Question 1

Using a lock-box system

Accepted Answer

A lock-box system expedites the cash flow for a company by speeding up the processing of payments. It also helps to reduce interest income lost due to delays in depositing out-of-state checks. Additionally, it promotes the segregation of duties because a third-party handles cash receipts. Therefore, all of these answers are correct.

Question 2

Presented below is a list of terms relating to accounting information systems,followed by definitions of those terms.
Required: Match the letter next to each definition with the appropriate term.Each answer will be used only once.
________ 1.Remittance list
________ 2.Credit memo
________ 3.Open-item processing
________ 4.Bill of lading
________ 5.Invoice
________ 6.Balance-forward processing
________ 7.Sales order
________ 8.Inquiry
________ 9.Goods issue notice
________ 10.Float
A.Documentation which is forwarded to the billing function to evidence a shipment to a customer
B.Invoice received from a carrier for shipments
C.The time between the signing of the payment check by a customer and the moment the firm has use of the funds
D.A form used to document reductions to a customer's account due to sales returns or allowances
E.A customer's remittances are applied against a customer's outstanding balance rather than against individual invoices
F.A listing of customer payments in cash and by check that is prepared for control purposes
G.A document similar to a quotation that does not contain delivery information
H.A document that informs a customer of charges for goods or services rendered
I.A customer's remittances are applied against individual invoices rather than a customer's outstanding balance
J.A document prepared to initiate the shipment of goods to a customer

Accepted Answer

The answer of Presented below is a list of terms...

Question 3

A company located in Delaware has customers nationwide.The most effective system to deal with the issue of float is to

Accepted Answer

Using several regional lock-box systems located around clusters of customers would be the most effective system to deal with the issue of float as it would minimize the time it takes for the company to receive and process payments. This would also reduce the risk of delay and increase the speed of cash inflows. Option A is not recommended as it involves only one location, which could lead to delays and high transportation costs. Option B would take longer for the company to receive payments, and delay the collection process for the organizations cash inflows. Option D involves the cost of the company selling their accounts receivables, thus reducing their profit.

Question 4

Melbourne Manufacturing Company is a new start-up business that has not yet opened its doors.The controller for the company is concerned about the best way to process accounts receivable.The controller expects each individual sale to be relatively large,and her goal is for all customers to pay on an individual invoice basis.The marketing department's sales forecast estimates that Melbourne will build a customer base of 1,800 in six to nine months.
Required:
a.What is the appropriate accounts receivable processing method for Melbourne Manufacturing? Describe how it would work.
b.Describe the concept of cycle billing.What are the potential benefits of cycle billing for Melbourne Manufacturing?

Accepted Answer

The answer of Melbourne Manufacturing Company is a new start-up...

Question 5

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 ________ in financial statements.

Accepted Answer

The SEC Interpretive Guidance emphasizes on internal controls to protect against the risk of material misstatements in financial statements. It does not specifically mention negligence or mistakes as the focus of internal controls. While internal controls can help mitigate the risk of fraud, the primary focus of the guidance is on preventing material misstatements. Therefore, option B - misstatements - is the most appropriate choice.

Question 6

National Auto Loan has customers throughout the 48 contiguous states.Its current policy is to have all customers mail their payments to National Auto's corporate office located in Lansing,Michigan.It is considering a regional lock-box system to collect loan payments from its customers.Changing to a regional lock-box system will decrease the company's float time from eight days (on average)to three days.The company's average daily collection is $1,750,000.The bank that operates the regional lock-box system requires compensating balances totaling $800,000.Annual fees and expenses associated with the lock-box system are $350,000.
Required:
a.Compute the dollar amount of net funds freed if National Auto uses the lock-box system.
b.Compute the percentage rate of net funds freed.

Accepted Answer

The answer of National Auto Loan has customers throughout the...

Question 7

Effective internal control provides ________ assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.

Accepted Answer

Effective internal control can provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. However, total assurance is not possible, and there is always some level of risk involved in financial reporting. Therefore, option A (little) is not correct, and option B (adequate) is not a strong enough assurance level.

Question 8

Which illustration is not an example of a supervision technique?

Accepted Answer

Options A and B are examples of supervision techniques designed to monitor and improve employee performance. Option C, having a cash register make a sound when it is opened in the presence of a customer, is more about customer assurance and theft prevention rather than a supervision technique for employee performance.

Question 9

A turnaround document that is used to enhance internal control and promote the accuracy of incoming cash receipts is the

Accepted Answer

Remittance advice is a document sent by a customer to a seller, informing the seller that an invoice has been paid. It enhances internal control and promotes the accuracy of incoming cash receipts by providing a direct link between the payment received and the invoice it settles.

Question 10

The following ten paragraphs describe control weaknesses in customer order and account management business processes.Listed below are 11 controls that may help control the weaknesses:
A.Customer credit check
B.Master price list independent from Order Entry
C.Credit department approval of customer account adjustments
D.Independent confirmation from internal audit to customer
E.Independent confirmation from Accounts Receivable to customer
F.Balance the posted remittance advices to the remittance list in Accounts Receivable
G.Customer audit
H.Billing information generated from sales order data
I.Comparison of goods,picking list,and packing list in Shipping
J.Packing list generated from sales order data
K.File of picking lists,signed by Shipping,in Finished Goods
Required: In the blank next to each number,list one capital letter representing the best control to address the system weakness.You will use each letter only once,and one letter will not be used.
1.________ Employees of Micro-Speed Computer Company's billing department observed that for the sales of January 15,inventory item number 7856 was priced at a different amount on ten different orders.
2.________ Hemingway Manufacturing Company sent a $7,500 payment on account to United Coastal Hardware Company.A mailroom clerk stole the payment and accompanying remittance advice,but included the payment on the day's remittance list.The accounts receivable department later sent Hemingway a statement showing $7,500 credited to its account.
3.________ An employee worked for a week at Bob's Belly Buster Burgers.After the employee quit,the owner noticed that the dollar amount of sales for the week was unusually low,although the amount of food ordered was typical.
4.________ At Washington Square Company,customers are complaining that they are not receiving the correct quantities of goods ordered,or the wrong items are being shipped to them.
5.________ To increase its catalog business,Great Southwest Company permitted new customers to open a $500 account with the company.A disgruntled company employee placed several fraudulent telephone orders with the company,each time disguising his voice and acting as a new customer.The employee obtained $5,000 in merchandise before he was caught.
6.________ As an added convenience to her customers,Melanie Jacobi,a saleswoman for The New People Shoe Company,negotiates and approves sales returns and allowances.Auditors performing an analytical review of sales and inventory data have discovered a decrease in sales without a corresponding increase in the number of finished goods.
7.________ Customers of Miller Magnetic Company are complaining that they are being billed for amounts greater than they ordered and received.
8.________ Iron Works Equipment Company had financial difficulty and fell behind in its payments to Great Lakes Manufacturing Company.After repeated attempts at collection,Great Lakes' credit department finally wrote off the Iron Works account on September 30,200X.On December 14 200X,auditors discovered that an accounts receivable employee conspired with a mailroom employee to divert $6,500 in payments made by Iron Works after their account was written-off.
9.________ At Young People Accessory Company,the finished goods department sends goods to the shipping department,accompanied by a picking list.The shipping department clerk compares the goods to the picking list and signs the picking list,returning it to the finished goods warehouse clerk.Then the shipping department prepares a three-part shipping notice,one copy of which serves as the packing list and is enclosed with the goods to be shipped.An auditor recently discovered that the sales of a popular woman's purse were far less than the amount of inventory reduction for the purse.
10.________ At Goode Brothers Office Supply,Inc.,the correct goods for a customer's order were "picked" and transferred from the finished goods warehouse to shipping.The shipping clerk kept part of the customer's order.The customer later complained that he had received only half of his order.The shipping clerk claimed that shipping had not received the complete order from finished goods.Since Goode Brothers could not prove the source of the shortage,it sent additional goods to the customer at no charge.

Accepted Answer

The answer of The following ten paragraphs describe control weaknesses...

Question 11

Sarbanes-Oxley Act of 2002 requires companies maintain an adequate ________ structure over the business processes that support financial reporting.

Accepted Answer

The Sarbanes-Oxley Act of 2002 requires companies to maintain an adequate internal control structure over the business processes that support financial reporting. This includes implementing controls and procedures to ensure the accuracy and reliability of financial statements, as well as identifying and mitigating potential risks. The other options (A, C, and D) are not specifically mentioned in the requirement for internal control structure.

Question 12

Risk assessment should evaluate whether controls sufficiently address identified risks of material misstatements due to fraud and

Accepted Answer

Risk assessment should evaluate controls intended to address the risk of management override of these controls, as management override is a significant risk for material misstatements due to fraud.

Question 13

Which illustration is not an example of a customer audit technique?

Accepted Answer

Pricing items at $1.00 rather than 99 cents so the customer does not expect change is not an example of a customer audit technique. The other options involve collecting information or feedback from the customer in some way.

Question 14

Auditing standard No.5 describes a ________ approach to selecting controls to be tested.

Accepted Answer

According to Auditing Standard No. 5, auditors should use a top-down approach when selecting controls to be tested. This approach starts with understanding the company's financial reporting process and then focuses on identifying the key controls that are in place to prevent or detect material misstatements in the financial statements. The top-down approach ensures that auditors focus on the most important controls and reduces the risk of overlooking significant deficiencies or weaknesses in the controls.

Question 15

To control incoming cash from the mail and ensure an accurate accounting,the department which should have complete control over the transaction is the

Accepted Answer

To ensure accurate accounting and minimize the risk of theft or fraud, no single department should have complete control over incoming cash. This practice is part of a system of internal controls called segregation of duties, which requires that different individuals or departments handle different parts of a transaction to prevent errors or fraud.

Question 16

A significant difference between a cash sales business process and a cash-received-on-account business process is that

Accepted Answer

In a cash sales business process, the customer pays in full at the time of purchase, so there is no previous account balance. In a cash-received-on-account business process, the customer has an existing account balance and is making a payment towards it.

Question 17

A grocery store customer will be given a gallon of ice cream if his or her receipt has a red star stamped on it.The idea behind this technique from an accounting control standpoint is to

Accepted Answer

Having the customer look for a red star on their receipt encourages them to review the receipt closely, which indirectly involves them in the auditing process by verifying the items and prices charged, thus serving as a form of customer audit.

Question 18

Southeastern Supply Company has been in business for one month.The chief information officer of the company is designing procedures for its sales order entry system.Top management wants procedures for both general and specific authorization.
Required: Describe procedures to accomplish each of the following activities and indicate whether each procedure requires general or specific authorization.
1.Establishment of prices to be entered on sales orders
2.Establishing terms of sale,including credit limits
3.Disposition of blocked orders for customers over the credit limit
4.Disposition of sales allowances
5.Writing off accounts deemed worthless

Accepted Answer

The answer of Southeastern Supply Company has been in business...

Question 19

Presented below is a list of terms relating to accounting information systems,followed by definitions of those terms.
Required: Match the letter next to each definition with the appropriate term.Each answer will be used only once.
________ 1.Imprest techniques
________ 2.Factoring
________ 3.Blanket order
________ 4.Customer audit
________ 5.Cycle billing
________ 6.Professional shoppers
________ 7.Lock-box deposit system
________ 8.Bill
________ 9.Shipping advice
________ 10.Quotation
A.A single order which calls for several shipments to the same customer over a specific period of time
B.The selling of accounts receivable at a discount to a collection agency
C.People hired to purchase goods in a retail environment for the specific purpose of observing the recording of transactions
D.A synonym for "goods issue notice"
E.The processing of accounts receivable,subdivided by alphabet or account number in order to distribute the preparation of statements over the working days of the month
F.A control technique in which an item is held accountable to a specified total amount
G.A procedure in which the customer acts as a control over the initial documentation of a transaction
H.A document sent to a potential customer to inform them of product prices,availability,and delivery information
I.Customer remittances are sent directly to a bank and are credited to a company's account before they are posted to customer accounts
J.Another name for an invoice

Accepted Answer

The answer of Presented below is a list of terms...

Question 20

The Jackson Supply Company recently started using a regional lock-box collection system.The controller for the company compared the float using the lock-box system with the float using the company's prior,one-location collection system.The controller found that the company was saving $2,600,000 in average float.The bank that provides the regional lock-box system requires that the company maintain a $500,000 compensating balance at all times.The bank also charges service fees of $120,000 annually.
Required: Calculate the percentage cost of net funds freed for Jackson Supply Company.

Accepted Answer

The answer of The Jackson Supply Company recently started using...

Quiz 8: Revenue Cycle Processes

Using a lock-box system

A company located in Delaware has customers nationwide.The most effective system to deal with the issue of float is to

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 ________ in financial statements.

Effective internal control provides ________ assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.

Which illustration is not an example of a supervision technique?

A turnaround document that is used to enhance internal control and promote the accuracy of incoming cash receipts is the

Sarbanes-Oxley Act of 2002 requires companies maintain an adequate ________ structure over the business processes that support financial reporting.

Risk assessment should evaluate whether controls sufficiently address identified risks of material misstatements due to fraud and

Which illustration is not an example of a customer audit technique?

Auditing standard No.5 describes a ________ approach to selecting controls to be tested.

To control incoming cash from the mail and ensure an accurate accounting,the department which should have complete control over the transaction is the

A significant difference between a cash sales business process and a cash-received-on-account business process is that

A grocery store customer will be given a gallon of ice cream if his or her receipt has a red star stamped on it.The idea behind this technique from an accounting control standpoint is to