Question 1

Selling accounts receivable at a discount to a collection agency is part of a company's cycle billing plan.

Accepted Answer

Selling accounts receivable at a discount to a collection agency is a form of factoring and is not a part of a company's cycle billing plan. Cycle billing is a process of dividing the billing cycle into smaller parts and billing customers at different times throughout the cycle, which can help with cash flow management.

Question 2

After an allowance has been authorized and approved,the credit department issues a credit memo to document the reduction in the customer's account.

Accepted Answer

The answer of After an allowance has been authorized and...

Question 3

Risk assessment of the sales business process is NOT necessary under SOX if internal control is considered adequate.

Accepted Answer

Risk assessment is a critical component of the sales business process under SOX, and it cannot be overlooked even if internal controls are considered adequate. SOX requires organizations to identify and assess risks to the achievement of their financial reporting objectives and then design and implement controls to mitigate those risks. Additionally, SOX mandates that management annually evaluate and report on the effectiveness of internal controls over financial reporting, which includes an assessment of the design and operation of controls to address identified risks.

Question 4

Cash sales are only subject to accounting control if a record of the sale has been created.

Accepted Answer

Cash sales are only subject to accounting control if they are recorded in some form, such as a sales receipt or cash register tape. Without an accounting record, it is difficult to track cash sales and ensure that they are accurately reported for tax purposes and financial reporting. Therefore, cash sales should be subject to accounting control through record keeping and monitoring.

Question 5

It is important for the internal audit department to contact a customer directly regarding a past-due invoice.

Accepted Answer

The role of the internal audit department is to evaluate and improve the efficiency of the company's internal controls, risk management, and governance processes. Contacting a customer directly regarding a past-due invoice is the responsibility of the accounts receivable department, not the internal audit department.

Question 6

Accounts receivable often represents the majority of an organization's working capital.

Accepted Answer

Accounts receivable refers to the money that a company is owed by its customers, and it is considered a major component of working capital as it represents the cash that will be coming into the business in the near future. The other components of working capital include inventory and cash on hand. Therefore, the statement is true.

Question 7

The approval of sales returns and allowances is a function of the credit department.

Accepted Answer

The credit department is responsible for reviewing and approving sales returns and allowances as part of their function to manage accounts receivable and maintain customer relations.

Question 8

Imprest techniques control cash receipts with far greater accuracy than cash payments.

Accepted Answer

Imprest techniques, such as the petty cash system, are designed to control small cash payments with accuracy, not cash receipts.

Question 9

The SEC Interpretive Guidance "Management's Report on Internal Control Over Financial Reporting" approved in 2007,focuses management on internal controls that best protect against risk of material misstatements in financial statements.

Accepted Answer

The SEC Interpretive Guidance "Management's Report on Internal Control Over Financial Reporting" does indeed focus management on internal controls that best protect against risk of material misstatements in financial statements.

Question 10

The SEC Interpretive Guidance "Management's Report on Internal Control Over Financial Reporting" approved in 2007,focuses management on preventing and uncovering fraud.

Accepted Answer

The SEC Interpretive Guidance "Management's Report on Internal Control Over Financial Reporting" primarily aims to provide a framework for management to evaluate and report on the effectiveness of the company's internal control over financial reporting, rather than focusing specifically on preventing and uncovering fraud.

Question 11

Sarbanes-Oxley compliance requires companies maintain an adequate internal control structure over the business processes that support financial reporting.

Accepted Answer

This statement is true. Sarbanes-Oxley Act requires companies to establish and maintain an adequate internal control structure to ensure accurate and reliable financial reporting.

Question 12

The validated deposit slip from a bank should be returned to the cash receipts department.

Accepted Answer

The answer of The validated deposit slip from a bank...

Question 13

The control of actual cash (as opposed to checks)received in the mail relies largely on direct supervision.

Accepted Answer

Direct supervision is important for the control of actual cash received in the mail as it ensures that the cash is physically accounted for and properly handled. Checks can be processed through standard banking procedures, but physical cash requires more direct control measures.

Question 14

Auditing standard No.5 describes a bottom-up approach to selecting controls to be tested.

Accepted Answer

Auditing Standard No. 5 describes a top-down approach to selecting controls to be tested, focusing on entity-level controls and significant accounts and disclosures.

Question 15

The focal point of the cash sales business process is the quick generation of cash sales.

Accepted Answer

The answer of The focal point of the cash sales...

Question 16

The party best suited to reconciling a company's bank account is the internal auditor.

Accepted Answer

The internal auditor is an independent party within a company that is responsible for reviewing and evaluating the company's financial records and internal controls. This includes reconciling the company's bank account to ensure that the balance in the bank account matches the balance in the company's accounting records.

Question 17

The recorded receivable that exists prior to the payment by a customer enhances control over payments received.

Accepted Answer

Recording the receivable prior to payment creates a paper trail and allows for proper monitoring of payments received. It also enables the business to keep track of outstanding balances and follow up with customers who are overdue on their payments.

Question 18

The remittance list is posted to the accounts receivable ledger.

Accepted Answer

The remittance list is typically used to update the cash receipts journal, not directly posted to the accounts receivable ledger.

Question 19

The acknowledgement of customer payments using a receipt or monthly statement is optional.

Accepted Answer

The acknowledgement of customer payments using a receipt or monthly statement is mandatory for proper accounting and record-keeping purposes. Failure to provide such acknowledgements can lead to disputes and legal issues in the future.

Question 20

Cash sales should be recorded in a cash register or other secure device that can provide immediate documentation of the sales.

Accepted Answer

Cash sales should be recorded in a cash register or other secure device that can provide immediate documentation of the sales to ensure accuracy and prevent fraud.

Quiz 8: Revenue Cycle Processes