In the revenue cycle, before a shipping notice is prepared, the shipping Which of the decisions below is not ordinarily

is not ordinarily found as part of the revenue cycle?

department personnel should match the inventory received from the A) What credit terms should be offered?
warehouse to details from B) How often should accounts receivable be subjected to audit?
A) picking tickets. C) How can customer payments be processed to maximize cash flows?
B) sales order and bill of lading. D) What are the optimal prices for each product or service?
C) sales order.
D) picking ticket and sales order Which of the following is not a basic activity of the revenue cycle?
A) sales order entry
Which is the best control to prevent invoicing customers for the quantity ordered, B) shipping
which was more than the quantity shipped due to items on backorder? C) receiving
A) Use the information from the packing slip to prepare the sales invoice. D) billing
B) Use the information from the picking ticket to prepare the sales invoice.
C) Use the information from the bill of lading to prepare the sales invoice. Retail stores could send their orders directly to the manufacturer's sales order
D) Use the information from the sales order to prepare the sales invoice. system in a format that would eliminate the need for data entry, using
A) Vendor Managed Inventory.
Which of the following documents normally triggers the billing process in the B) Electronic Data Interchange.
revenue cycle? C) Point Of Sale.
A) Packing slip received from the shipping department D) Electronic Funds Transfer.
B) Sales order received from the sales department
C) Picking ticket received from the sales department Matching customer account numbers and inventory item numbers to the
D) Journal voucher received from the shipping department numbers in the customer and inventory master files is an example of a
A) completeness test.
Which of the following documents would normally trigger the process to B) field check.
record a customer payment? C) reasonableness test.
A) Remittance advice D) validity check.
B) Customer monthly statement
C) Deposit slip During the sales order entry process, a ________ is performed to compare
D) Sales invoice the quantity ordered with the standard amounts normally ordered.
A) completeness test
Which document should always be included with a merchandise shipment to B) redundant data check
a customer? C) field check
A) Packing slip D) reasonableness test
B) Picking ticket
C) Remittance advice During the sales order entry process, a ________ is performed to verify that
D) Sales invoice each transaction record contains all appropriate data items.
A) completeness test
A monthly statement sent to customers serves a control purpose by B) redundant data check
A) providing an opportunity for customers to verify the balance owed C) field check
and activity on the account. D) reasonableness test
B) triggering the process to record a customer payment.
C) summarizing invoices and amounts due for customers. When a customer places an order (on account) for a certain product, what
D) reminding customers of the balance due and due date. should be done before the order is checked for inventory availability?
A) The customer's available credit should be checked.
Accounting recognizes a sale when B) The sales order should be created and written to a file.
A) inventory becomes the legal property of the customer. C) Shipping should be notified of an order in process.
B) cash is received from the customer. D) A picking list should be generated for the warehouse
C) a sales order is approved by sales, inventory control, and credit
departments. How is credit approval generally handled for established customers with a
D) inventory is removed from the warehouse documented payment history?
A) Specific authorization by the credit manager
Which of the following is not one of the controls for the mail room where B) General authorization by a sales clerk
customer payments are commingled with other mail? C) A new credit application is requested
A) Requiring the controller to be personally present when mail is D) A formal credit check should be made for each sale
received and opened
B) Preparing a remittance list as mail is opened What is a typical procedure for processing sales orders from new customers or
C) Restrictively endorsing checks when received customers making a purchase that causes their credit limit to be exceeded?
D) Requiring two mail room clerks to open mail together A) General authorization to approve the order is given to sales clerks.
B) Specific authorization must be granted by the credit manager.
What is the primary objective of the revenue cycle? C) The sale should be rejected.
A) to maximize revenue and minimize expense D) The sales clerk should order a report from a credit bureau before
B) to reduce outstanding accounts receivable balances through increased approving the order
cash sales
C) to provide the right product in the right place at the right time at the right price A company should check inventory quantities before accepting a sales order
D) to sell as much product as possible and/or to maximize service billings for all the following reasons except to
A) verify the accuracy of the perpetual inventory records. In the ________ method of tracking accounts receivable, customers pay
B) inform the customer about availability and delivery times. according to the amount showing on their monthly statement and payments
C) know which items may need to be back ordered. are applied against the total account balance.
D) update inventory records to reduce the quantity available by the number A) specific identification
of items ordered B) open-invoice
C) balance forward
Responding to customer inquiries and general customer service is an D) remittance advice
important aspect in the revenue cycle. Since customer service is so
important, software programs have been created to help manage this When a customer pays off the balance on an invoice, the payment is credited
function. These special software packages are called to the ________ file.
A) EDI systems. A) customer master
B) POS systems. B) sales transaction
C) VMI systems. C) cash receipts master
D) CRM systems. D) All of the above are correct

The best solution for maintaining accurate automated perpetual inventory A type of business document in which part of the original document is
system is to use returned to the source for further processing is called a ________ document.
A) closed-loop verification when inventory is received from vendors and recorded. A) feedback
B) point of sale devices integrated with inventory records. B) returnable
C) periodic physical counts to reconcile with perpetual inventory records. C) closed-loop
D) RFID tags. D) turnaround

This document is a legal contract that defines responsibility for goods that A document typically encountered in the revenue cycle that is both an output
are in transit. document and a source document is the
A) packing slip A) sales invoice.
B) bill of lading B) customer purchase order.
C) picking list C) sales order.
D) back order D) packing slip.

Two documents usually accompany goods shipped to a customer. What are A ________ system prepares and mails monthly statements to customers
the two documents? throughout the entire month, instead of just at the end of the month.
A) a bill of lading and an invoice A) continuous
B) a packing slip and a bill of lading B) open-invoice
C) an invoice and a packing slip C) cycle billing
D) an invoice and a sales order D) balance forward

What is the basic document created in the billing process? The accounts receivable department must know when customers pay their
A) bill of lading invoices, yet segregation of duties controls dictate that the collection and
B) sales order recording functions be kept separate from each other. What is a solution to
C) packing list this potential internal control problem?
D) sales invoice A) Have customers send a remittance advice with their payment.
B) Have mailroom personnel prepare a remittance list which can be
A company uses the method for tracking accounts receivable where customers pay forwarded to accounts receivable.
according to individual sales invoices. This describes the ________ method. C) Establish a lockbox arrangement with a bank.
A) monthly statement D) all of the above
B) open-invoice
C) balance forward The benefits of a lockbox arrangement with a bank are maximized when
D) cycle billing A) the bank is located nearby to the company, so remittance advices can be
delivered to the company every day.
A method for tracking accounts receivable that matches specific invoices and B) several banks around the country are used, in order to minimize the
payments from the customer is called a(n) ________ method. time payments spend in the mail.
A) specific identification C) an arrangement is made with only one bank, so all remittance advices can
B) balance forward be batched for processing.
C) cycle billing D) the bank deposits the payments and accesses the customer's information
D) open-invoice system to record the payments.
The document a customer returns with their payment and that identifies the An arrangement where a bank receives customer payments through the
source and the amount of the payment is called a postal system, scans the remittance advices, and transmits payment data to
A) remittance advice. the business electronically is known as
B) remittance list. A) e-commerce.
C) credit memorandum. B) an electronic lockbox.
D) debit memorandum C) electronic funds transfer (EFT).
D) electronic data interchange (EDI).
Customers that send their payments electronically directly to the company's
bank are using All of the following edit checks for online editing of accounts receivable
A) electronic data interchange (EDI). transactions would probably be included except
B) electronic funds transfer (EFT). A) validity checks on customer ID and invoice numbers.
C) procurement cards. B) check digit verification on the amount of the sale.
D) an electronic lockbox C) closed loop verification on the customer ID.
D) field checks on the values in dollar fields
A way to incorporate the advantages of Electronic Data Interchange with the
Electronic Funds Transfer is When a proper segregation of duties exists in the area of handling cash
A) Financial Electronic Data Interchange. receipts, the _____, who reports to the ________, actually handles the cash
B) e-commerce. and is not the same person who posts cash receipts to customer accounts.
C) to use procurement cards. A) cashier; treasurer
D) an electronic lockbox B) cashier; controller
C) accountant; treasurer
Key differences exist when an integrated Enterprise Resource Planning D) accountant; controller
system (ERP) replaces an existing AIS or legacy system. For example,
________ are more accurate and timely, enabling sales order entry staff to In a revenue cycle with proper controls, the ________ who reports to the
provide customers more accurate information about delivery dates. ________, is not involved in any cash handling activities.
A) inventory records A) accounts receivable clerk; treasurer
B) cash receipts B) accounts receivable clerk; controller
C) credit approval decisions C) cashier; controller
D) exception reports D) cashier; treasurer

When an ERP is used, it is assumed that there will be increases in efficiency
and the effectiveness of the activities related to the revenue cycle. However,
what must be in place and functioning well to fully realize these benefits?
A) an effective marketing staff
B) all the components of the expenditure cycle
C) adequate controls
D) adequate system flowchart documentation
A serious exposure in the revenue cycle is loss of assets. What is the related
threat and applicable control procedure that address this exposure?
A) shipping errors; reconciliation of sales order with picking ticket and packing slip
B) theft of cash; segregation of duties and minimization of cash handling
C) making sales that turn out to be uncollectible; force sales people to make
collection calls on customers with past due balances
D) poor performance; preparation and review of performance reports

The activities involved in soliciting and processing customer orders within the Which of the following duties could be performed by the same individual and
revenue cycle are known as the ________. not violate segregation of duty controls?
A) sales order entry process A) handling cash and posting to customer accounts
B) shipping order process B) issuing credit memos and maintaining customer accounts
C) revenue process C) handling cash and authorizing credit memos
D) marketing process D) handling cash receipts and mailing vendor payments

To ensure proper segregation of duties, only the _has authority to issue credit memos. To prevent the loss of valuable data in the revenue cycle, internal file labels
A) accounts receivable supervisor can be used to
B) controller A) keep competitors from accessing files.
C) credit manager B) record off-site storage locations.
D) cashier C) organize the on-site physical storage site.
D) reduce the possibility of erasing important files
Consider the following revenue cycle scenario: The company has been
exposed to customer dissatisfaction and the suggested control procedure to The manager of Callow Youth Clothing was entering an order online from
be implemented is to install and use bar-code scanners. What is the threat? Sad Clown Pajamas. He ordered 100 one-size fits all pajama bottoms, but
A) The company may be shipping the wrong merchandise. when he ordered 1000 one-size fits all pajama tops, the following error
B) The company may be shipping the wrong quantities of merchandise. message popped up: "Did you mean to enter a quantity of 1000 for your
C) The company may be shipping orders to the wrong address. order?" This message is the result of a
D) All of the above threats may apply to this scenario A) reasonableness test.
B) validity check.
Which of the following would be the least effective control to minimize the C) limit check.
loss of inventory? D) closed-loop verification.
A) Secure the storage location of inventory.
B) Release inventory only with proper documentation. The manager of Callow Youth Clothing was entering an order online from
C) Periodically back up all perpetual inventory records. Sad Clown Pajamas. He entered all the items and quantities, completed the
D) Reconcile the physical counts with and perpetual records checkout and payment process, but the following error message popped up
when he tried to exit the site: "Please enter your email address." This
Separating the shipping and billing functions is designed to reduce the threat of message is likely the result of a
A) failure to bill customers. A) customer relationship management software application.
B) billing customers for wrong quantities. B) validity check.
C) billing customers before merchandise has been shipped. C) completeness test.
D) shipping the wrong merchandise D) closed-loop verification
Sad Clown Pajamas is an Internet-based wholesaler. Customers enter their
orders online. The manager of Callow Youth Clothing was entering an order A sales clerk at an electronics store scanned the bar code for a low cost set
when the following error message popped up: "Your total order exceeds your of headphones and then substituted a high cost set of headphones for his
available credit. A Credit Department representative will contact you within friend, who paid the lower price. Which of the following controls would best
24 hours." This message is the result of a help to prevent this sort of fraud?
A) validity check. A) Use of RFID tags
B) reasonableness test. B) Physical inventory count
C) limit check. C) Segregation of duties
D) sign check. D) Limited physical access to bar codes

In Petaluma, California, electric power is provided to consumers by the The accounts receivable management method typically used by credit card
Power To The People Electrical Company, a local co-op. Each month PTTP companies is
mails bills to 70,000 households and then processes payments as they are A) balance forward.
received. The customers are provided with a remittance advice, which is a B) postbilling.
A) warning that failure to pay by the due date will result in a late charge. C) monthly statement.
B) confirmation of the firm's privacy policy. D) open-invoice.
C) turnaround document.
D) bill. Which of the following poses an internal control problem?
A) Physical inspection of inventory quantity and condition is outsourced to a
Laz Chance wears roller blades and headphones when he is at work at the Squishy firm that specializes in this service.
Things Toy Company. He is a product packer. The headphones give him computer- B) Products are released from inventory after a warehouse employee and a
generated instructions so he knows the location of each item and quantity that should shipping clerk both sign the pick list.
be included in the order. These instructions are the equivalent of a C) Sales representatives have authority to increase customers' credit
A) picking ticket. limits in $1,000 increments.
B) bill of lading. D) When customer payments are received in the mail, checks are sent to the
C) packing slip. cashier's office and remittance advices are sent to the accounts receivable
D) sales order. department
The shipping department at Squishy Things Toy Company follows policies For sales returns, the least effective control to prevent fraudulent processing
that determine which carrier will deliver orders according to the size, weight, of a credit memo is to
and destination of the shipment. It maintains standing agreements with A) reconcile total of credit memos to total debits posted to customers'
shippers that specify legal responsibility for the shipment while it is in transit. subsidiary ledgers.
The terms of the agreements are documented on B) require approval for each credit memo by the credit manager.
A) picking tickets. C) sequentially pre number all credit memos and perform a sequence check
B) bills of lading. at the end of each day.
C) packing slips. D) match each credit memo with a receiving report
D) RFID tags.
Which of the following types of fraud requires access to the accounts
Sad Clown Pajamas is an Internet-based wholesaler. The manager of Callow receivable master file?
Youth Clothing received an order from Sad Clown and found that the wrong a. Lapping
product had been shipped. He repackaged the order and sent it back for a b. Kiting
refund. When Sad Clown Pajamas received the returned product, they c. Theft of inventory
mailed a ______ to Callow Youth Clothing's manager. d. None of the above
A) packing slip
B) letter requesting an explanation For good internal control in an ERP system, sales staff should be permitted
C) remittance advice to:
D) credit memo a. Adjust customer credit limits
b. Issue credit memos
A customer service manager at Sad Clown Pajamas, Bob, received a call c. Both of the above
from the manager at Callow Youth Clothing, who informed Bob that Callow d. Neither of the above
was entering bankruptcy liquidation and it was unlikely that they would be
able to pay the outstanding balance on their account. Bob should The CEO is concerned about the possibility of employees stealing inventory.
A) document the phone conversation and forward it to the billing department In the formal language used for risk analysis, theft of inventory is referred to
manager. as a(n):
B) prepare a credit memo. a. risk
C) approve a credit memo. b. exposure
D) document the phone conversation and forward it to the credit c. expected loss
department manager d. threat
e. None of the above
Because it is the most fungible of all assets, the management of cash has always
been the most difficult of all control issues. The most important of cash controls is
A) minimization of cash handling.
B) lockbox arrangements.
C) segregation of duties.
D) frequent reconciliation of records