Test Bank With Answers of Accounting Information System by Turner Chapter 08 PDF

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ACCOUNTING INFORMATION SYSTEMSCONTROLS AND PROCESSESTURNER / WEICKGENANNTCHAPTER 8: Revenue and Cash Collection ProcessesTEST BANK - CHAPTER 8 - TRUE / FALSE Because different companies conduct business in different manners, there tends to be few similarities in the way the related business processe...

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ACCOUNTING INFORMATION SYSTEMS CONTROLS AND PROCESSES TURNER / WEICKGENANNT

CHAPTER 8: Revenue and Cash Collection Processes

TEST BANK - CHAPTER 8 - TRUE / FALSE

1.

Because different companies conduct business in different manners, there tends to be few similarities in the way the related business processes are carried out.

2.

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

3.

Even though most companies collect order data from customers, the manner of receiving order data seldom varies.

4.

5.

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

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.

8.

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

Billing to the customer should take place prior to shipment so that the customer receives the bill before the merchandise arrives.

9.

If a vendor waits too long to send the bill to the customer due to the fact that it could cause a delay of the collection of the cash.

10.

When the customer is billed, the accounts receivable records should be updated to reflect the decreased balance.

11.

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

12.

Effective and efficient internal control often takes up valuable management time that could otherwise be spent on attention to revenue growth and cost controls.

13.

Proper sales authorization control requires obtaining approval before processing an order and again before the order is shipped.

14.

The internal control activity, related to the authorization of transactions, requires that only specific individuals within the company should have the authoritative responsibility for establishing sales prices and credit terms.

15.

The individuals who are given the authority to establish sales prices, credit limits, and guidelines for accepting customers should be sure to keep most of the information confidential.

16.

In order to meet the objectives of internal controls, individuals with authoritative responsibilities need to have access to the record keeping functions.

17.

Record files related to sales can be organized by customer name or by the numerical sequence of the documents.

18.

A benefit of a company accounting for their documents in a numerical sequence is that it is much easier to see if a document or documents are missing.

19.

Independent checks and reconciliations should be performed on a regular basis as part of the segregation of duties area of internal controls.

20.

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

21.

A company is more likely to implement internal controls if they view the cost of the controls to be less than the benefits provided.

22.

When a credit memorandum has a reference to the original sales invoice and approved price list it will assure that the correct customer receives credit for the return.

23.

Internal controls over sales returns are similar to those for the revenue process where it is important to match receiving reports for returns with the related credit memos to ensure that the company issues credit for all returns for the correct amounts.

24.

Specific internal control procedures to be performed, specifically independent checks and reconciliations, should be performed by someone who as the responsibility for the recording of the transactions and the custody of the assets received.

25.

It is necessary for a company to consider the risks of its system to determine whether the costs of implementing a control procedure are worthwhile in terms of the benefits realized from the control.

26.

As a rule, the higher the risk, the more controls are generally required and the less costly its accounting system may become.

27.

Company to company sales normally occur on account and involve a time span given for the customer to pay the vendor.

The actual number of days will depend on the credit terms and

the diligence of the customer concerning on-time payments.

28.

The remittance advice send by the customer with the related payment is used by the vendor to properly apply the payment to the customer’s account.

29.

The segregation of duties states that the authorization of duties is to be separated from the recording function but not from the custody function.

30.

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

31.

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

32.

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

33.

Detailed customer accounts should be maintained and reconciled with customer statements regularly.

34.

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

35.

Controls over cash collections are likely the most important control procedure because cash is the asset most susceptible to theft and misappropriation.

36.

Integrated IT systems that are used to conduct internet sales in a business to customer manner are referred to as e-commerce.

37.

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

38.

The use of control totals and related acknowledgments can reduce the risk of denial of service attacks by hackers.

39.

Because the point-of-sale systems are not normally connected to outside trading partners, they pose fewer risks related to security and confidentiality than e-commerce or EDI systems.

40.

Because the point-of-sale systems are not normally connected to outside trading partners, they pose fewer risks related to availability.

41.

Few deceptions and fraudulent acts in the business and accounting environment relate to revenue measurement and recognition.

42.

Regardless of how effective and good the accounting system is, if top management is intent on falsifying financial statements by inflating revenue, they can usually find ways to misstate revenue.

43.

In many cases where revenue has been overstated by management, accountants have participated in the deception.

Thankfully, once the overstatement has occurred, it will be

offset by lower revenues in the subsequent year and normally will not recur. 44.

When top management behaves ethically and encourages ethical behavior, there are usually fewer cases of frauds, errors, or other ethical problems.

45.

Establishing proper processes, internal controls, and ethical guidelines does not lead to better corporate governance, even though it does improve the financial stewardship.

ANSWERS TO TEST BANK – CHAPTER 8 – TRUE / FALSE: 1.

F

10.

F

19.

F

28.

T

37.

F

2.

T

11.

T

20.

F

29.

F

38.

F

3.

F

12.

F

21.

T

30.

F

39.

T

4.

T

13.

T

22.

F

31.

T

40.

F

5.

F

14.

T

23.

T

32.

F

41.

F

6.

T

15.

F

24.

F

33.

T

42.

T

7.

F

16.

F

25.

T

34.

F

43.

F

8.

F

17.

T

26.

F

35.

T

44.

T

9.

T

18.

T

27.

T

36.

T

45.

F

TEST BANK - CHAPTER 8 - MULTIPLE CHOICE

46.

In a large company, there are hundreds, possibly thousands, of sales transactions each day. The company needs to have in place, systems and processes to:

47.

A.

Capture the results of the sales transactions

B.

Record the proper and complete sales transactions

C.

Summarize and report the results of the transactions

D.

All of the above

The policies and procedures that employees follow when completing the sale, capturing customer data and sales quantities, and routing the resulting sales documents to the right departments within the company are referred to as:

48.

A.

Transactions

B.

Processes

C.

Posting

D.

Systems

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. A.

49.

In IT accounting systems, these recording and processing systems are referred to as:

Transaction Processing Systems

B.

Revenue and Cash Processing Systems

C.

Point of Sale System

D.

E-business System

The business processes that are common in company-to-company sales business types include all of the following, except: A.

Collect order data

B.

Record receivable and bill the customer

C.

Update affected records, such as accounts payable and cash

D.

Handle any product returns from the customer

50.

The business processes that are common in company-to-company sales business are divided into three groups.

51.

Which of the following is not one of those groups?

A.

Sales processes, including ordering, delivery, and billing

B.

Purchase of inventory, including ordering, delivery, and billing

C.

Sales Returns processes

D.

Cash Collection processes

The risks that may affect the revenue and cash collection processes include all of the following, except:

52.

A.

Transactions recorded by the wrong company.

B.

Valid transactions may have been omitted from the records.

C.

Transactions may not have been recorded in a timely manner.

D.

Recorded transactions may not be valid or complete.

The risks that may affect the revenue and cash collection processes include all of the following, except: A.

Transactions may have been recorded in the wrong customer account.

B.

Transactions may be recorded in the wrong amount.

C.

Invalid transactions may have been omitted from the records.

D.

Transactions may not have been accumulated or transferred to the accounting records correctly.

53.

54.

55.

Common means of presenting the revenue and cash collections processes pictorially include: A.

Data Flow Diagram

B.

Document Flowchart

C.

Business Process Map

D.

All of the above

The sales and cash collections process begins when: A.

Merchandise is shipped to a customer

B.

A customer places an order with the company

C.

Merchandise is purchased

D.

A vendor places an order with the company

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

56.

A.

Sales Order

B.

Sales Invoice

C.

Purchase Order

D.

Purchase Invoice

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 preestablished and approved prices for each product, is referred to as a(n): A.

Price list

B.

Purchase order

C.

Packing slip

D.

Pick list

57.

The maximum dollar amount that a customer is allowed to carry as an accounts receivable balance:

58.

A.

Maximum Limit

B.

Credit Balance

C.

Maximum Balance

D.

Credit Limit

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.

59.

A.

Packing Slip

B.

Price List

C.

Pick List

D.

Purchase Order

The terms of agreement between the company and the common carrier are documented in a(n):

60.

A.

Pick List

B.

Bill of Lading

C.

Invoice

D.

Packing Slip

A chronological listing of shipments that allows management to track the status of sales and to answer customer inquiries regarding order status is called a(n):

61.

A.

Invoice

B.

Bill of Lading

C.

Pick List

D.

Shipping Log

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.

62.

A.

Sales Invoice

B.

Accounts Receivable Statement

C.

Bill of Lading

D.

Sales Order

A special journal that is used to record sales transactions and is periodically posted to the general ledger.

63.

A.

General Journal

B.

Subsidiary Journal

C.

Sales Journal

D.

Accounts Receivable Journal

This document is prepared on a regular basis to accumulated and summarize all the transactions that have taken place between the customer and the company within the period. A.

Accounts Receivable Journal

B.

Sales Invoice

C.

Subsidiary Journal

D.

Customer Account Statements

64.

Which of the following relationships does not violate the rules of segregation of duties? A.

65.

Credit authorization and preparation of the sales order.

B.

Preparation of the sales order and sales invoice.

C.

Preparing goods for shipment and accounting for inventory.

D.

Entering sales in the sales journal and handling the inventory.

The internal control activity related to the adequate records and documents, related to sales, includes which of the following? A.

Those responsible for recording sales should ensure that the supporting documentation is retained and organized.

B.

Information systems duties included in the revenue process includes the preparation of sales orders and shipping logs.

C.

All records are to be prepared by someone other than the person who has custody of the assets.

D.

66.

67.

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

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

Surveillance Cameras

B.

Alarm Systems

C.

Backup Copies

D.

Security Guards

In order to protect data files, production programs, and accounting records from unauthorized access, each of the following may be used, except:

68.

A.

Passwords

B.

Physical controls (locked cabinets)

C.

Backup copies

D.

Surveillance cameras

Common types of independent checks within the revenue process include all of the following, except:

69.

A.

Verification of information in the sales journal and on sales invoices.

B.

Verification of the bank statement and the cash account in the general journal.

C.

Reconciliation of accounts receivable detail with invoices and with the general ledger.

D.

Reconciliation of inventory records with actual (counted) quantities on hand.

Examples of characteristics that indicate a company may be more risky with respect to the revenue process include all of the following, except: A.

Changes in sales prices or customers are infrequent.

B.

The pricing structure is complex or is based on estimates.

C.

There is a large volume of transactions is carried out.

D.

The company depends on a single or on very few customers.

70.

The comparison of the shipping records with the sales journal and invoices is completed to minimize the related risk of:

71.

A.

Invalid transactions

B.

Fictitious customers

C.

Omitted transactions

D.

Duplicate transactions

The preparation of packing lists and shipping records on prenumbered forms will help to minimize the related risk of:

72.

A.

Incorrect amounts

B.

Invalid sales

C.

Wrong customers

D.

Omitted transactions

The separation of the resp...