Deck 8: Revenue and Cash Collection Processes and Controls

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

Answer 1

D

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

Answer 2

D

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.

Answer 3

A

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

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.

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 compari
B)Internal auditor for investigation of any unusual transactions
C)Accounts receivable clerk for updating of the accounts receivable subsidiary ledger
D)Bank for compari

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.

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 supervi
B)The supervi
C)The supervi
D)The supervi

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

Question 10

Which of the following would represent proper segregation of duties?

A)The employee who has custody of cash al
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.

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

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

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

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

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

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

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

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

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

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

Question 21

The risks that may affect the revenue and cash collection processes include all of the following, except:

A)Transactions may have been recorded in the wrong customer account.
B)Transactions may be recorded in the wrong amount.
C)Invalid transactions may have been omitted from the records.
D)Transactions may not have been accumulated or transferred to the accounting records correctly.

Question 22

The form, or source document, that conveys the details about a customer's order, prepared by the customer, is referred to as:

A)Sales order
B)Sales invoice
C)Purchase order
D)Purchase invoice

Question 23

Which of the following documents will be received by a customer after a sale?

A)Shipping log
B)Pick list
C)Monthly account statement
D)Purchase order

Question 24

The business processes that are common in company-to-company sales business are divided into three groups.Which of the following is not one of those groups?

A)Sales processes, including ordering, delivery, and billing
B)Purchase of inventory, including ordering, delivery, and billing
C)Sales returns processes
D)Cash collection processes

Question 25

When a sales transaction has been authorized, by the signature of the designated employee, it means that the designated employee has done all of the following, except:

A)Verified the sale is to an accepted customer
B)The vendor's credit has been approved
C)The price is correct
D)Approval documented by a signature or initials of the designated employee

Question 26

Sales orders are calculated based on current selling prices of the items sold.The source of these prices, which would include the entire set of preestablished and approved prices for each product, is referred to as a(n):

A)Price list
B)Purchase order
C)Packing slip
D)Pick list

Question 27

The maximum dollar amount that a customer is allowed to carry as an accounts receivable balance:

A)Maximum limit
B)Credit balance
C)Maximum balance
D)Credit limit

Question 28

Which of the following is a risk that may affect the revenue and cash collection process?

A)Transactions may have been recorded by the wrong company.
B)Invalid transactions may have been omitted from the records.
C)Transactions may be recorded in the wrong amount.
D)Quantities of products returned are often difficult to determine.

Question 29

The terms of agreement between the company and the common carrier are documented in a(n):

A)Pick list
B)Bill of lading
C)Invoice
D)Packing slip

Question 30

Common means of presenting the revenue and cash collections processes pictorially include:

A)Data flow diagram
B)Document flowchart
C)Business process map
D)All of the above

Question 31

Which of the following relationships does not violate the rules of segregation of duties?

A)Credit authorization and preparation of the sales order
B)Preparation of the sales order and sales invoice
C)Preparing goods for shipment and accounting for inventory
D)Entering sales in the sales journal and handling the inventory

Question 32

A special journal that is used to record sales transactions and is periodically posted to the general ledger.

A)General journal
B)Subsidiary journal
C)Sales journal
D)Accounts receivable journal

Question 33

This document is prepared and sent to the customer once the shipment has occurred.The document provides the details of the sale and requests payment.

A)Sales invoice
B)Accounts receivable statement
C)Bill of lading
D)Sales order

Question 34

The sales and cash collections process begins when:

A)Merchandise is shipped to a customer.
B)A customer places an order with the company.
C)Merchandise is purchased.
D)A vendor places an order with the company.

Question 35

The risks that may affect the revenue and cash collection processes include all of the following, except:

A)Transactions recorded by the wrong company
B)Valid transactions may have been omitted from the records.
C)Transactions may not have been recorded in a timely manner.
D)Recorded transactions may not be valid or complete.

Question 36

Which of the following two terms both refer to the same document?

A)Price list & sales order
B)Packaging slip & bill of lading
C)Shipping log & packing slip
D)Sales order & purchase order

Question 37

A ________ is prepared by warehouse personnel and lists all items included in a shipment.

A)Bill of lading
B)Packing slip
C)Shipping log
D)Pick list

Question 38

This item documents the quantities and descriptions of items ordered.Items from this document should be pulled from the warehouse shelves and packaged for the customer.

A)Packing slip
B)Price list
C)Picking ticket
D)Purchase order

Question 39

A chronological listing of shipments that allows management to track the status of sales and to answer customer inquiries regarding order status is called a(n):

A)Invoice
B)Bill of lading
C)Pick list
D)Shipping log

Question 40

This document is prepared on a regular basis to accumulated and summarize all the transactions that have taken place between the customer and the company within the period.

A)Accounts receivable journal
B)Sales invoice
C)Subsidiary journal
D)Customer account statements

Question 41

According to the textbook, after receiving a returned product and checking its condition, all of the following options are available to a company except:

A)Resell the product
B)Record an allowance for doubtful accounts on the product
C)Repair the product
D)Dispose of the product

Question 42

The documentation accompanying payment that identifies the customer account number and invoice to which the payment applies is referred to as a(n):

A)Cash receipts journal
B)Promis
C)Deposit list
D)Remittance advice

Question 43

Which of the following is not one of the stated physical controls for inventory in a warehouse?

A)Surveillance cameras
B)Alarm systems
C)Backup copies
D)Security guards

Question 44

The preparation of packing lists and shipping records on prenumbered forms will help to minimize the related risk of:

A)Incorrect amounts
B)Invalid sales
C)Wrong customers
D)Omitted transactions

Question 45

Circumstances within a company, related to sales returns, that indicate a high level of risk include all of the following, except:

A)Returns are received a one location with credit memos issued at the same location.
B)Quantities of products returned are often difficult to determine.
C)There is a high volume of credit memo activity.
D)Returns are received by consignees or under other arrangements not directly controlled by the company.

Question 46

A _______ is a credit to the customer account made to compensate the customer for a defective product or a late shipment.

A)Sales allowance
B)Refund check
C)Remittance advice
D)Credit memorandum

Question 47

A document completed to prepare a record of the sales return and to adjust the amount of the customer's credit status is called a(n):

A)Receiving log
B)Credit memorandum
C)Sales invoice
D)Sales journal

Question 48

Common types of independent checks within the revenue process include all of the following, except:

A)Verification of information in the sales journal and on sales invoices
B)Verification of the bank statement and the cash account in the general journal
C)Reconciliation of accounts receivable detail with invoices and with the general ledger
D)Reconciliation of inventory records with actual (counted) quantities on hand

Question 49

All of the following indicate a high level of risk associated with sales returns, EXCEPT:

A)There is a high volume of credit memo activity.
B)The company depends on a single customer or very few key customers.
C)Transactions may be recorded in the wrong amount.
D)Returns are received by consignees or under other arrangements not directly controlled by the company.

Question 50

A source document prepared by the personnel in the receiving dock that documents the quantity and condition of the items received is called a(n):

A)Invoice
B)Receiving log
C)Receiving report
D)Credit memorandum

Question 51

Examples of characteristics that indicate a company may be more risky with respect to the revenue process include all of the following, except:

A)Changes in sales prices or customers are infrequent.
B)The pricing structure is complex or is based on estimates.
C)There is a large volume of transactions is carried out.
D)The company depends on a single or on very few customers.

Question 52

The segregation of duties related to sales returns would ideally separate the function of performing the credit memo activity and all of the following, except:

A)Credit approval
B)Approve the credit memos
C)Billing
D)Data entry

Question 53

The separation of the responsibility for the authorization of new customers from the custody of inventory will help to minimize the related risk of:

A)Invalid sales
B)Fictitious customers
C)Incorrect amounts
D)Timing issues

Question 54

The comparison of the shipping records with the sales journal and invoices is completed to minimize the related risk of:

A)Invalid transactions
B)Fictitious customers
C)Omitted transactions
D)Duplicate transactions

Question 55

A document prepared that lists the chronological sequence of all returned items is referred to as a(n):

A)Receiving log
B)Receiving report
C)Invoice
D)Packing list

Question 56

In the cash receipts process, what must take place directly after preparing the cash receipts journal?

A)A deposit should be prepared and all cash and checks received should be deposited.
B)The cash receipt should be matched with the original sales invoice.
C)Both answers are correct
D)Neither answer is correct

Question 57

The authorization of sales returns requires that certain individuals within the company be assigned the authority for all of the following, except:

A)Authorize sales returns
B)Approve credit memos
C)Develop sales return policies
D)Record the credit memos

Question 58

The internal control activity related to the adequate records and documents, related to sales, includes which of the following?

A)Those responsible for recording sales should ensure that the supporting documentation is retained and organized.
B)Information systems duties included in the revenue process includes the preparation of sales orders and shipping logs.
C)All records are to be prepared by
D)The authorization process is to remain separate from the recording process.

Question 59

In order to protect data files, production programs, and accounting records from unauthorized access, each of the following may be used, except:

A)Passwords
B)Physical controls (locked cabinets)
C)Backup copies
D)Surveillance cameras

Question 60

The separation of the custody of inventory from the accounts receivable record keeping will help to minimize the related risk of:

A)Incorrect amounts
B)Invalid returns
C)Fictitious customers
D)Timing issues

Question 61

The recording responsibilities for cash receipts includes all of the following, except:

A)Maintaining a cash receipts journal
B)Updating accounts receivable records for individual customers
C)Posting subsidiary ledger totals to the general ledger
D)Preparing bank deposits

Question 62

Independent checks and reconciliations, related to cash receipts, include all of the following, except:

A)Cash counts should occur on a surprise basis and be conducted by
B)Cash collections should be deposited in the bank in a timely manner to prevent the risk of theft.
C)Physical count of cash needs to be conducted from time to time in order to compare actual cash on hand with the amounts in the accounting records.
D)Daily bank deposits should be compared with the detail on the related remittance advice and in the cash receipts journal.

Question 63

In order to properly monitor customer payments and determine the amount of an allowance for uncollectible accounts, a(n) _________ should be generated to analyze all customer balances and the respective lengths of time that have elapsed since payments were due.

A)Bank reconciliation
B)Accounts receivable report
C)Accounts receivable aging report
D)Uncollectible accounts report

Question 64

Application controls in an IT system that processed sales transactions would include:

A)Availability
B)Accuracy and completeness
C)Security
D)Processing integrity

Question 65

The following circumstances may indicate risks related to cash collections, except:

A)High volume of cash collections
B)Centralized cash collections
C)Lack of consistency in the volume or
D)Presence of cash collections denominated in foreign currencies

Question 66

The separation of the responsibility for custody of cash from the responsibility for reconciling the bank accounts will help to minimize the related risk of:

A)Wrong customers
B)Incorrect amounts
C)Invalid bank account
D)Invalid transactions

Question 67

The security of having cash receipts deposited in the bank on a daily basis will help to minimize the related risk of:

A)Invalid receipts
B)Invalid bank account
C)Lost or stolen cash
D)Duplicate transactions

Question 68

This type of highly integrated IT system incorporates electronic processing of sales-related activities and, generally, the sales processes are transacted over the internet.

A)E-commerce
B)Virtual commerce
C)Electronic data interchange
D)Point of sale

Question 69

All of the following documents are necessary in the cash receipts process except:

A)Remittance advice
B)Accounts payable subsidiary ledger
C)Sales invoice
D)Deposit slip

Question 70

A special journal used to record all cash collections is called a(n):

A)Cash receipts journal
B)Remittance advice
C)Check register journal
D)Customer subsidiary journal

Question 71

Whenever a company grants credit to customers, there is a danger that customers will not pay.In fact, most companies have occasional problems with customers who fail to pay which leads to writing off the accounts receivable.Proper controls related to these uncollectible accounts include all of the following, except:

A)Segregation of responsibilities
B)Thorough guidelines are to be established for determining the amount of an allowance for uncollectible accounts.
C)An accounts receivable aging report should be generated to analyze all customer balances and the lengths of time that have elapsed since the payments were due.
D)Mathematical verification of the cash receipts journal and the accounts receivable ledger.

Question 72

In order to ensure that all records are updated only for authorized transactions, appropriate individuals should be assigned all of the following duties, except:

A)Opening and closing all bank accounts
B)Preparing the bank reconciliation
C)Approving bank deposits
D)Approving electronic transfers of funds

Question 73

Input controls in an IT system that processed sales transactions would include all of the following EXCEPT:

A)Data preparation and error handling procedures
B)Control totals
C)Programmed input validation checks
D)Physical access controls

Question 74

The separation of the custody of cash from the accounts receivable record keeping will help to minimize the related risk of:

A)Invalid cash receipts
B)Incorrect amounts
C)Invalid transactions
D)Duplicate transactions

Question 75

General controls in an IT system that processed sales transactions would include all of the following, except:

A)Authentication of users
B)Review of transaction accuracy
C)Physical access controls
D)Business continuity planning

Question 76

The internal control of cash receipts related to adequate records and documents would include which of the following?

A)Cash receipts listings prepared on a daily basis and reconciled to supporting documentation from the bank deposit
B)Bank deposit receipts should be retained and filed chronologically.
C)Detailed customer accounts should al
D)All of the above

Question 77

The preparation of deposit slips on prenumbered forms will help to minimize the related risk of:

A)Invalid transactions
B)Incorrect amounts
C)Duplicate transactions
D)Omitted transactions

Question 78

The custody responsibilities for cash receipts includes all of the following, except:

A)Updating accounts receivable records
B)Opening mail
C)Preparing a list of collections
D)Handling receipts of currency and checks

Question 79

Bank reconciliation tasks include:

A)Procedures to ensure that deposits are examined for proper dates
B)Procedures to ensure that all reconciling items are reviewed and explained
C)Both of the above
D)None of the above

Question 80

In following proper segregation of duties, those who handle cash should not be granted any of the following authorities EXCEPT:

A)Information systems programming
B)Access to the company's accounting records
C)Authorization to reconcile the company bank account
D)Inventory management duties