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Unformatted text preview: Chapter 10 MULTIPLE CHOICE 1. The credit manager reports to the __________ and the treasurer reports to the __________.
a) b) c) d) controller; vice president of finance treasurer; controller marketing manager; vice president of finance treasurer; vice president of finance 2. The revenue cycle is a recurring set of business activities and related information processing operations associated with providing goods and services to customers and collecting cash in payment for those sales. With whom is the primary external exchange of information?
a) b) c) d) competitors creditors customers marketing organizations 3. What is the primary objective of the revenue cycle?
a) b) c) d) to maximize revenue and minimize expense to reduce outstanding accounts receivable balances through increased cash sales to provide the right product in the right place at the right time at the right price to sell as much product as possible and/or to maximize service billings 4. To accomplish the objectives set forth in the revenue cycle, a number of key management decisions must be addressed. Which of the decisions below is not ordinarily found as part of the revenue cycle?
a) b) c) d) What credit terms should be offered? How often should accounts receivable be subjected to audit? How can customer payments be processed to maximize cash flows? What are the optimal prices for each product or service? 5. Which of the activities listed below is not part of the revenue cycle?
a) b) c) d) sales order entry shipping receiving billing 6. In addition to the sales order entry process there are three other processes in the revenue cycle. Which of the following is not one of them?
a) b) c) d) shipping billing general ledger cash collections 7. One way to improve sales order entry efficiency is by allowing customers to enter sales order data themselves. This can be accomplished for both in-store, mail order, and Web site sales. Such interactive sales order entry systems are referred to as
a) b) c) d) bulletin boards. smorgasbords. catalogue boards. choiceboards. 8. One way to improve sales order entry efficiency is by allowing customers to enter sales order data themselves. For example, retail stores would send their orders directly to a sales order system in a format that would eliminate the need for data entry. This could be achieved using
a) b) c) d) VMI. EDI. POS. VAN. 9. Matching customer accounts and inventory item numbers to the information in the customer and inventory master files is an example of a
a) b) c) d) completeness test field check reasonableness test validity check 10. During the sales order entry process, a __________ is performed to compare the quantity ordered with the standard amounts normally ordered.
a) b) c) d) completeness test redundant data check field check reasonableness test 11. During the sales order entry process, a __________ is performed to verify that each transaction record contains all appropriate data items.
a) b) c) d) completeness test redundant data check field check reasonableness test 12. A number of edit checks should be performed to ensure that all of the data required to process an order have been collected and accurately recorded. The edit check that compares a quantity being ordered to past history for that item and customer is called
a) b) c) d) a validity check. a reasonableness test. a completeness test. a limit check. 13. In the revenue cycle, a customer places an order for a certain product. Before the order is checked for inventory availability, what step should be taken? a) b) c) d) The customer's credit should be checked for a sale on account. The sales order should be created and written to a file. Shipping should be notified of an order in process. A picking list should be generated for the warehouse. 14. How is credit approval generally handled for well-established customers with a documented payment history?
a) b) c) d) specific authorization by the credit manager routine approval is usually granted a new credit application is taken a formal credit check is made for each sale 15. The maximum allowable account balance for a given customer is called the
a) b) c) d) credit checkpoint. credit limit. reorder point. backorder point. 16. What is the normal procedure for new customers or customers making a purchase that causes their credit limit to be exceeded?
a) b) c) d) routine approval is granted without authorization specific approval must be granted by the credit manager reject the sale in either case without question check the credit bureau for a credit rating on the customer 17. Why should inventory quantities on hand be checked before a sale is actually made?
a) b) c) d) to inform the customer about availability and delivery times to know which items must be back ordered to inform inventory control of mistakes in the inventory records A and B above 18. Mucho Regalia manufactures clothing items. When an inventory item that is not in stock has been ordered by a customer, a back order is sent to the
a) b) c) d) production department. purchasing department. billing department. A and B above 19. Customer inquiries during the sales order process are best handled by
a) b) c) d) a sales order and customer service person. accounting personnel. the credit manager. A and C above 20. Responding to customer inquiries and general customer service is an important aspect in the revenue cycle. Since customer service is so important, software programs have been created to help manage this function. These special software packages are called a) b) c) d) EDI systems. POS systems. VMI systems. CRM systems. 21. Another essential part of the revenue cycle is filling customer orders and shipping merchandise to customers. Automating warehouse systems cut costs, improve efficiency, and enable more customer-responsive shipments. The essential element(s) required for an automated perpetual inventory system consist(s) of
a) b) c) d) conveyor belts and forklifts conveyor belts and forklifts equipped with RFDC conveyor belts bar-code scanners 22. Once a customer order has been approved, which document is produced next?
a) b) c) d) the sales invoice the packing slip the remittance advice the purchase order 23. In a shipping department, a __________ is a legal contract that defines responsibility for goods that are in transit.
a) b) c) d) packing slip bill of lading picking list back order 24. The __________ is a legal contract that defines responsibility for the goods that are in transit.
a) b) c) d) bill of lading freight bill sales order order acknowledgement 25. Two documents usually accompany goods sent from the vendor to the customer. What are these two documents?
a) b) c) d) a bill of lading and an invoice a packing slip and a bill of lading an invoice and a packing slip an invoice and a sales order 26. For a given order, assume that goods have been picked for shipment and the items and quantities have been entered into the system. Which system update below is not triggered by these actions?
a) b) c) d) any back orders are initiated inventory quantities are updated the customer accounts receivable is posted shipping documents such as the bill of lading are produced 27. The third basic activity in the revenue cycle involves billing customers and maintaining accounts receivable. What is the basic document created in the billing process?
a) b) c) d) the bill of lading the purchase order the packing list the sales invoice 28. A company uses an invoice method whereby customers typically pay according to each invoice. This is the __________ method.
a) b) c) d) monthly statement open-invoice balance forward cycle billing 29. A type of accounts receivable system that matches specific invoices and payments from the customer is called a(n) __________ system.
a) b) c) d) closed invoice balance forward cycle billing open invoice 30. A customer returns a document along with cash payment. The document identifies the source and the amount of the cash payment. It is called a
a) b) c) d) remittance advice. remittance list. credit memorandum. debit memorandum. 31. With a(n) __________ system, customers pay according to the amount showing on their monthly statement and payments are simply applied against the total account balance.
a) b) c) d) closed invoice open invoice balance forward invoice forward 32. In billing systems, the __________ is sent to the customer that summarizes all transactions occurring during a given period of time and it indicates the amount due.
a) b) c) d) remittance list monthly statement invoice aging report 33. When a customer pays off the balance on an invoice, the transaction is credited to the __________ file.
a) customer master b) sales transaction c) cash receipts d) All of the above are correct. 34. A type of business document in which part of the original document is returned to the source for further processing is called a __________ document.
a) b) c) d) feedback returnable closed-loop turnaround 35. A __________ system spreads out the monthly statements to customers over the entire month with the idea being that the processing load and cash flow will be more even.
a) b) c) d) closed invoice open invoice cycle billing balance forward 36. The last step in the revenue cycle is cash collections. The accounts receivable department must know when customers pay their invoices, yet segregation of duty controls dictate that the collection and recording functions be kept separate from each other. What is a solution to this potential internal control problem?
a) have customers send a remittance advice with their payment b) have mailroom personnel prepare a remittance list which can be forwarded to accounts receivable c) establish a lockbox arrangement with a bank d) all of the above 37. The benefits of a cash lockbox system are maximized when
a) b) c) d) the bank is located close to the company. several banks around the country are used. only one bank is designated. EFT is used. 38. A system where the bank electronically notifies a company about customers' remittances received through the postal system is known an
a) b) c) d) e-cash system. electronic lockbox. electronic funds transfer (EFT). electronic data interchange (EDI). 39. When customers send their remittances electronically to the company's bank, this is called
a) b) c) d) FEDI. EFT. to use procurement cards. an electronic lockbox. 40. Automating the cash collection process is a desirable goal of the organization. A way to incorporate the advantages of EDI with the electronic funds transfer process is
a) b) c) d) FEDI. EFT. to use procurement cards. an electronic lockbox. 41. 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) b) c) d) inventory records cash receipts credit approval decisions exception reports 42. 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) b) c) d) an effective marketing staff all the components of the expenditure cycle adequate controls adequate system flowchart documentation 43. Well-designed AIS controls must ensure that all transactions are authorized, valid, and properly recorded. In addition, there are three other AIS objectives. Which is not an AIS objective?
a) b) c) d) transactions are recorded accurately transactions are matched into the proper time period assets are safeguarded from loss or theft business activities are performed efficiently and effectively 44. The activities involved in soliciting and processing customer orders within the revenue cycle are known as the __________.
a) b) c) d) sales order entry process shipping order process revenue process marketing process 45. To ensure proper separation of duties the __________ makes decisions concerning issuance of credit memos.
a) b) c) d) accounts receivable supervisor warehouse manager credit manager cashier 46. It has been discovered that credit sales have been made to customers with a poor credit rating. If this activity continues, the company may face uncollectible sales and losses due to bad debts. What applicable control procedure may help the company to gain control over this situation?
a) b) c) d) separation of shipping and billing duties credit approval by a credit manager and not marketing personnel data entry application controls price lists 47. 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) b) c) d) The company may be shipping the wrong merchandise. The company may be shipping the wrong quantities of merchandise. The company may be shipping orders to the wrong address. All of the above threats may apply to this scenario. 48. Which of the following would be the least effective control to minimize the loss of inventory?
a) b) c) d) secure the storage location of inventory release inventory only with proper documentation periodically back up all perpetual inventory records reconcile the physical and book inventories 49. One applicable control procedure is to separate the shipping and billing functions within an organization. This control feature is designed to neutralize the threat of
a) b) c) d) the failure to bill customers. billing errors. loss of data. poor performance. 50. A company fails to bill customers due to a lack of controls. The exposure the company faces is
a) b) c) d) customer dissatisfaction. an overstated accounts receivable balance. a loss of inventory and revenue. uncollectible sales and losses due to bad debts. 51. All of the following edit checks for online editing of accounts receivable transactions would probably be included except
a) b) c) d) validity checks on customer and invoice numbers. check digit verification on the amount of the sale. closed loop verification on the customer name to ensure the proper account is being updated. field checks on the values in dollar fields. 52. 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 b) cashier; controller c) accountant; treasurer d) accountant; controller 53. In a cash collection system with proper controls, the __________ function, responsible to the __________, is separate and distinct from the cash handling activities.
a) b) c) d) accounts receivable; treasurer accounts receivable; controller cashier; controller cashier; treasurer 54. A serious exposure for an organization that is connected with the revenue cycle is the loss of assets. What is the related threat and applicable control procedure association with this exposure?
a) b) c) d) shipping errors; reconciliation of sales order with picking ticket and packing slip theft of cash; segregation of duties and minimization of cash handling loss of data; backup and recovery procedures poor performance; preparation and review of performance reports 55. Which of the following duties could be performed by the same individual and not violate segregation of duty controls?
a) b) c) d) handling cash and posting to customer accounts issuing credit memos and maintaining customer accounts handling cash and authorizing credit memos handling cash receipts and mailing vendor payments 56. To prevent the loss of valuable data in the revenue cycle, internal file labels can be used to
a) b) c) d) keep competitors from accessing files. record off-site storage locations. organize the on-site physical storage site. reduce the possibility of erasing important files. 57. In the shipping area of the company, the __________ is used to obtain the goods from the warehouse facility and prepare them for shipment to the customer.
a) b) c) d) picking ticket packing slip bill of lading invoice 58. Many Internet retailers allow customers to customize products by presenting them with various alternative options. These interactive sales order entry systems are called
a) b) c) d) choiceboards. orderboards. optionboards. waterboards. 59. The Squishy Things Toy Company was established in 1948. It sells to retail toy stores all over the country. Until recently, the family-run business had resisted changing its sales order entry system, which involves telephone calls from outside sales people and paper documents. A simple way for the firm to increase the efficiency of this system is
a) b) c) d) vendor-managed inventory. sales force automation. computer data interchange. optical character recognition. 60. The Squishy Things Toy Company was established in 1948. It recently signed a large contract with a chain of retail toy stores. As a condition of the contract, the Squishy will be required to track and forecast product sales by linking in to the chain's sales database. Squishy will then be responsible for shipping products to the chain's regional warehouses as needed. The relationship between Squishy and the chain is an example of
a) b) c) d) vendor-managed inventory. sales force automation. electronic data interchange. optical character recognition. 61. The Squishy Things Toy Company was established in 1948. It recently signed a large contract with a chain of retail toy stores. As a condition of the contract, the Squishy will be required to track and forecast product sales by linking in to the chain's sales database. Squishy will then be responsible for shipping products to the chain's regional warehouses as needed. The technology that is used for communication between Squishy and the chain is
a) b) c) d) vendor-managed inventory. sales force automation. electronic data interchange. optical character recognition. 62. Sad Clown Pajamas is an Internet-based wholesaler. Customers enter their orders online. The manager of Callow Youth Clothing was entering an order when 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) b) c) d) validity check. reasonableness test. limit check. completeness test. 63. Sad Clown Pajamas is an Internet-based wholesaler. Customers enter their orders online. The manager of Callow Youth Clothing was entering and order when the following error message popped up: Please enter your email address. This message is the result of a
a) validity check. b) reasonableness test. c) limit check. d) completeness test. 64. Sad Clown Pajamas is an Internet-based wholesaler. Customers enter their orders online. The manager of Callow Youth Clothing was entering and order when the following error message popped up: Your total order exceeds your available credit. Please contact our Credit Department. This message is the result of a
a) b) c) d) validity check. reasonableness test. limit check. completeness test. 65. In Petaluma, California, electric power is provided to consumers by the Power To The People Electrical Company, a local co-op. Each month PTTP mails bills to 70,000 households and then processes payments as they are received. The customers are provided with a remittance advice, which is a
a) b) c) d) Bar codes RFID OCR laser scans 67. 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) b) c) d) e) picking ticket. bill of lading. packing slip. remittance advice. credit memo. 68. 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. He encloses a paper form in the box when the order is complete. The form is called a
a) picking ticket. b) bill of lading. c) packing slip. d) remittance advice. e) credit memo. 69. The shipping department at Squishy Things Toy Company 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 agreements define an order's
a) b) c) d) e) picking ticket. bill of lading. packing slip. remittance advice. credit memo. 70. Sad Clown Pajamas is an Internet-based wholesaler. The manager of Callow Youth Clothing received an order from Sad Clown and found that the wrong product had been shipped. He repackaged the order and sent it back for a refund. When it was received, he received a
a) b) c) d) e) picking ticket. bill of lading. packing slip. remittance advice. credit memo. 71. Sad Clown Pajamas is an Internet-based wholesaler. The customer account manager at Sad Clown received a call from the manager at Callow Youth Clothing. The firm was entering bankruptcy liquidation and it was unlikely that they would be able to pay the outstanding balance on their account. The account manager decided to write off the account, so he issued a
a) b) c) d) e) picking ticket. bill of lading. packing slip. remittance advice. credit memo. 72. 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) b) c) d) minimization of cash handling. lockbox arrangements. segregation of duties. frequent reconciliation of records. 73. A sales clerk at an electronics store scanned the bar code for a low cost set of headphones and then substituted a high cost set of headphones for his friend, who paid the lower price. Which of the following controls would help to prevent this sort of fraud?
a) RFID b) Physical inventory checking c) Segregation of duties d) An electronic lockbox 74. Using the _______ method, customers typically pay a sales invoice that reflects a single transaction, referred to as a _______.
a) b) c) d) open invoice; monthly statement open invoice; remittance advice balance-forward; monthly statement balance-forward; remittance advice 75. Using the _______ method of maintaining accounts receivable, customers typically pay a sales invoice that lists all transactions during a given time period represented, referred to as a _______.
a) b) c) d) open invoice; monthly statement open invoice; remittance advice balance-forward; monthly statement balance-forward; remittance advice 76. Which of the following poses an internal control problem?
a) Credit memos are approved by the Sales Manager. b) Disbursements of cash are approved by the Finance Manager. c) Raw material deliveries are compared with the relevant purchase orders clerks in the Shipping and Receiving Department. d) Bank accounts are reconciled by the Finance Department. 77. Which of the following poses an internal control problem?
a) Physical inspection of inventory quantity and condition is outsourced to a firm that specializes in this service. b) Products are released from inventory after a warehouse employee and a shipping clerk sign the pick list. c) Sales representatives set up new customer accounts and determine their credit limits. d) When payments are received, they are sent to the cashier’s office and remittance data are sent to the accounts receivable department. SHORT ANSWER 78. a) Define revenue cycle. b) What are the basic revenue cycle activities? 79. Explain how validity checks, completeness tests and reasonableness tests can be users to ensure accuracy of customer ordes. 80. What is a CRM system? 81. How can EDI help the billing and account receivable process? 82. How does a company avoid overbilling customers for items not yet shipped? 83. In billing and accounts receivable, what documents are commonly used? 84. Why is credit approval an important part of the revenue cycle? 85. Name and briefly define the two types of accounts receivable systems. 86. What is cycle billing? 87. Poor performance in the area of cash collections is a threat to the business. What controls can be used to help neutralize this threat? 88. A well-designed AIS should provide adequate controls to ensure that objectives in the revenue cycle are met. What are those objectives? 89. Identify two ways in which the use of choiceboards can improve a company's cash flow. 90. ESSAY 91. Discuss ways in which information technology can be used to streamline cash collections. 92. Describe four threats and identify appropriate controls for each threat in the revenue cycle. 93. Discuss the general control issue of the loss of data as it relates to the revenue cycle. 94. Explain how to effectively segregate duties in the sales order cycle. 95. Discuss the revenue cycle threat of stockouts, carrying costs, and markdowns.
ANSWER KEY 1) D 2) C 3) C 4) B 5) C 6) C 7) D 8) B 9) D 10) D 11) A 12) B 13) A 14) B 15) B 16) B 17) D 18) A 19) A 20) D 21) D 22) B 23) B 24) A 25) B 26) C 27) D 28) B 29) D 30) 31) 32) 33) 34) 35) 36) 37) 38) 39) 40) 41) 42) 43) 44) 45) 46) 47) 48) 49) 50) 51) 52) 53) 54) 55) 56) 57) 58) 59) 60) 61) 62) 63) 64) 65) 66) 67) 68) 69) 70) 71) 72) 73) 74) 75) 76) 77) 78) A C B A D C D B B B A A C B A C B D C A C B A B B D D A A B A C B D C C B A C B E E C A B C A C a) The revenue cycle is a recurring set of business activities and related information processing operations associated with providing goods and services to customers and collecting cash in payment for those sales. b) The basic activities in the revenue cycle are: order entry - soliciting and processing customer activities- filling customer orders and shipping merchandise- invoicing customers and maintaining customer accounts collections - the cashier handles remittances and deposits them in the bank; accounts receivable personnel credits customer accounts for the payments received 79) Validity checks can be used to compare the customer and inventory information on the customer order with the information in the customer and inventory master files. A completeness test can ensure that all the necessary information is present on the customer order. A reasonableness test can compare the quantity ordered with the customer's past order history for that item. 80) CRM stands for customer relationship management. Since customer service is so important today, special CRM software packages have been created that support this vital process. CRM systems help a company to organize detailed data about customers so that more personalized service can be given to them. A CRM system may retain customer preferences and customer transaction history, which can be used to suggest other products the customer may wish to purchase. The system could also take a pro-active marketing approach in contacting customers at certain re-order points. A well-implemented CRM system can help the business achieve the goal of turning satisfied customers into loyal customers. 81) The basic document created in the billing process is the sales invoice. Many companies still print paper invoices and send them to customers in the mail. Batch processing of invoices may create cash flow problems because of the time it takes invoices to flow through the regular mail system. Companies that use EDI can create quicker turnaround for payment, and save costs by reducing paper handling and processing. Depending on the number of invoices processed per year, these savings can be significant. 82) By having the shipping department personnel enter actual quantities shipped into the system that processes and creates the sales invoices. 83) Sales invoice notifies customer of amount to be paid. Monthly statement summarizes all transactions that occurred during month. Credit memo authorizes the billing department to credit the customer's account, should be issued by credit manager 84) Most business-to-business sales are made on credit. Key to revenue cycle success is the approval of credit sales before they are processed and goods shipped. A part of good control in this area is to establish a credit limit for customers. With new customers, or when orders exceed a customer's credit limit, or the customer has a past due balance, specific authorization for the credit manager should specifically authorize and approve further credit. The system can also be programmed to do a limit check for each order processed to maintain further control in this area. Also, marketing personnel should not make credit decisions, as a potential conflict of interest is possible. 85) Open invoice system - customers pay the invoice by returning a remittance advice turnaround document and a check. Remittances are applied against specific open invoices.The open-invoice method can be used to offer discounts for prompt payments since invoices are individually tracked. However, such individual tracking adds complexity in maintaining information. Balanceforward method - customers pay according to the amount shown on a monthly statement and remittances are applied against the total outstanding balance; this method is used by department stores typically where customers make a large number of smaller dollar amount purchases. 86) Cycle billing is spreading out the customer base so that a portion of the billing is done each day to a group of customers. Credit card and utility companies use it extensively because of their large customer bases. The advantage of this method is that the billing load is dispersed and the cash flow of the company is evened out dramatically. 87) Both accounts receivable and cash flows should be monitored. Segregation of duty controls should always be implemented and monitored for compliance. Also, a control used to deal with accounts receivable (which directly impacts cash flow) is to use an accounts receivable aging schedule. This schedule lists customer account balances by length of time outstanding and provides information for estimating bad debts. It can also assist in evaluating credit policies and specific customer credit limits. Also, a cash budget can be used to provide a more precise estimate of cash inflows (cash collected from sales) and cash outflow (outstanding payables). An organization can be alerted to a pending cash flow shortage, thus enabling it to secure short-term financing at competitive rates to deal with the problem in a timely manner. 88) 1. All transactions are properly authorized. 2. All recorded transactions are valid. 3. All valid, authorized transactions are recorded. 4. All transactions are recorded accurately. 5. Assets are safeguarded from loss or theft. 6. Business activities are performed effectively and efficiently. 89) Possible answers: (1) By increasing sales; (2) By reducing the need to carry finished inventory; (3) By accelerating the collection of payments. 90) Answers may include the following points: A lockbox system can reduce delays due to processing and geographical distance between customer and company. Customers send remittances to a nearby P.O. box; a local bank picks up remittances, deposits cash and sends remittance advices and copies of all checks to the company. The main disadvantage is cost; the banks charge a service fee up to 1% of the cash processed through the system. Information technology can provide additional efficiencies in the use of lockboxes. An electronic lockbox sends electronic notification of remittances to the company. This method enables the company to begin applying remittances to customer accounts before the photocopies of the checks arrive. ---- An EFT system eliminates paper checks and uses electronic payments between banks. Integrating EFT and EDI, called the financial electronic data interchange, automates billing and cash collections. ---Procurement cards or credit cards can be used. These cards eliminate the risks and costs associated with creating and maintaining accounts receivable, but cost between 2% to 4% of the gross sales price. 91) Threat 1: Sales to customers with poor credit - Controls: Having an independent credit approval function and maintaining good customer accounting can help to prevent problems. 2: Shipping errors - Controls: Reconciling shipping notices with picking tickets; bar-code scanners; and data entry application controls will help to catch these errors. 3: Theft of inventory - Controls: Secure the location of inventory and document transfers; release only with valid shipping orders; have good accountability for picking and shipping; and finally, periodically reconcile records with a physical count. 4: Failure to bill customers - Controls: Separating shipping and billing and prenumbering of shipping documents helps along with reconciliation of all sales documents. 5: Billing errors - Controls: Reconciliation of picking tickets and bills of lading with sales orders; data entry edit controls; and price lists may prevent billing errors. 6: Theft of cash - Controls: Segregation of duties is essential to prevent this serious problem (the following duties should be separate: handling cash and posting to customer accounts; handling cash and authorizing credit memos and adjustments; issuing credit memos and maintaining customer accounts); use of lockboxes for receipts and EFT for disbursements; mailing customer statements monthly; use cash registers in retail operations where cash payments are received; deposit cash daily in the bank; and have the bank reconciliation function performed by independent third parties. 7: Posting errors in updating accounts receivable - Controls: Use of editing and batch totals is essential here. 8: Loss of data - Controls: Regular backups are essential with one copy stored off-site; and logical and physical access controls to prevent leakage to competitors and irregularities. 9: Poor performance Controls: Use sales and profitability analyses; accounts receivable aging; and cash budgets to track operations. 92) One of the two general objectives that pertain to all revenue cycle activities is the loss of data. The primary threats related to the data availability objective are the loss of data and access controls. It is imperative that accurate customer account and inventory records be maintained for external and internal reporting purposes and for customer inquiries. Such records must be protected from loss and damage by using backup files. One backup file should be kept on-site, while a second should be kept off-site. Backup files of the most recent transactions should also be maintained. Also, all disks and tapes should have both external and internal file labels to reduce the possibility of accidental erasure of important files. Access controls are also important as a general control. Unauthorized access to information may cause leaks of the information to competitors and the risk of damage to sensitive and important data files. Employees should have certain access restrictions to help prevent this threat from occurring. Passwords and user IDs will help to limit access to files and the operations allowed to be performed on files. For example, the sales staff should not be allowed write-access to customers' credit limit and approval information. Individual terminals should also have access controls in place. An example of this control would be to prevent someone at a shipping dock terminal from entering a sales transaction order. Another control that should be put in place is to require activity logs of any management approved transaction. Such a log should be maintained for audit trail purposes. 93) Sales orders should b recorded by sales order personnel. credit decisions should be made by the credit manager, not sales order personnel. Also, sales orders authorize release of goods to shipping. Warehouse and stores personnel and shipping should all be separate from sales. Because a computer does recording and authorization, it is important to ensure integrity of the programs and to perform edit checks on any online entries 94) Stockouts, carrying costs, and markdowns are a threat in the sales order entry process. The problem with stockouts is that when goods are not available to ship to customers, the business risks losing the sale to a competitor that can provide the goods in a timely manner. The opposite problem can also occur where excess inventory increases carrying costs, with the result that markdowns may be necessary in order to sell the inventory. Two controls can be implemented to cope with this threat. One control that can be put into place is to establish accurate inventory control. An AIS with real-time online capabilities can be programmed to use the perpetual inventory method. This will ensure that accurate records are maintained about the quantity of inventory for sale. This will eliminate mistakes in placing orders for goods when a sufficient inventory amount is on hand. Periodic physical counts of inventory will also verify the perpetual amounts recorded by the AIS. Another important control in this situation is that of accurate sales forecasting. Proper marketing efforts should be made in conjunction with regularly reviewing sales forecasts for accuracy. Such forecasts should be revised as necessary. Sales force marketing efforts should be commensurate with inventory levels as well. ...
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This note was uploaded on 03/21/2011 for the course ECON 202085 taught by Professor Mohammad during the Spring '11 term at University of Jordan.
- Spring '11