collection process, unlike the other options, which are all involved in documenting and recording the receipt of funds.

Question 18

In a large company, there are hundreds, possibly thousands, of sales transactions each day.The company needs to have in place, systems and processes to:
A)Capture the results of the sales transactions
B)Record the proper and complete sales transactions
C)Summarize and report the results of the transactions
D)All of the above

Accepted Answer

All of the options given in A, B, and C are crucial steps in managing the sales transactions of a large company. Capturing the sales results allows the company to keep track of its sales volume, record keeping ensures that all sales have been properly conducted and documented, and reporting on these transactions can reveal important trends or problem areas to address. Thus, all three processes are necessary for effective management of sales transactions.

Question 19

An IT system that uses touch screens, bar coded products, and credit card authorization during the sale is called a(n):
A)Electronic data interchange system
B)E-commerce system
C)Point of sales system
D)E-payables system

Accepted Answer

A point of sales system typically includes touch screens for inputting purchases, bar code scanners for product identification, and credit card authorization for payment processing. Electronic data interchange (A) refers to the exchange of business documents in a standardized electronic format, and e-commerce (B) is a broad term that refers to buying and selling goods or services online. E-payables (D) refer to electronic payment systems for managing accounts payable.

Question 20

The source document that initiates the recording of the return and the adjustment to the customer's credit status is the:
A)Pick list
B)Sales journal
C)Credit memorandum
D)Sales invoice

Accepted Answer

The credit memorandum is the source document that initiates the recording of the return and the adjustment to the customer's credit status. This document reflects the details of the return or credit issued to the customer and serves as a basis for updating the accounts receivable balance and the customer's credit limit. The pick list is a document used by the warehouse or inventory staff to identify the items that need to be picked for shipment. The sales journal is a chronological record of all sales transactions, while the sales invoice is a document that confirms the sale and specifies the payment terms and conditions. None of these documents initiate the recording of a return and an adjustment to the customer's credit status.

Quiz 8: Revenue and Cash Collection Processes and Controls

The use of electronic data interchange (EDI) to conduct sales electronically has both risks and benefits.Which of the following is a benefit of EDI, rather than a risk?

If a company does not prepare an aging of accounts receivable, which of the following accounts is most likely to be misstated?

Within the revenue processes, a signed approval of a sales order indicates all of the following except:

When a sale occurs, the information resulting from that sale must flow into the sales recording systems, the accounts receivable and cash collection systems, and the inventory tracking systems.In IT accounting systems, these recording and processing systems are referred to as:

The purpose of tracing sales invoices to shipping documents would be to provide evidence that:

Immediately upon receiving checks from customers in the mail, a responsible employee working in an environment of adequate internal control should prepare a listing of receipts and forward it to the company's cashier.A copy of this cash receipts listing should also be sent to the company's

The purpose of tracing shipping documents to prenumbered sales invoices would be to provide evidence that:

To ensure that all credit sales transactions of an entity are recorded, which of the following controls would be most effective?

Under a system of sound internal controls, if a company sold defective goods, the return of those goods from the customer should be accepted by the:

Which of the following would represent proper segregation of duties?

When a company sells items over the Internet, it is usually called e-commerce.There are many IT risks related to Internet sales.The risk of invalid data entered by a customer would be a(n) :

Which of the following displays the correct order of operations within the sales process?

When a company sells items over the Internet, there are many IT risks.The risk of hardware and software failures that prevent website sales would be a(n) :

Which of the following is not a method of unethically inflating sales revenue?

The business processes that are common in company-to-company sales business types include all of the following, except:

An example of an independent verification in the sale process is:

Which of the following is not a document that is part of the cash collection process?

In a large company, there are hundreds, possibly thousands, of sales transactions each day.The company needs to have in place, systems and processes to:

An IT system that uses touch screens, bar coded products, and credit card authorization during the sale is called a(n) :

The source document that initiates the recording of the return and the adjustment to the customer's credit status is the: