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TEST 4 Review Materials

Accounting Information Systems (The University of Texas Rio Grande Valley)

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1) Basic segregation of duties requires the credit manager reports to the ________ and the
treasurer report to the ________.
B) treasurer; vice president of finance
Answer: B

2) The ________ normally triggers the billing process in the revenue cycle.
C) packing slip received from the shipping department
Answer: C

3) The ________ normally triggers the customer payment recording process.

C) remittance advice
Answer: C

4) The ________ should always be included with a merchandise shipment to a customer.

B) packing slip
Answer: B

5) According to generally accepted accounting principles, a sale is recognized when

C) inventory becomes the legal property of the customer.
Answer: C

6) ________ is not a basic activity of the revenue cycle.

C) Receiving
Answer: C

7) When a customer places an order (on account) for a certain product, what should be done
before the order is checked for inventory availability?
A) The customer's available credit should be checked.
Answer: A

8) How is credit approval generally handled for established customers with a documented
payment history?
B) General authorization by a sales clerk
Answer: B

9) What is a typical procedure for processing sales orders from new customers or customers
making a purchase that causes their credit limit to be exceeded?
B) Specific authorization must be granted by the credit manager.
Answer: B

10) Checking the quantity of inventory available before accepting a sales order is a good practice
for all of the reasons except to
B) verify the accuracy of the perpetual inventory records.
Answer: B

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11) Special software packages called ________ can help an organization manage customer
service.
B) CRM systems
Answer: B

12) The ________ is a legal contract that defines responsibility for goods that are in transit.
A) bill of lading
Answer: A

13) Two documents usually accompany goods shipped to a customer. What are the two
documents?
B) a packing slip and a bill of lading
Answer: B

14) The basic document created in the billing process is call a ________.
B) sales invoice
Answer: B

15) A company uses the method for tracking accounts receivable where customers pay according
to individual sales invoices. This describes the ________ method.
B) open-invoice
Answer: B

16) A method for tracking accounts receivable that matches specific invoices and payments from
the customer is called a(n) ________ method.
D) open-invoice
Answer: D

17) The document a customer returns with their payment and that identifies the source and the
amount of the payment is called a
A) remittance advice.
Answer: A

18) In the ________ method of tracking accounts receivable, customers pay according to the
amount showing on their monthly statement and payments are applied against the total account
balance.
C) balance forward
Answer: C

19) When a customer pays off the balance on an invoice, the payment is credited to the
________ file.
A) customer master
Answer: A

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20) A type of business document in which part of the original document is returned to the source
for further processing is called a ________ document.
D) turnaround
Answer: D

21) A document typically encountered in the revenue cycle that is both an output document and a
source document is the
A) sales invoice.
Answer: A

22) A(n) ________ system prepares and mails monthly statements to customers throughout the
entire month, instead of just at the end of the month.
C) cycle billing
Answer: C

23) The activities involved in soliciting and processing customer orders within the revenue cycle
are known as the
A) sales order entry process.
Answer: A

24) Laz Chance wears roller blades and headphones when he is at work at the Squishy Things
Toy Company. He is a product packer. The headphones give him computer-generated instructions
so he knows the location of each item and quantity that should be included in the order. These
instructions are the equivalent of a
A) picking ticket.
Answer: A

25) The shipping department at Eka Toys follows policies that determine which carrier will
deliver orders according to the size, weight, and destination of the shipment. It maintains
standing agreements with shippers that specify legal responsibility for the shipment while it is in
transit. The terms of the shipping agreements are documented on
C) bills of lading.
Answer: C

26) The accounts receivable management method typically used by credit card companies is
A) balance forward.
Answer: A

34) If a firm does not use an ERP, the best way to mitigate the risk of the destruction of master
data is to
A) implement backup and disaster recovery procedures.
Answer: A

35) If a firm uses an ERP, the best way to mitigate the risk of the destruction of master data is to
B) implement the ERP system in three separate instances.
Answer: B

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36) Identify a useful tool for monitoring accounts receivable.

B) accounts receivable aging report
Answer: B

37) An accounts receivable aging report is useful for doing everything except
B) estimating future sales.
Answer: B

38) It costs ________ times as much to acquire a new customer as it does to make a sale to an
existing customer.
B) five
Answer: B

39) Research suggests which of the following is key to improving total customer satisfaction?
C) quality and nature of customer contact after the sale
Answer: C

40) A picking ticket is generated by the

B) sales order entry process.
Answer: B

41) A picking ticket is generated by the

B) sales order entry process.
Answer: B

42) The packing slip

C) lists the quantity and description of each item included in the shipment.
Answer: C

1) Which of the decisions below is not ordinarily found as part of the revenue cycle?
B) How often should accounts receivable be subjected to audit?
Answer: B

2) Key differences exist when an integrated Enterprise Resource Planning system (ERP) replaces
an existing AIS or legacy system. For example, ________ are more accurate and timely, enabling
sales order entry staff to provide customers more accurate information about delivery dates.
A) inventory records
Answer: A

3) Which of the following is not a key decision that needs to be made in the revenue cycle?
D) Which vendor should inventory be purchased from?
Answer: D

4) Regularly reviewing an accounts receivable aging report can help management do what?

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A) spot firms who are falling behind in their payments

Answer: A

5) Regularly reviewing an accounts receivable aging report can help management do what?
B) determine whether changes are needed in the firm's credit policies
Answer: B

6) By using an ERP to merge the billing, sales, and marketing functions, the firm may be able to
C) use customer's past purchase history to send information about related products and
services the customer may be interested in.
Answer: C

7) Suppose management wanted to increase the speed of processing customer payments. One
way to speed up payment transaction processing is to
A) use a FEDI.
Answer: A

8) True or False: Shipping efficiency can often be improved by replacing RFID tags with bar
codes.
Answer: FALSE

1) Before a shipping notice is prepared during the revenue cycle, shipping department personnel
should match the inventory received from the warehouse to the
C) picking ticket and sales order.
Answer: C

2) Which is the best control to prevent invoicing customers for more than the actual quantity
shipped?
B) Use the information from the packing slip to prepare the sales invoice.
Answer: B

3) The cashier deposits checks for Benedek Incorporated and also prepares payments to vendors.
Of the following, who is best able to reconcile the bank statement to Benedek's records on a
regular basis?
B) internal audit department
Answer: B

4) A monthly statement sent to customers serves a control purpose by

A) providing an opportunity for customers to verify the balance owed and activity on the
account.
Answer: A

5) Which of the following is not one of the controls when customer payments are commingled

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with other mail?

D) requiring the controller to be personally present when mail is received and opened
Answer: D

6) Matching customer account numbers and inventory item numbers to the numbers in the
customer and inventory master files is an example of a
D) validity check.
Answer: D

7) During the sales order entry process, a ________ is performed to compare the quantity
ordered with the standard amounts normally ordered.
D) reasonableness test
Answer: D

8) During the sales order entry process, a ________ is performed to verify that each transaction
record contains all appropriate data items.
A) completeness test
Answer: A

9) The best solution for maintaining accurate automated perpetual inventory system is to use
D) RFID tags.
Answer: D

10) Segregation of duties controls dictates that the collection and recording functions be kept
separate from each other. However, the accounts receivable department needs to know when
customers pay their invoices. What is a solution to this potential internal control problem?
D) all of the above
Answer: D

11) The benefits of a lockbox arrangement with a bank are maximized when
B) several banks around the country are used, in order to minimize the time payments
spend in the mail.
Answer: B

12) An ________ is an arrangement where a bank receives customer payments and transmits
payment data to the organization.
C) electronic lockbox.
Answer: C

13) Customers that send their payments electronically directly to the billing company's bank are
using
A) electronic funds transfer (EFT).
Answer: A

14) A way to incorporate the advantages of Electronic Data Interchange with the Electronic

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Funds Transfer is
A) Financial Electronic Data Interchange.
Answer: A

15) To ensure proper segregation of duties, only the ________ has authority to issue credit
memos.
C) credit manager
Answer: C

16) It has been discovered that credit sales have been made to customers with a poor credit
rating. If this continues, the company will face increasing uncollectible receivables and losses
due to bad debts. Separation of duties between ________ and ________ should help resolve the
problem.
B) credit approval; marketing
Answer: B

17) Consider the following revenue cycle scenario: The company has been exposed to customer
dissatisfaction and the suggested control procedure to be implemented is to install and use bar-
code scanners. What is the threat?
A) The company may be shipping the wrong merchandise.
Answer: A

18) Separating the shipping and billing functions is designed to reduce the threat of
A) failure to bill customers.
Answer: A

19) All of the following edit checks for online editing of accounts receivable transactions would
probably be included except
B) check digit verification on the amount of the sale.
Answer: B

20) When a proper segregation of duties exists in the area of handling cash receipts, the
________, who reports to the ________, actually handles the cash and is not the same person
who posts cash receipts to customer accounts.
A) cashier; treasurer
Answer: A

21) In a revenue cycle with proper controls, the ________ who reports to the ________, is not
involved in any cash handling activities.
B) accounts receivable clerk; controller
Answer: B

22) A serious exposure in the revenue cycle is loss of assets. What is the related threat and

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applicable control procedure that address this exposure?

B) theft of cash; segregation of duties and minimization of cash handling
Answer: B

23) Which of the following duties could be performed by the same individual and not violate
segregation of duty controls?
D) handling cash receipts and mailing vendor payments
Answer: D

24) Internal file labels can be used to prevent the loss of data in the revenue cycle since they
D) reduce the possibility of erasing important files.
Answer: D

25) The manager of Callow Youth Clothing was entering an order online from Sad Clown
Pajamas. He ordered 100 one-size fits all pajama bottoms, but when he ordered 1000 one-size
fits all pajama tops, the following error message popped up: "Did you mean to enter a quantity of
1000 for your order?" This message is the result of a
A) reasonableness test.
Answer: A

26) The manager of Cezary Foods was purchasing inventory from Bogumil Distributors online.
The manager entered the items and quantities, completed the checkout and payment process, but
received the following error message before the order could be processed: "Please enter your
phone number." This message is likely the result of a
B) completeness test.
Answer: B

27) Bogumil Distributors is an Internet-based wholesaler. Customers enter their orders online.
The manager of Cezary Foods was entering an order when the following error message popped
up: "Your order exceeds your available credit. You will be contacted within 8 hours." This
message is the result of a
D) limit check.
Answer: D

28) 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
C) segregation of duties.
Answer: C

29) A clerk at a grocery store scanned the bar code for a low cost bag of frozen chicken wings
then gave his friend an expensive brand-name bag of frozen chicken wings.Which of the
following controls would best prevent the clerk from getting away with doing this?
D) use of RFID tags
Answer: D

30) The accounts receivable clerk destroys all invoices for sales made to family and friends and

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does not record the sales in the accounts receivable subsidiary ledgers. The family and friends
usually give the clerk cash as a "thank you." Which procedure will not prevent or detect this
fraud?
A) Send monthly statements to all customers with balances owed.
Answer: A

31) Which of the following poses an internal control problem?

C) Sales representatives have authority to increase customers' credit limits in $1,000
increments.
Answer: C

32) The least effective control for preventing an organization from processing fraudulent credit
memo is to
C) reconcile total of credit memos to total debits posted to customers' subsidiary ledgers.
Answer: C

40) Which of the following is not a threat to the revenue cycle sales order entry process?
C) cash flow problems
Answer: C

41) Which of the following is not a threat to the revenue cycle shipping process?
A) incomplete orders
Answer: A

42) Which of the following is not a threat to the revenue cycle billing process?
B) loss of customers
Answer: B

43) Which of the following is not a general threat to the revenue cycle?
B) loss of customers
Answer: B

44) Which of the following is not a general threat to the revenue cycle?
B) loss of customers
Answer: B

45) The legitimacy of customer orders is established by ________ in paper-based customer

orders.
A) the customer's signature
Answer: A

46) The legitimacy of customer orders is established by ________ in Internet-based customer

orders.
A) digital signatures
Answer: A

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47) For strongest segregation of duties, the credit manager should never report to
A) the marketing department.
Answer: A

48) For strongest segregation of duties, a sales representative should never be allowed to
C) approve a sale on credit.
Answer: C

49) True or False: A credit sale should always be denied if it exceeds the customer's credit limit.
Answer: FALSE

50) True or False: A credit sale should always be reviewed by a credit manager if it exceeds the
customer's credit limit.
Answer: TRUE

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