Test bank accounting information system by turner 08 chapter

The internal control activity, related to the authorization of transactions, requires that only specific individuals within the company should have the authoritative responsibility for e

ACCOUNTING INFORMATION SYSTEMS

CONTROLS AND PROCESSES

TURNER / WEICKGENANNT

CHAPTER 8: Revenue and Cash Collection Processes

TEST BANK - CHAPTER 8 - TRUE / FALSE

1 Because different companies conduct business in different manners, there tends to be few

similarities in the way the related business processes are carried out

2 Sales processes need supporting practices such as credit checks and stock authorization

3 Even though most companies collect order data from customers, the manner of receiving

order data seldom varies

4 What a customer refers to as a purchase order is referred to as a sales order by the vendor

5 When a sales order has been entered into the system, the customer’s credit status must be

checked For existing customers, the sale on account should be approved only if the customer has exceeded their credit limit

6 If a sales order comes from a new customer, it is necessary to evaluate the creditworthiness

of that customer before the sale is approved

7 Whenever a sales order is received, it is necessary to check the inventory to make sure that

the items ordered are in stock If the items are in stock, a packing slip will be prepared

8 Billing to the customer should take place prior to shipment so that the customer receives the

bill before the merchandise arrives

9 If a vendor waits too long to send the bill to the customer due to the fact that it could cause a

delay of the collection of the cash

10 When the customer is billed, the accounts receivable records should be updated to reflect the

decreased balance

11 The existence of good internal controls do not ensure high sales and profits

12 Effective and efficient internal control often takes up valuable management time that could

otherwise be spent on attention to revenue growth and cost controls

13 Proper sales authorization control requires obtaining approval before processing an order and

again before the order is shipped

14 The internal control activity, related to the authorization of transactions, requires that only

specific individuals within the company should have the authoritative responsibility for

establishing sales prices and credit terms

15 The individuals who are given the authority to establish sales prices, credit limits, and

guidelines for accepting customers should be sure to keep most of the information

confidential

16 In order to meet the objectives of internal controls, individuals with authoritative

responsibilities need to have access to the record keeping functions

17 Record files related to sales can be organized by customer name or by the numerical sequence

of the documents

18 A benefit of a company accounting for their documents in a numerical sequence is that it is

much easier to see if a document or documents are missing

19 Independent checks and reconciliations should be performed on a regular basis as part of the

segregation of duties area of internal controls

20 A reconciliation should be prepared by the same person who is responsible for the recording

function

21 A company is more likely to implement internal controls if they view the cost of the controls to

be less than the benefits provided

22 When a credit memorandum has a reference to the original sales invoice and approved price

list it will assure that the correct customer receives credit for the return

23 Internal controls over sales returns are similar to those for the revenue process where it is

important to match receiving reports for returns with the related credit memos to ensure that the company issues credit for all returns for the correct amounts

24 Specific internal control procedures to be performed, specifically independent checks and

reconciliations, should be performed by someone who as the responsibility for the recording of the transactions and the custody of the assets received

25 It is necessary for a company to consider the risks of its system to determine whether the

costs of implementing a control procedure are worthwhile in terms of the benefits realized from the control

26 As a rule, the higher the risk, the more controls are generally required and the less costly its

accounting system may become

27 Company to company sales normally occur on account and involve a time span given for the

customer to pay the vendor The actual number of days will depend on the credit terms and the diligence of the customer concerning on-time payments

28 The remittance advice send by the customer with the related payment is used by the vendor

to properly apply the payment to the customer’s account

29 The segregation of duties states that the authorization of duties is to be separated from the

recording function but not from the custody function

30 At a minimum, those who handle cash should be the ones to reconcile the bank statement

31 Those who handle cash should not have access to the related accounting records

32 At a minimum, cash receipts should be deposited on a weekly basis

33 Detailed customer accounts should be maintained and reconciled with customer statements

regularly

34 Access to cash collections needs to limited to those who are expressly authorized to record the

cash transactions

35 Controls over cash collections are likely the most important control procedure because cash is

the asset most susceptible to theft and misappropriation

36 Integrated IT systems that are used to conduct internet sales in a business to customer

manner are referred to as e-commerce

37 Business to business sales on the internet are referred to as e-commerce

38 The use of control totals and related acknowledgments can reduce the risk of denial of service

attacks by hackers

39 Because the point-of-sale systems are not normally connected to outside trading partners,

they pose fewer risks related to security and confidentiality than e-commerce or EDI systems

40 Because the point-of-sale systems are not normally connected to outside trading partners,

they pose fewer risks related to availability

41 Few deceptions and fraudulent acts in the business and accounting environment relate to

revenue measurement and recognition

42 Regardless of how effective and good the accounting system is, if top management is intent

on falsifying financial statements by inflating revenue, they can usually find ways to misstate revenue

43 In many cases where revenue has been overstated by management, accountants have

participated in the deception Thankfully, once the overstatement has occurred, it will be offset by lower revenues in the subsequent year and normally will not recur

44 When top management behaves ethically and encourages ethical behavior, there are usually

fewer cases of frauds, errors, or other ethical problems

45 Establishing proper processes, internal controls, and ethical guidelines does not lead to better

corporate governance, even though it does improve the financial stewardship

ANSWERS TO TEST BANK – CHAPTER 8 – TRUE / FALSE:

TEST BANK - CHAPTER 8 - MULTIPLE CHOICE

46 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

47 The policies and procedures that employees follow when completing the sale, capturing

customer data and sales quantities, and routing the resulting sales documents to the right departments within the company are referred to as:

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

49 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

50 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

51 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

52 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

53 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

54 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

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

A Price list

B Purchase order

C Packing slip

D Pick list

57 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

58 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

D Accounts Receivable Journal

63 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

64 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

65 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 someone other than the person who has custody of the

assets

D The authorization process is to remain separate from the recording process

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

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

69 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

70 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

71 The preparation of packing lists and shipping records on prenumbered forms will help to

minimize the related risk of:

76 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

77 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

78 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

79 Differences between a sales return and a sales allowance include:

A The issuance of a credit memorandum

B The existence of defective merchandise

C The documentation in a receiving report

D All of the above

80 The separation of the custody of inventory from the accounts receivable record keeping will help

to minimize the related risk of:

82 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

83 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

84 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

85 The custody responsibilities for cash receipts include 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

86 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 also be maintained and reconciled with customer

statements regularly

D All of the above

87 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 someone not

responsible for cash receipts functions

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

88 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

89 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 source of collections

D Presence of cash collections denominated in foreign currencies

90 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 so that no one has the opportunity to write off an account to

cover up stolen cash

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

91 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:

B Invalid bank account

C Lost or stolen cash

D Duplicate transactions

95 General controls of the IT system would include all of the following, except:

100 The advantages of e-commerce, or e-business, include all of the following, except:

A Reduced cost through lower marketing, employee, and paperwork costs

B Shorter sales cycles

C Repudiation of sales transactions

D Increased accuracy and reliability of sales data

101 The risks of e-commerce, or e-business, include all of the following, except:

A Confidentiality

B Accuracy

C Security

D Processing Integrity

102 Availability risks of e-commerce, or e-business, include all of the following, except:

A Hardware and software system failures

B Virus and worm attacks

C Denial-of-service attacks by hackers

D Incomplete audit trail

103 Important characteristics of electronic data interchange (EDI) include all of the following,

except:

A Sales register is used to record all transactions

B Inter-company refers to two or more companies conducting business electronically

C Computer-to-computer aspect indicates that each company’s computers are connected via

a network

D A standard business format is necessary so that companies can interact and trade with a

variety of buyers and sellers

104 The standard format used with EDI allows all vendors and buyers to speak the same language Which group has developed the standard format for the common documents used in the sales process?

A Electronic Data Systems

B American Common Forms Institute

C Association of Naturalized Documents

D American National Standards Institute

105 The standard format for common forms used in the United States for EDI data transmission is divided into three parts Which of the following is one of those “parts”?

A Availability Segment

B Labeling Interchanges

C Security Trailer

D Processing Data

106 This section of the common forms used as the standard format in EDI data transmission

contains data about the file or transmission and identify the end of a particular transaction

A Header and Trailer Data

A EDI Mailboxes

B American National Standards Provider

C Value Added Networks

D Secured EDI Networks

108 EDI systems have many advantages within the revenue and cash collection processes Which of the following is not one of those benefits?

A Reduction or elimination of data keying

B Trading partners gaining access to data

C Elimination of postage costs

D Competitive advantage through better customer service

109 The process of user identification to ensure that only authorized users are accessing the IT system, which occurs through the use of user ID, password, and other unique identifiers, is called:

A Processing Integrity

B Virtualization

C Availability

D Authentication

110 A control that limits the risk of network break-ins is the coding of data that makes data

unreadable to those without the appropriate key This process does not stop the breaches, but will make the data useless

A Prices are determined by accessing inventory and price list data

B Sales revenue is recorded

C Ordering for low-inventory items

D Inventory values are updated

113 Advantages to management and accountants, as the result of the point-of-sale systems, include all of the following except:

A Bar code scanning eliminates the need to manually enter product codes, quantities, or

prices

B Real-time update of cash, sales, and inventory records allows for immediate analysis of

sales trends, inventory needs, and cash on hand

C List prices can be changed by the check-out clerks to take advantage of any price changes

D Credit card authorization during the sale save time and help prevent credit card fraud

114 This term refers to moving the current accounting period forward to include sales that correctly occur in a future period This activity occurs so that the selling company can inflate their sales

in the current period

A Channel stuffing

B Leaving sales open

C Shipping reversal

D Sales deferral

ANSWERS TO TEST BANK – CHAPTER 8 – MULTIPLE CHOICE:

TEST BANK – CHAPTER 8 – END OF CHAPTER QUESTIONS:

115 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

116 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

117 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

118 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