Test bank accounting information system by turner 08 chapter

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Test bank accounting information system by turner  08 chapter

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To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ACCOUNTING INFORMATION SYSTEMS CONTROLS AND PROCESSES TURNER / WEICKGENANNT CHAPTER 8: Revenue and Cash Collection Processes TEST BANK - CHAPTER - TRUE / FALSE Because different companies conduct business in different manners, there tends to be few similarities in the way the related business processes are carried out Sales processes need supporting practices such as credit checks and stock authorization Even though most companies collect order data from customers, the manner of receiving order data seldom varies 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 If a sales order comes from a new customer, it is necessary to evaluate the creditworthiness of that customer before the sale is approved 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 Billing to the customer should take place prior to shipment so that the customer receives the bill before the merchandise arrives 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 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 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 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 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 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 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ANSWERS TO TEST BANKCHAPTER – TRUE / FALSE: F T F T F T F F T 10 11 12 13 14 15 16 17 18 F T F T T F F T T 19 20 21 22 23 24 25 26 27 F F T F T F T F T 28 29 30 31 32 33 34 35 36 T F F T F T F T T 37 38 39 40 41 42 43 44 45 F F T F F T F T F TEST BANK - CHAPTER - 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: 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 47 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: A Transactions B Processes C Posting D Systems 48 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: A Transaction Processing Systems B Revenue and Cash Processing Systems C Point of Sale System D E-business System 49 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 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 50 The into A B C D business processes that are common in company-to-company sales business are divided three groups Which of the following is not one of those groups? Sales processes, including ordering, delivery, and billing Purchase of inventory, including ordering, delivery, and billing Sales Returns processes Cash Collection processes 51 The risks that may affect the revenue and cash collection processes include all of the following, except: 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 52 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 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 54 The A B C D sales and cash collections process begins when: Merchandise is shipped to a customer A customer places an order with the company Merchandise is purchased A vendor places an order with the company 55 The form, or source document, that conveys the details about a customer’s order, prepared by the customer, is referred to as: A Sales Order B Sales Invoice C Purchase Order D Purchase Invoice 56 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 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 57 The maximum dollar amount that a customer is allowed to carry as an accounts receivable balance: A Maximum Limit B Credit Balance C Maximum Balance D Credit Limit 58 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 A Packing Slip B Price List C Pick List D Purchase Order 59 The terms of agreement between the company and the common carrier are documented in a(n): A Pick List B Bill of Lading C Invoice D Packing Slip 60 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): A Invoice B Bill of Lading C Pick List D Shipping Log 61 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 A Sales Invoice B Accounts Receivable Statement C Bill of Lading D Sales Order 62 A special journal that is used to record sales transactions and is periodically posted to the general ledger A General Journal B Subsidiary Journal C Sales Journal D Accounts Receivable Journal 63 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 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 64 Which of the following relationships does not violate the rules of segregation of duties? A 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 65 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 The authorization process is to remain separate from the recording process 66 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 67 In order to protect data files, production programs, and accounting records from unauthorized access, each of the following may be used, except: A Passwords B Physical controls (locked cabinets) C Backup copies D Surveillance cameras 68 Common types of independent checks within the revenue process include all of the following, except: 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 69 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 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 70 The comparison of the shipping records with the sales journal and invoices is completed to minimize the related risk of: A Invalid transactions B Fictitious customers C Omitted transactions D Duplicate transactions 71 The preparation of packing lists and shipping records on prenumbered forms will help to minimize the related risk of: A Incorrect amounts B Invalid sales C Wrong customers D Omitted transactions 72 The separation of the responsibility for the authorization of new customers from the custody of inventory will help to minimize the related risk of: A Invalid sales B Fictitious customers C Incorrect amounts D Timing issues 73 A document prepared that lists the chronological sequence of all returned items is referred to as a(n): A Receiving log B Receiving report C Invoice D Packing list 74 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): A Invoice B Receiving log C Receiving report D Credit memorandum 75 A document prepared to prepare a record of the sales return and to adjust the amount of the customer’s credit status is called a(n): A Receiving log B Credit memorandum C Sales invoice D Sales journal To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 76 The authorization of sales returns requires that certain individuals within the company be assigned the authority for all of the following, except: A Authorize Sales Returns B Approve Credit Memos C Develop Sales Return Policies D Record the Credit Memos 77 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: A Credit approval B Approve the credit memos C Billing D Data entry 78 Circumstances within a company, related to sales returns, that indicate a high level of risk include all of the following, except: A Returns are received a one location with credit memos issued at the same location B Quantities of products returned are often difficult to determine C There is a high volume of credit memo activity D Returns are received by consignees or under other arrangements not directly controlled by the company 79 Differences between a sales return and a sales allowance include: A The issuance of a credit memorandum B The existence of defective merchandise C The documentation in a receiving report D All of the above 80 The separation of the custody of inventory from the accounts receivable record keeping will help to minimize the related risk of: A Incorrect amounts B Invalid returns C Fictitious customers D Timing issues 81 The documentation accompanying payment that identifies the customer account number and invoice to which the payment applies is referred to as a(n): A Cash Receipts Journal B Promissory Note C Deposit List D Remittance Advice 82 A special journal used to record all cash collections is called a(n): A Cash Receipts Journal B Remittance Advice C Check Register Journal D Customer Subsidiary Journal To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 83 In order to ensure that all records are updated only for authorized transactions, appropriate individuals should be assigned all of the following duties, except: A Opening and closing all bank accounts B Preparing the bank reconciliation C Approving bank deposits D Approving electronic transfers of funds 84 The A B C D recording responsibilities for cash receipts includes all of the following, except: Maintaining a cash receipts journal Updating accounts receivable records for individual customers Posting subsidiary ledger totals to the general ledger Preparing bank deposits 85 The A B C D custody responsibilities for cash receipts include all of the following, except: Updating accounts receivable records Opening mail Preparing a list of collections Handling receipts of currency and checks 86 The internal control of cash receipts related to adequate records and documents would include which of the following? A Cash receipts listings prepared on a daily basis and reconciled to supporting documentation from the bank deposit B Bank deposit receipts should be retained and filed chronologically C Detailed customer accounts should also be maintained and reconciled with customer statements regularly D All of the above 87 Independent checks and reconciliations, related to cash receipts, include all of the following, except: A Cash counts should occur on a surprise basis and be conducted by someone not responsible for cash receipts functions B Cash collections should be deposited in the bank in a timely manner to prevent the risk of theft C 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 D Daily bank deposits should be compared with the detail on the related remittance advice and in the cash receipts journal 88 Bank reconciliation tasks include: A Procedures to ensure that deposits are examined for proper dates B Procedures to ensure that all reconciling items are reviewed and explained C Both of the above D None of the above To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 125 If a company does not prepare an aging of accounts receivable, which of the following accounts is most likely to be misstated? A Sales revenues B Accounts receivable C Sales returns and allowances D Allowance for uncollectible accounts 126 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): A Availability risk B Processing integrity risk C Security risk D Confidentiality risk 127 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): A Availability risk B Processing integrity risk C Security risk D Confidentiality risk 128 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? A Incomplete audit trail B Repudiation of sales transactions C Unauthorized access D Shorter inventory cycle time 129 An IT system that uses touch screens, bar coded products, and credit card authorization during the sale is called a(n): A Electronic data interchange system B E-commerce system C Point of sales system D E-payables system 130 Which of the following is not a method of unethically inflating sales revenue? A Channel stuffing B Holding sales open C Premature recognition of contingent sales D Promotional price discounts ANSWERS TO TEST BANKCHAPTER – END OF CHAPTER QUESTIONS 115 116 117 118 A C A C 119 120 121 122 D A C D 123 124 125 126 C A D B 127 128 129 130 A D C D To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com TEST BANKCHAPTER – SHORT ANSWER QUESTIONS 131 Why is it important to establish and monitor credit limits for customers? Answer: Allow customers to order an excess over what they are able to pay poses a large risk for companies It is important to review a customer’s credit worthiness and based on that credit worthiness, establish a credit limit Once the limit is established, the company should have processes or methods to insure the credit limit is not exceeded Without a limit, or monitoring that limit, the company has the risk of not being paid for goods or services purchased by customers 132 Distinguish between a pick list and a packing slip Answer: Although the information on these two documents is essentially the same, they are used for two different purposes Both documents contain the items and quantities for a particular customer order However, the pick list is used in the warehouse to pull items from the warehouse shelves, while the packing slip is included in the box or boxes shipped to the customer The packing slip tells the customer which items should be in the shipment 133 How can an effective system of internal controls lead to increased sales revenue? Answer: When an effective systems of internal controls is in place, managers may be able to spend less time overseeing operations and can therefore, spend more time on revenue growth strategies and activities For example, with a proper set of general authorization procedures for sales, a manager would not need to approve each sale individually This gives the manager more time to focus on activities that could lead to increased revenue 134 Why should the person responsible for shipping goods to customers not also have responsibility for maintaining records of customer accounts? Answer: Custody of assets and responsibility for record keeping should always be segregated In this case, the person shipping the goods has custody and could therefore, steal assets Access to customer records would allow that person to also alter records to hide the theft The alteration to the records could include deleting the sale or writing off the sale as a bad debt 135 What is the purpose of a credit memorandum? Answer: The credit memorandum documents the fact hat a customer has returned goods The credit memorandum is also used to reduce the customer’s receivable account balance based upon the return of goods 136 How are sales invoices used (in a manual system) in the preparation of credit memos? Answer: The sales invoice is matched to the receiving report that results from returned goods This match is necessary to verify the fact that the merchandise was in fact sold to the customer, and to verify the selling price that should be refunded 137 How can a security guard in a warehouse be considered an important component of a company’s accounting system? Answer: Internal controls over asses should include physical controls to prevent theft or misuse For example, cash should be locked in a safe to prevent the theft of cash Likewise, a security guard can help prevent theft or misuse of assets This internal control would not prevent all theft, but would help reduce any theft To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 138 How could fraud be perpetrated through the sales returns process? Answer: In the absence of good internal controls, there are several types of fraud that could occur in sales returns These include: 1) customers returning goods not originally purchased from the company, 2) customers requesting a refund higher than the original sales amount, 3) requesting refunds for goods that were never returned, but submitting false documentation of a return, and 4) theft of returned goods by an employee 139 Identify and distinguish between the three types of IT systems used in the sales process Answer: The three types of IT systems described are EDI, Internet EDI, and point of sale systems EDI and Internet EDI are used in company to company sales of goods and services In EDI systems, the buyer and seller computer systems are connected and order data is exchanged electronically EDI typically uses a value added network (VAN), while Internet EDI uses the internet to exchange data Internet EDI is usually much more cost effective than EDI because the exchange via the Internet can be cost free A POS system is used in end consumer sales such as retail stores and restaurants A POS system usually is a touch screen, or bar code system at the cash register that records the sale and updates the appropriate cash, sales, and inventory accounts All three systems are IT enablement of the sales process and they each improve the efficiency and effectiveness of sales processes 140 Distinguish between B2B sales and B2C sales Answer: Other than those presented in this chapter, name a company from your personal experience that uses B2C sales B2B sales are IT enabled sales between two businesses B2C sales are IT enabled sales between a business and an end consumer A student could mention any online retailer, online bank, online broker, airline, or travel agent as examples of B2C 141 List the advantages of e-commerce systems Answer: The advantages are reduced costs, shorter sales cycles, increased accuracy and reliability of sales data, and an increase in the potential market 142 Identify two of the biggest risks to companies who use e-commerce, along with controls to prevent these risks Answer: Two of the business risks of e-commerce would be availability and security If a company relies on online sales extensively, any failure in the hardware or software may make the online sales system unavailable and this causes lost sales These lost sales can at times be very large losses Unauthorized access or hackers represent a big risk to e-commerce Placing sales online opens the company to unauthorized access and hacking, and therefore potential loss or destruction of data 143 What controls should a company implement to ensure consistency of sales information between the front end and back end of its systems? Answer: Reconciliations and verifications are important in the integration of front end and back end systems As data moves from a front end system, such as an online sales system, to a back end system, such as warehouse systems, a reconciliation or verification can insure the data was transmitted between systems accurately 144 Why is a redundant server system needed in an e-commerce environment? Answer: Availability is extremely important in e-commerce systems Any failure of the system represents lost sales because the system is not available for customer use A large e-commerce company could lose thousands of dollars in sales from a two or three hour downtime To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 145 Question not available 146 What are the three components of an EDI system? Answer: The three component parts are: 1) intercompany transfer, indicating the sale/purchase is between two companies; 2) computer to computer, indicating the computer system of the two companies are connected; and 3) a standard format for business documents to facilitate the intercompany transference of electronic documents 147 What are the three standard parts of an EDI data transmission? Answer: Header and trailer data, labeling interchanges, and data segments Header data is data about the file or transmission being sent The header identifies the beginning and end of a particular transaction data set Trailer data is also data about the file or transmission and identifies the end of a particular transaction data set Labeling interchanges identify the type of transactions in the set, such as a set of sales invoices Data segments include the actual data within the invoices, such as quantities and prices 148 How could it be possible for two companies to conduct EDI if they are not directly connected with each other? Answer: Two companies could use a value added network (VAN) as a third party to serve as the provider of electronic inboxes for EDI exchanges 149 List the advantages of an EDI system Answer: The advantages are elimination of keying, keying errors, and the time needed for keying, the elimination of mailing time and postage costs, reduction of inventory levels, and competitive advantage and/or preservation of existing business 150 What is the purpose of maintaining transaction logs? Why are they especially important in IT systems? Answer: Transaction logs serve as the audit trail of transactions processed by the computer Review of these logs can insure that transactions are lost or unaccounted for The logs also help insure a company can avoid repudiation of sales 151 List some advantages of a POS system Answer: Advantages are: ease of use by employees, the elimination of manually entered data, real-time access to prices and inventory levels, real-time credit card authorization, real-time update of affected accounting records, immediate summaries and reports of sales and cash, and integration with the general ledger accounts 152 Why are backup systems one of the most important controls for POS systems? Answer: A system failure in a POS system would interrupt or halt sales Such lost sales can be a large dollar amount and there could be future lost sales if customers become irritated by the system failures To avoid these failures and the resulting lost sales, a company should maintain some type of backup system 153 Describe a popular fraud scheme where company employees misuse the sales revenues cutoff Answer: This is called leaving sales open It counts sales from the first few days of the next month in the current month, and thereby inflates sales To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com TEST BANKCHAPTER – SHORT ESSAY 154 Describe what is likely to occur if company personnel erroneously recorded a sales transaction for the wrong customer? What if a cash receipt was applied to the wrong customer? Identify internal controls that would detect or prevent this from occurring Answer: If the sale is attached to the wrong customer, the wrong customer would be billed and it may cause both the wrong customer and the correct customer to have a negative opinion about the company In addition, if the company does not maintain adequate documentation, it may be difficult to determine which customer should be billed Therefore, the company may not be able to collect the cash they should have collected If a cash receipt is applied to the wrong customer, then two customer balances will be erroneous The company would continue to bill the customer who paid, while not billing the correct amount to the wrong customer Without adequate documentation, it would be difficult to correct this situation The internal controls that would help prevent these errors are maintaining adequate documentation, including source documents such as sales orders and remittance lists; the matching of key documents before recording; reconciliations and verifications of invoices to receivables; and supervision 155 Debate the logic used in the following statement: “The person responsible for handling cash receipts should also prepare the bank reconciliation because he is most familiar with the deposits that have been made to the bank account.” Answer: It is true that if a person could be absolutely trusted to both duties, it may be more efficient However, having both duties provides opportunity and temptation for that person to steal cash and cover up the theft In addition, a single person doing both duties might make an error affecting both the receipts and reconciliation Segregating these duties may slightly decrease the efficiency of bank reconciliations, but the positive benefits of fraud prevention or detection and error detection outweigh any efficiencies 156 Revenue systems are crucial in the healthcare industry, where hundreds of billions of dollars are spent annually reconciling revenues and billing data from the perspectives of providers (doctors and clinics, etc.) and payers (insurance companies) Briefly describe how EDI would be beneficial in this industry Describe the purpose of the header data and trailer data In an EDI system, the computer systems of the biller and payer are connected and they would greatly speed up the billing and paying process, as well as decrease the errors in the process Answer: Without EDI, the would be keying errors, delays related to keying data and mailing bills and payments The header and trailer data identify the transaction data set so that the two computer systems can insure the correct transaction data is matched The header and trailer also identify the beginning and end of a transaction data set To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 157 Use the process maps in this chapter to answer the following questions: a What would a credit manager if a sales order received caused a customer to exceed its credit limit? b What happens after the shipping department verifies that the quantities and descriptions of goods prepared for shipment are consistent with the sales order c What would an accounts receivable clerk if a $100 credit memo is issued to a customer whose accounts receivable balance is $1,000 d When is it necessary for an accounts receivable clerk to notify a customer Answer: a What would a credit manager if a sales order received caused a customer to exceed its credit limit? The sale should be disapproved (rejected) b What happens after the shipping department verifies that the quantities and descriptions of goods prepared for shipment are consistent with the sales order? The goods are shipped, an invoice is prepared and mailed; the following records are updated: sales, general ledger; and a month end statement is prepared and mailed to the customer c What would an accounts receivable clerk if a $100 credit memo is issued to a customer whose accounts receivable balance is $1,000? The clerk should first check to make sure of the balance Then, that customer’s balance would be decreased to $900 b) When is it necessary for an accounts receivable clerk to notify a customer? An accounts receivable clerk would not need to notify customers 158 Describe how the matching of key information on supporting documents can help a company determine that its revenue transactions have not been duplicated Answer: For any sale, return or cash transaction, only one set of matching documents should exist Once the documents are matched and recorded for a particular transaction, they should be filed as a completed transaction Thus, that same transaction would not be recorded again since the source documents are filed 159 Describe how the use of pre-numbered forms for receiving reports and credit memos can help a company determine that sales return transactions have not been omitted from the accounting records Answer: When pre-numbered forms are used, it is much easier to insure that the entire series of transactions have been accounted for Conversely, a missing number in the sequence of prenumbered documents is a clear indication that a transaction has been omitted This may be easier to understand if you think about what it would mean if your own personal check book record was missing a check numbered 154 160 Describe how a POS system could be useful to a company’s marketing managers How could it be useful to production managers? Answer: A POS system can provide immediate feedback about product sales and inventory levels Therefore, a marketing manager can get immediate feedback about which products sell well, which not, and how price changes may affect sales of individual products A production manager could use the inventory level feedback to more appropriately plan when to produce certain products To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 161 Briefly describe an example from your personal experience where you purchased something from a company that uses a POS system How might your experience have been different if the POS system did not exist in the experience you described? Answer: There are many possible experiences students could describe Each student would probably describe Most often students see or use POS systems at fast food restaurants and retail stores Many students will have been employees who have used POS systems and may have very good examples In regards to the differences if the POS system did not exist, the check out experience would be slower, thereby leading to longer lines, and more errors in the process Errors include incorrect prices and incorrect orders TEST BANKCHAPTER – PROBLEMS 162 In 1956, Gussepi DeLucca opened a pizza restaurant that he named DeLucca’s in St Louis, Missouri Over the years, he opened both company and franchise locations and grew the business to include over 40 restaurants that serve the three states around the St Louis area In 1993, DeLucca introduced a centralized phone ordering system with one phone number for customers to use This meant that the customer did not need to look up the phone number of a local restaurant and call that restaurant to order Rather, customers call one number and the employees taking the order can determine the closest DeLucca’s location and process the order This system also centralized the pricing, ordering, and inventory systems for DeLucca’s In 2004, DeLucca’s began offering online pizza orders through its Web site DeLucca’s advertises this Web ordering as more convenient for the customer For example, its ads suggest that a customer can examine the entire menu on the Web site prior to ordering; something that is not possible with phone orders While there are many customer advantages of Web ordering, there are also many advantages to the company From an accounting and internal control perspective, describe the advantages of DeLucca’s system, and any risks that it reduces Answer: Advantages: The Web ordering system provides the advantages of: cost savings through lower marketing, employee, and paperwork costs; shorter sales cycles due to reduced time to place an order, increased accuracy and reliability of the order data; and increased potential market for the company’s products Accordingly, DeLucca’s Web ordering system reduces the risks of misplacing an order, filling an order incorrectly, losing a sale due to a long wait time, and recording erroneous data due to errors in manual paperwork processing Although some of these advantages and risk reductions are also realized through the company’s centralized phone ordering system, that phone system still involves manual processes to input customer orders, so there remain some costs and risks associated with employees, accuracy, and wait times To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 163 You are the recent heir of $20,000 cash, with which you are considering opening a sushi bar in the university community You would accept cash and credit card payments, which would be handled primarily by your servers You also plan to offer introductory specials to attract customers during the initial months of business 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? Answer: The advantages of investing in a POS system as part of a new business venture include the following: • Ease of use and ease of training servers This is expected to lead to fewer errors and more accurate sales and inventory data • Time savings related to the elimination of manual input processes This includes increased efficiency and reduced fraud related to processing of credit card payments from customers • Increased accuracy due to the real-time access to inventory and price data For instance, if the sushi bar’s daily special is sold out, that information can be immediately changed online so that servers can quickly inform customers of the change • Enhanced accounting features such as real-time update of cash, sales, and inventory records, immediate summaries and analyses, and the potential for integration with a general ledger system will save manual steps and provide timely information for management purposes Despite these many advantages, a new business venture would need to be especially careful of the extensive hardware and software costs that are necessary to support a POS system In addition, availability risks may be significant, as any hardware and software failures could make the system unavailable and interrupt efficient business processes Therefore, it is important that a new business venture consider these risks, analyze the costs and benefits of the system, and implement backup systems should be in place to reduce the availability risk In order to reduce the risk of theft or error related to the handling of cash, credit card payments, and coupons, the sushi bar should be sure that its POS system includes all relevant payment information, including options to enter the use of coupons and method of payment In addition, summaries can be provided immediately, so servers should be required to reconcile their transactions at the end of their shifts 164 Aaron Preswick is the owner of AP’s Instant Replay, a consignment shop for used sporting goods Aaron accepts consigned goods and offers them for sale to the general public Aaron rents business space, including a retail store where the consigned goods are displayed and sold, with adjoining office space where an Internet site is maintained and other administrative functions are performed The Internet site includes photos and descriptions of items available for sale worldwide If the goods sell, Aaron’s consignment fee is 40% of the sale price, and 60% is remitted to the consignor Shipping costs on electronic orders are paid by the customers Identify internal control considerations for the following: a the e-commerce portion of the business b the retail portion of the business, assuming that the accounting systems are mostly manual and handled by Aaron and his wife Answer: a the e-commerce portion of the business Internal control considerations associated with e-commerce should address the risks of security and confidentiality, processing integrity, and availability Regarding security and confidentiality, Aaron should ensure that customers accessing the website and conducting sales transactions are valid customers with valid payment authorization and that transactions are logged so that an audit trail is established to avoid repudiation Regarding processing integrity, Aaron To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com should be concerned with data input checks that verify the completeness, accuracy, and validity of the data entered on the website In addition, he should implement back-end controls, such as reconciliations and verifications, to ensure the accuracy of information taken from this system to the company’s accounting systems Finally, Aaron should implement controls to minimize service disruptions that could reduce sales Accordingly, he should implement controls for redundant systems, disaster recovery, testing of software changes, and capacity planning and testing b the retail portion of the business, assuming that the accounting systems are mostly manual and handled by Aaron and his wife The five internal control activities should be considered with respect to the retail business and manual accounting systems involving sales and cash collections Even though segregation of duties will be difficult considering that only Aaron and his wife are operating the business, they can perform business processes in a manner to promote good control For instance, they can check each other’s work in instances where they are performing incompatible duties involving combinations of custody and record keeping They can ensure that prices are properly authorized by consignors and credit card payments are authorized at the time of the sale Thorough documentation (such as detailed sales receipts) should be maintained and accounted for purposes of performing reconciliations and supporting the general ledger Also, physical controls should be in place at the retail store in order to protect the company’s assets and records 165 Identify an internal control procedure that would reduce each of the risks that follow in a manual system Also describe how (or if) an IT system could reduce these risks Answer: Student responses may vary, as more that one control may apply to risk reduction in these circumstances However, following are some likely answers: a Revenues may be recorded before the related shipment occurs Shipping documentation should be matched with sales order data and presented to the billing department as the basis for recording the sale and preparing the bill The IT system can perform an automatic match whereby shipping data are required as a basis for recording the revenue b Employees responsible for shipping and accounts receivable may collude to steal goods and cover up the theft by recording fictitious sales To prevent this type of problem, sales orders should be reviewed for proper customer and authorized by an independent member of management prior to shipment The IT system can include validity checks or other controls that require a valid customer in order for the transaction to be recorded In addition, reconciliation procedures can compare manual documentation with system records to determine that valid transactions are recorded If the collusion involves recording the fictitious sale in the account of a valid, existing customer, the process of sending sales invoices and customer statements, and the subsequent reconciliation procedures, would be important for uncovering this type of fraud c Credit memos may be issued at full price, when the goods were originally sold at a discount Original sales documentation, including key information such as original sales price, must be required as a basis for preparing credit memos An IT system could automatically match credit memo authorizations with the original sales data so that the credit would be issued at amounts that are consistent with the original sale pricing d Sales invoices may contain mathematical errors Independent checks of sales invoices should occur before the customer is billed This includes verification of mathematical accuracy If an automated system is in place, the IT system can perform mathematical computations at a great time savings To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com e Amounts collected on accounts receivable may be applied to the wrong customer Customer account statements should be sent on a regular basis so that customer records can be reconciled to the company’s records This is likely to detect a misapplication of a customer collection An IT system could enhance the process by requiring cash receipts to be entered along with a customer account number as well as an invoice number to ensure that the receipt is applied properly f Duplicate credit memos may be issued for a single sales return A comparison of the receiving log with the credit memo listing would indicate if duplicate credit memos have been issued for a single sales return An IT system could also prevent this risk by requiring that credit memos be generated only upon entering key information from the original sale and blocking the issuance of another credit memo for an item for which credit had already been issued g Sales invoices may not be prepared for all shipments Shipping records should be compared with the sales invoices records This may be done through the verification of the sequence of shipping documents to ensure that an invoice was prepared for each item shipped An IT system may enhance this process by matching shipping document numbers with invoices, and preparing a warning report for any instances of unmatched shipping documents h Shipments may contain the wrong goods Companies should require the matching of key information on related documents prior to shipment This includes inventory quantities and descriptions on approved sales orders and packing lists An IT system may make this process more efficient by performing the match automatically; it can verify whether product numbers and quantities on the sales orders match those on the shipping documentation i All sales transactions may not be included in the general ledger A regular reconciliation should be performed to compare the sales journal with the amounts recorded in the general ledger An IT system may perform a periodic automatic post of the sales journal to the general ledger, thereby eliminating the potential for missing sales transactions 166 The following list presents various internal control strengths (S) or risks (R) that may be found in a company’s revenues and cash collection processes Credit is authorized by the credit manager Checks paid in excess of $5,000 require the signatures of two authorized members of management (Although this is viewed as an internal control strength, it is not applicable to the revenues processes.) A cash receipts journal is prepared by the Treasurer’s department (This type of accounting record should be prepared by those with recordkeeping responsibilities rather than those in a position to perform reconciliations of the cash records.) _ Collections received by check are received by the company receptionist, who has no additional recordkeeping responsibilities _ Collections received by check are immediately forwarded unopened to the accounting department (This would place the accounting department in an incompatible role combining recordkeeping and custody of cash.) A bank reconciliation is prepared on a monthly basis by the Treasurer’s department To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com _ Security cameras are placed in the shipping dock _ Receiving reports are prepared on pre-printed, numbered forms _ The billing department verifies the amount of customer sales invoices by referring to the authorized price list (This price authorization role should be performed before billing An approved sales order, including verified prices, should be in place at the time the documents reach the billing department.) _ Entries in the shipping log are reconciled with the sales journal on a monthly basis _ Payments to vendors are made promptly upon receipt of goods or services (Vendor payments relate to the expenditures processes rather than the revenues processes.) _ Cash collections are deposited in the bank account on a weekly basis (If cash receipts occur daily, they should be deposited promptly – preferably on a daily basis.) _ Customer returns must be approved by a designated manager before a credit memo is prepared _ Account statements are sent to customers on a monthly basis _ Purchase returns are presented to the sales department for preparation of a receiving report (Receiving reports should be prepared promptly upon receipt of returned items This should be done in the receiving area, where the personnel have a custody function, rather than in the sales department, where the personnel initiate sales transactions.) Answer: S Credit is authorized by the credit manager _N/A_ Checks paid in excess of $5,000 require the signatures of two authorized members of management (Although this is viewed as an internal control strength, it is not applicable to the revenues processes.) R A cash receipts journal is prepared by the Treasurer’s department (This type of accounting record should be prepared by those with recordkeeping responsibilities rather than those in a position to perform reconciliations of the cash records.) S Collections received by check are received by the company receptionist, who has no additional recordkeeping responsibilities R Collections received by check are immediately forwarded unopened to the accounting department (This would place the accounting department in an incompatible role combining recordkeeping and custody of cash.) S _ A bank reconciliation is prepared on a monthly basis by the Treasurer’s department S Security cameras are placed in the shipping dock To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com S Receiving reports are prepared on pre-printed, numbered forms R The billing department verifies the amount of customer sales invoices by referring to the authorized price list (This price authorization role should be performed before billing An approved sales order, including verified prices, should be in place at the time the documents reach the billing department.) S Entries in the shipping log are reconciled with the sales journal on a monthly basis _N/A_ Payments to vendors are made promptly upon receipt of goods or services (Vendor payments relate to the expenditures processes rather than the revenues processes.) R Cash collections are deposited in the bank account on a weekly basis (If cash receipts occur daily, they should be deposited promptly – preferably on a daily basis.) S Customer returns must be approved by a designated manager before a credit memo is prepared S Account statements are sent to customers on a monthly basis R Purchase returns are presented to the sales department for preparation of a receiving report (Receiving reports should be prepared promptly upon receipt of returned items This should be done in the receiving area, where the personnel have a custody function, rather than in the sales department, where the personnel initiate sales transactions.) 167 Question not available 168 Question not available To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 169 Following are ten internal control failures related to the revenues and cash collection processes _ A customer ordered 12 boxes of your product (total of 144 items) for express shipment Your data entry clerk inadvertently entered 12 individual items _ You enter sales and accounts receivable data in batches at the end of each week Several problems have resulted recently as a result of recording invoices to the wrong customer account _ In an effort to boost sales, you obtain some of the stock of unissued shipping reports and create a dozen fictitious shipments You submit these documents to the billing department for invoicing _ Checks are received by the mailroom and then forwarded to the accounts receivable department for recording The accounts receivable clerk holds the checks until the proper customer account has been identified and reconciled _ Several shipping reports have been misplaced en route to the billing department from the shipping department _ Several sales transactions were not invoiced within the same month as the related shipment _ A sales clerk entered a non-existent date in the computer system The system rejected the data and the sales were not recorded _ Upon entering sales orders in your new computer system, a sales clerk mistakenly omitted customer numbers from the entries A computer programmer altered the electronic credit authorization function for a customer company owned by the programmer’s cousin _ Customer orders were lost in the mail en route from the sales office to the accounting department (located at the company’s headquarters) Required: Select one internal control from the following list that would be most effective in the prevention of the failure Indicate the letter of the control next to each failure above Letters should not be used more than once and some letters may not be used at all a b c d e f g h i Pre-formatted data entry screens Pre-numbered documents Programmed edit checks 100% check for matching of customer orders and sales orders 100% check for matching of sales orders, pick list, and packing slips 100% check for matching of sales orders and invoices 100% check for matching of deposit slip and customer check Prompt data entry immediately upon receipt of customer order Customer verification To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com j Independent authorization for shipments k Independent authorization for billing l Reasonableness check m Hash totals n Data back-up procedures o Program change controls p Sequence verification q Periodic confirmation of customer account balances Answer: d A customer ordered 12 boxes of your product (total of 144 items) for express shipment Your data entry clerk inadvertently entered 12 individual items q You enter sales and accounts receivable data in batches at the end of each week Several problems have resulted recently as a result of recording invoices to the wrong customer account f In an effort to boost sales, you obtain some of the stock of unissued shipping reports and create a dozen fictitious shipments You submit these documents to the billing department for invoicing g Checks are received by the mailroom and then forwarded to the accounts receivable department for recording The accounts receivable clerk holds the checks until the proper customer account has been identified and reconciled p Several shipping reports have been misplaced en route to the billing department from the shipping department h Several sales transactions were not invoiced within the same month as the related shipment c A sales clerk entered a non-existent date in the computer system The system rejected the data and the sales were not recorded a Upon entering sales orders in your new computer system, a sales clerk mistakenly omitted customer numbers from the entries o _ A computer programmer altered the electronic credit authorization function for a customer company owned by the programmer’s cousin n Customer orders were lost in the mail en route from the sales office to the accounting department (located at the company’s headquarters) 170 Brathert Company is a small company with four people working in the revenue processes One of the four employees supervises the other three Some tasks that must be accomplished within the revenue processes are the following: a Accounts receivable record keeping b Approving credit of customers To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com c d e f g h i j k Authorizing customer returns Authorizing new customers Billing customers Cash receipts journal posting Entering orders received Inventory record keeping Maintaining custody of cash Maintaining custody of inventory Reconciling records to the bank statement Required: For each of the four employees (supervisor, employee 1, employee 2, and employee 3), consider the duties you would assign to each employee In assigning duties, no employee should have more than three tasks and there should be a proper separation of duties to achieve appropriate internal control List the four people, the duties you assigned to each employee, and a description of why those assignments achieve proper separation of duties Answer: Supervisor: b., c., and d (all Authorization functions) Employee 1: a., f., and h (receivables, collections, and inventory Recordkeeping) Employee 2: e., g., and k (sales and billing Recordkeeping and cash reconciliation) Employee 3: i and j (all Custody functions) 171 Refer to the ethics case regarding a mail order scenario presented as number 54 in Chapter What term introduced in this chapter applies to the type of mail order deceit described in that case? What could the mail order company to avoid a loss resulting from an event, assuming that it uses an e-commerce system? Answer: This type of mail order deceit is known as repudiation The mail order company should have controls in place to make sure that each sale is to a valid customer with valid payment authorization and that an audit trail is maintained to avoid repudiation Customer authentication through user ID and password should be used, as well as transaction logs and data trails In this case, it may be most effective if the company uses digital signatures or digital certificates to authenticate and validate a customer The signature verification would also be important upon delivery ... tracking systems In IT accounting systems, these recording and processing systems are referred to as: A Transaction Processing Systems B Revenue and Cash Processing Systems C Point of Sale System. .. in the current month, and thereby inflates sales To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com TEST BANK – CHAPTER – SHORT ESSAY 154 Describe... Sales deferral To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ANSWERS TO TEST BANK – CHAPTER – MULTIPLE CHOICE: 46 47 48 49 50 51 52 53 54 55 56

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