Complete Test Bank Ch8 Revenue And Cash Collection Processes

ACCOUNTING INFORMATION SYSTEMS/3e

TURNER / WEICKGENANNT/COPELAND

Test Bank: CHAPTER 8: Revenue and Cash Collection Processes

NOTE: New questions are identified by the letter A as part of the question number; adjusted questions are identified by the letter X as part of the question number.

End of Chapter Questions:

1. Within the revenue processes, a signed approval of a sales order indicates all of the following except:
2. The date of delivery.
3. The sale is to an accepted customer.
4. The customer’s credit has been approved.
5. The sales price is correct.
6. An example of an independent verification in the sale process is:
7. Preparation of packing lists on prenumbered forms.
8. Initialing the sales order.
9. Proof of recorded dates, quantities, and prices on an invoice.
10. Physical controls in record storage areas.
11. The purpose of tracing shipping documents to prenumbered sales invoices would be to provide evidence that:
12. Shipments to customers were properly invoiced.
13. No duplicate shipments or billings occurred.
14. Goods billed to customers were shipped.
15. All prenumbered sales invoices were accounted for.
16. The purpose of tracing sales invoices to shipping documents would be to provide evidence that:
17. Shipments to customers were properly invoiced.
18. No duplicate shipments or billings occurred.
19. Goods billed to customers were shipped.
20. All prenumbered sales invoices were accounted for.
21. To ensure that all credit sales transactions of an entity are recorded, which of the following controls would be most effective?
22. On a monthly basis, the accounting department supervisor reconciles the accounts receivable subsidiary ledger to the accounts receivable control account.
23. The supervisor of the accounting department investigates any account balance differences reported by customers.
24. The supervisor of the billing department sends copies of approved sales orders to the credit department for comparison of authorized credit limits and current customer balances.
25. The supervisor of the billing department matches prenumbered shipping documents with entries recorded in the sale journal.
26. Under a system of sound internal controls, if a company sold defective goods, the return of those goods from the customer should be accepted by the:
27. Receiving Clerk
28. Sales Clerk
29. Purchasing Clerk
30. Inventory Control Clerk
31. The source document that initiates the recording of the return and the adjustment to the customer’s credit status is the:
32. Pick list
33. Sales journal
34. Credit memorandum
35. Sales invoice
36. Which of the following is not a document that is part of the cash collection process?
37. Remittance advice
38. Cash receipts journal
39. Bank deposit slip
40. Packing slip

1. Which of the following would represent proper segregation of duties?
2. The employee who has custody of cash also does accounts receivable record keeping.
3. The employee who has custody of cash completes the bank reconciliation.
4. The employee who opens mail containing checks prepares a list of checks received.
5. The employee who opens mail containing checks records transactions in the general ledger.
6. Immediately upon receiving checks from customers in the mail, a responsible employee working in an environment of adequate internal control should prepare a listing of receipts and forward it to the company’s cashier. A copy of this cash receipts listing should also be sent to the company’s:
7. Treasurer for comparison with the monthly bank statement.
8. Internal auditor for investigation of any unusual transactions.
9. Accounts receivable clerk for updating of the accounts receivable subsidiary ledger.
10. Bank for comparison with deposit slips.
11. If a company does not prepare an aging of accounts receivable, which of the following accounts is most likely to be misstated?
12. Sales revenues
13. Accounts receivable
14. Sales returns and allowances
15. Allowance for uncollectible accounts
16. When a company sells items over the Internet, it is usually called e-commerce. There are many IT risks related to Internet sales. The risk of invalid data entered by a customer would be a(n):
17. Availability risk.
18. Processing integrity risk.
19. Security risk.
20. Confidentiality risk.
21. When a company sells items over the Internet, there are many IT risks. The risk of hardware and software failures that prevent website sales would be a(n):
22. Availability risk.
23. Processing integrity risk.
24. Security risk.
25. Confidentiality risk.
26. The use of electronic data interchange (EDI) to conduct sales electronically has both risks and benefits. Which of the following is a benefit of EDI, rather than a risk?
27. Incomplete audit trail
28. Repudiation of sales transactions
29. Unauthorized access
30. Shorter inventory cycle time
31. An IT system that uses touch screens, bar coded products, and credit card authorization during the sale is called a(n):
32. Electronic data interchange system.
33. E-commerce system.
34. Point of sales system.
35. E-payables system.
36. Which of the following is not a method of unethically inflating sales revenue?
37. Channel stuffing
38. Holding sales open
39. Premature recognition of contingent sales
40. Promotional price discounts

TEST BANK - CHAPTER 8 - MULTIPLE CHOICE

1. 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:
2. Capture the results of the sales transactions
3. Record the proper and complete sales transactions
4. Summarize and report the results of the transactions
5. All of the above
6. Which of the following displays the correct order of operations within the Sales Process?
7. Verify Prices, Prepare Sales order, verify credit limit, verify item is in stock
8. Verify Prices, Verify Credit limit, Prepare Sales order, , verify item is in stock
9. Verify Prices, Verify Credit limit, verify item is in stock, prepare sales order
10. Verify item is in stock, verify Prices, verify credit limit, prepare Sales order
11. When a sale occurs, the information resulting from that sale must flow into the sales recording systems, the accounts receivable and cash collection systems, and the inventory tracking systems. In IT accounting systems, these recording and processing systems are referred to as:
12. Transaction Processing Systems
13. Revenue and Cash Processing Systems
14. Point of Sale System
15. E-business System
16. The business processes that are common in company-to-company sales business types include all of the following, except:
17. Collect order data
18. Record receivable and bill the customer
19. Update affected records, such as accounts payable and cash
20. Handle any product returns from the customer
21. 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?
22. Sales processes, including ordering, delivery, and billing
23. Purchase of inventory, including ordering, delivery, and billing
24. Sales Returns processes
25. Cash Collection processes
26. The risks that may affect the revenue and cash collection processes include all of the following, except:
27. Transactions recorded by the wrong company.
28. Valid transactions may have been omitted from the records.
29. Transactions may not have been recorded in a timely manner.
30. Recorded transactions may not be valid or complete.
31. The risks that may affect the revenue and cash collection processes include all of the following, except:
32. Transactions may have been recorded in the wrong customer account.
33. Transactions may be recorded in the wrong amount.
34. Invalid transactions may have been omitted from the records.
35. Transactions may not have been accumulated or transferred to the accounting records correctly.
36. Which of the following is a risk that may affect the revenue and cash collection process?
37. Transactions may have been recorded by the wrong company
38. Invalid transactions may have been omitted from the records
39. Transactions may be recorded in the wrong amount
40. Quantities of products returned are often difficult to determine
41. Common means of presenting the revenue and cash collections processes pictorially include:
42. Data Flow Diagram
43. Document Flowchart
44. Business Process Map
45. All of the above
46. The sales and cash collections process begins when:
47. Merchandise is shipped to a customer
48. A customer places an order with the company
49. Merchandise is purchased
50. A vendor places an order with the company
51. The form, or source document, that conveys the details about a customer’s order, prepared by the customer, is referred to as:
52. Sales Order
53. Sales Invoice
54. Purchase Order
55. Purchase Invoice
56. Which of the following two terms both refer to the same document?
57. Price list & sales order
58. Packaging slip & bill of lading
59. Shipping log & packing slip
60. Sales order & purchase order
61. Which of the following documents will be received by a customer after a sale?
62. shipping log
63. pick list
64. monthly account statement
65. purchase order
66. Sales orders are calculated based on current selling prices of the items sold. The source of these prices, which would include the entire set of pre-established and approved prices for each product, is referred to as a(n):
67. Price list
68. Purchase order
69. Packing slip
70. Pick list
71. The maximum dollar amount that a customer is allowed to carry as an accounts receivable balance:
72. Maximum Limit
73. Credit Balance
74. Maximum Balance
75. Credit Limit
76. 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.
77. Packing Slip
78. Price List
79. Pick List
80. Purchase Order
81. A ________ is prepared by warehouse personnel and lists all items included in a shipment.
82. Bill of lading
83. Packing slip
84. Shipping log
85. Pick list
86. The terms of agreement between the company and the common carrier are documented in a(n):
87. Pick List
88. Bill of Lading
89. Invoice
90. Packing Slip
91. Invoice
92. Bill of Lading
93. Pick List
94. Shipping Log
95. This document is prepared and sent to the customer once the shipment has occurred. The document provides the details of the sale and requests payment.
96. Sales Invoice
97. Accounts Receivable Statement
98. Bill of Lading
99. Sales Order
100. A special journal that is used to record sales transactions and is periodically posted to the general ledger.
101. General Journal
102. Subsidiary Journal
103. Sales Journal
104. Accounts Receivable Journal
105. 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.
106. Accounts Receivable Journal
107. Sales Invoice
108. Subsidiary Journal
109. Customer Account Statements
110. When a sales transaction has been authorized, by the signature of the designated employee, it means that the designated employee has done all of the following, except:
111. Verified the sale is to an accepted customer
112. The vendor’s credit has been approved
113. The price is correct
114. Approval documented by a signature or initials of the designated employee
115. Which of the following relationships does not violate the rules of segregation of duties?
116. Credit authorization and preparation of the sales order.
117. Preparation of the sales order and sales invoice.
118. Preparing goods for shipment and accounting for inventory.
119. Entering sales in the sales journal and handling the inventory.
120. The internal control activity related to the adequate records and documents, related to sales, includes which of the following?
121. Those responsible for recording sales should ensure that the supporting documentation is retained and organized.
122. Information systems duties included in the revenue process includes the preparation of sales orders and shipping logs.
123. All records are to be prepared by someone other than the person who has custody of the assets.
124. The authorization process is to remain separate from the recording process.
125. Which of the following is not one of the stated physical controls for inventory in a warehouse?
126. Surveillance Cameras
127. Alarm Systems
128. Backup Copies
129. Security Guards
130. In order to protect data files, production programs, and accounting records from unauthorized access, each of the following may be used, except:
131. Passwords
132. Physical controls (locked cabinets)
133. Backup copies
134. Surveillance cameras
135. Common types of independent checks within the revenue process include all of the following, except:
136. Verification of information in the sales journal and on sales invoices.
137. Verification of the bank statement and the cash account in the general journal.
138. Reconciliation of accounts receivable detail with invoices and with the general ledger.
139. Reconciliation of inventory records with actual (counted) quantities on hand.
140. Examples of characteristics that indicate a company may be more risky with respect to the revenue process include all of the following, except:
141. Changes in sales prices or customers are infrequent.
142. The pricing structure is complex or is based on estimates.
143. There is a large volume of transactions is carried out.
144. The company depends on a single or on very few customers.
145. The comparison of the shipping records with the sales journal and invoices is completed to minimize the related risk of:
146. Invalid transactions
147. Fictitious customers
148. Omitted transactions
149. Duplicate transactions
150. The preparation of packing lists and shipping records on prenumbered forms will help to minimize the related risk of:
151. Incorrect amounts
152. Invalid sales
153. Wrong customers
154. Omitted transactions
155. The separation of the responsibility for the authorization of new customers from the custody of inventory will help to minimize the related risk of:
156. Invalid sales
157. Fictitious customers
158. Incorrect amounts
159. Timing issues
160. A document prepared that lists the chronological sequence of all returned items is referred to as a(n):
161. Receiving log
162. Receiving report
163. Invoice
164. Packing list
165. A source document prepared by the personnel in the receiving dock that documents the quantity and condition of the items received is called a(n):
166. Invoice
167. Receiving log
168. Receiving report
169. Credit memorandum
170. All of the following indicate a high level of risk associated with sales returns, EXCEPT:
171. There is a high volume of credit memo activity
172. The company depends on a single customer or very few key customers
173. Transactions may be recorded in the wrong amount
174. Returns are received by consignees or under other arrangements not directly controlled by the company
175. According to the textbook, after receiving a returned product and checking its condition, all of the following options are available to a company except:
176. Resell the product
177. Record an allowance for doubtful accounts on the product
178. Repair the product
179. Dispose of the product
180. A _______ is a credit to the customer account made to compensate the customer for a defective product or a late shipment.
181. Sales allowance
182. Refund check
183. Remittance advice
184. Credit memorandum
185. A document completed to prepare a record of the sales return and to adjust the amount of the customer’s credit status is called a(n):
186. Receiving log
187. Credit memorandum
188. Sales invoice
189. Sales journal
190. The authorization of sales returns requires that certain individuals within the company be assigned the authority for all of the following, except:
191. Authorize Sales Returns
192. Approve Credit Memos
193. Develop Sales Return Policies
194. Record the Credit Memos
195. 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:
196. Credit approval
197. Approve the credit memos
198. Billing
199. Data entry
200. Circumstances within a company, related to sales returns, that indicate a high level of risk include all of the following, except:
201. Returns are received a one location with credit memos issued at the same location.
202. Quantities of products returned are often difficult to determine.
203. There is a high volume of credit memo activity.
204. Returns are received by consignees or under other arrangements not directly controlled by the company.
205. The separation of the custody of inventory from the accounts receivable record keeping will help to minimize the related risk of:
206. Incorrect amounts
207. Invalid returns
208. Fictitious customers
209. Timing issues
210. The documentation accompanying payment that identifies the customer account number and invoice to which the payment applies is referred to as a(n):
211. Receipts Journal
212. Promissory Note
213. Deposit List
214. Remittance Advice
215. In the cash receipts process, what must take place directly after preparing the cash receipts journal?
216. A deposit should be prepared and all cash and checks received should be deposited
217. The cash receipt should be matched with the original sales invoice
218. both A and B
219. None of the Above
220. A special journal used to record all cash collections is called a(n):
221. Cash Receipts Journal
222. Remittance Advice
223. Check Register Journal
224. Customer Subsidiary Journal
225. All of the following documents are necessary in the cash receipts process except:
226. remittance advice
227. Accounts Payable Subsidiary Ledger
228. Sales invoice
229. Deposit Slip
230. In order to ensure that all records are updated only for authorized transactions, appropriate individuals should be assigned all of the following duties, except:
231. Opening and closing all bank accounts.
232. Preparing the bank reconciliation.
233. Approving bank deposits.
234. Approving electronic transfers of funds.
235. The recording responsibilities for cash receipts includes all of the following, except:
236. Maintaining a cash receipts journal
237. Updating accounts receivable records for individual customers
238. Posting subsidiary ledger totals to the general ledger
239. Preparing bank deposits
240. In following proper segregation of duties, those who handle cash should not be granted any of the following authorities EXCEPT:
241. Information systems programming
242. Access to the company’s accounting records
243. Authorization to reconcile the company bank account
244. Inventory management duties
245. The custody responsibilities for cash receipts includes all of the following, except:
246. Updating accounts receivable records
247. Opening mail
248. Preparing a list of collections
249. Handling receipts of currency and checks
250. The internal control of cash receipts related to adequate records and documents would include which of the following?
251. Cash receipts listings prepared on a daily basis and reconciled to supporting documentation from the bank deposit.
252. Bank deposit receipts should be retained and filed chronologically.
253. Detailed customer accounts should also be maintained and reconciled with customer statements regularly.
254. All of the above.
255. Independent checks and reconciliations, related to cash receipts, include all of the following, except:
256. Cash counts should occur on a surprise basis and be conducted by someone not responsible for cash receipts functions.
257. Cash collections should be deposited in the bank in a timely manner to prevent the risk of theft.
258. 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.
259. Daily bank deposits should be compared with the detail on the related remittance advice and in the cash receipts journal.
260. Bank reconciliation tasks include:
261. Procedures to ensure that deposits are examined for proper dates
262. Procedures to ensure that all reconciling items are reviewed and explained
263. Both of the above
264. None of the above
265. The following circumstances may indicate risks related to cash collections, except:
266. High volume of cash collections
267. Centralized cash collections
268. Lack of consistency in the volume or source of collections
269. Presence of cash collections denominated in foreign currencies
270. 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:
271. Segregation of responsibilities so that no one has the opportunity to write off an account to cover up stolen cash.
272. Thorough guidelines are to be established for determining the amount of an allowance for uncollectible accounts.
273. 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.
274. Mathematical verification of the cash receipts journal and the accounts receivable ledger.
275. 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:
276. Wrong customers
277. Incorrect amounts
278. Invalid bank account
279. Invalid transactions
280. The separation of the custody of cash from the accounts receivable record keeping will help to minimize the related risk of:
281. Invalid cash receipts
282. Incorrect amounts
283. Invalid transactions
284. Duplicate transactions
285. The preparation of deposit slips on prenumbered forms will help to minimize the related risk of:
286. Invalid transactions
287. Incorrect amounts
288. Duplicate transactions
289. Omitted transactions
290. The security of having cash receipts deposited in the bank on a daily basis will help to minimize the related risk of:
291. Invalid receipts
292. Invalid bank account
293. Lost or stolen cash
294. Duplicate transactions
295. In order to properly monitor customer payments and determine the amount of an allowance for uncollectible accounts, a(n) _________ should be generated to analyze all customer balances and the respective lengths of time that have elapsed since payments were due.
296. Bank reconciliation
297. Accounts receivable report
298. Accounts receivable aging report
299. Uncollectible accounts report
300. General controls of the IT system would include all of the following, except:
301. Authentication of users
302. Accuracy
303. Physical access controls
304. Business continuity planning
305. Application controls of the IT system would include:
306. Availability
307. Accuracy and Completeness
308. Security
309. Processing Integrity
310. Input controls of the IT system would include all of the following EXCEPT:
311. Data preparation and error handling procedures
312. Control totals
313. Programmed input validation checks
314. Physical access controls
315. This type of highly integrated IT system incorporates electronic processing of sales-related activities and, generally, the sales processes are transacted over the internet.
316. E-commerce
317. Virtual commerce
318. Electronic data interchange
319. Point of sale
320. Which of the following is NOT an example of a programmed input validation check that would help to detect and prevent keying errors?
321. Field checks
322. Validity checks
323. Reasonableness checks
324. Input checks
325. This type of highly integrated IT system, inter-company, computer-to-computer, communicates sales documents electronically with a standard business format.
326. E-commerce
327. Virtual commerce
328. Electronic data interchange
329. Point of sale
330. This type of highly integrated IT system processes sales at a cash register in retail stores.
331. E-commerce
332. Virtual commerce
333. Electronic data interchange
334. Point of sale
335. The purposeful and organized changing of business processes to make the processes more efficient is known as:
336. Business process reengineering
337. Business process remediation
338. Electronic data reengineering
339. Electronic data interchange
340. The advantages of e-commerce, or e-business, include all of the following, except:
341. Reduced cost through lower marketing, employee, and paperwork costs.
342. Shorter sales cycles
343. Repudiation of sales transactions
344. Increased accuracy and reliability of sales data
345. The risks of e-commerce, or e-business, include all of the following, except:
346. Confidentiality
347. Accuracy
348. Security
349. Processing Integrity
350. Availability risks of e-commerce, or e-business, include all of the following, except:
351. Hardware and software system failures
352. Virus and work attacks
353. Denial-of-service attacks by hackers
354. Incomplete audit trail
355. Important characteristics of electronic data interchange (EDI) include all of the following, except:
356. Sales register is used to record all transactions.
357. Inter-company refers to two or more companies conducting business electronically.
358. Computer-to-computer aspect indicates that each company’s computers are connected via a network.
359. A standard business format is necessary so that companies can interact and trade with a variety of buyers and sellers.
360. The standard format used with electronic data interchange (EDI) allows all vendors and buyers to speak the same language. This group has developed the standard format for the common documents used in the sales process:
361. Electronic Data Systems
362. American Common Forms Institute
363. Association of Naturalized Documents
364. American National Standards Institute
365. The standard format for common forms used in the United States for electronic data interchange (EDI) data transmission is divided into three parts. Which of the following is one of those “parts”?
366. Availability Segment
367. Labeling Interchanges
368. Security Trailer
369. Processing Data
370. 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.
371. Header and Trailer Data
372. Labeling Interchanges
373. Data Segments
374. Footer Data
375. Because it can be expensive to develop and maintain a system that links two companies directly, the companies often use a third-party network. This third-party network provides other valuable services such as translation and encryption of the EDI data and authentication of a valid and authorized training partner. These third-party networks are called:
376. EDI Mailboxes
377. American National Standards Provider
378. Value Added Networks
379. Secured EDI Networks
380. EDI systems have many advantages within the revenue and cash collection processes. Which of the following is not one of those benefits?
381. Reduction or elimination of data keying.
382. Trading partners gaining access to data.
383. Elimination of postage costs.
384. Competitive advantage through better customer service.
385. 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:
386. Processing Integrity
387. Virtualization
388. Availability
389. Authentication
390. 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.
391. Encryption
392. Encoding
393. Repudiation
394. Hacking
395. This occurs when the IT system automatically makes a list of users and the actions they take within the IT system.
396. Control Totals
397. Transaction Logging
398. Encryption Keys
399. Acknowledgment
400. The Point-of-sales (POS) systems capture all relevant sales data at the point of sale - the cash register. The data that is captured includes all of the following, except:
401. Prices are determined by accessing inventory and price list data
402. Sales revenue is recorded
403. Ordering for low-inventory items
404. Inventory values are updated
405. Features that assist management and accountants, as the result of the point-of-sale systems, include all of the following, except:
406. Bar code scanning eliminates the need to manually enter product codes, quantities, or prices.
407. Real-time update of cash, sales, and inventory records allows for immediate analysis of sales trends, inventory needs, and cash on hand.
408. List prices can be changed by the check-out clerks to take advantage of any price changes.
409. Credit card authorization during the sale save time and help prevent credit card fraud.
410. This term refers to moving the current accounting period’s cut-off date 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.
411. Channel stuffing
412. Leaving sales open
413. Shipping reversal
414. Sales deferral
415. Financial Stewardship can be ensured in the revenue process by establishing and maintaining which of the following?
416. reliable revenue processes
417. Internal controls
418. ethical practices
419. All of the above

TEST BANK - CHAPTER 8 - TRUE /

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 vendors 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 sent 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.

1. SO4 Sales Process

For each transaction cycle and each type of transaction, there are internal controls that help to minimize certain risk to the company. Using the terminology and framework developed in the text, describe the following for the sales cycle.

1. SO4 Cash Receipts Process

For each transaction cycle and each type of transaction, there are internal controls that help to minimize certain risk to the company. Using the terminology and framework developed in the text, describe the following for the cash receipts cycle.

1. SO 8 Point of Sale Systems

You have graduated from college and decided to purchase and operate a Macaroni and Cheese Food Tuck, a rage in your town. You would accept cash and credit card payments, which would be handled primarily by your servers. You also plan to offer unique dishes and specials to differentiate yourself from competitors.

You are trying to launch the business with minimal investment. Your sister has recently graduated with an MBA in Accounting and argues that you must minimally invest in a Point of Sale system.

Identify some advantages and disadvantages of investing in a POS system as part of this new business venture.

What internal controls should be implemented to reduce the risk of theft or error related to the handling of cash, credit card payments, and coupons?