10) Segregation of duties controls dictates that the collection and recording functions be kept
separate from each other. However, the accounts receivable department needs to know when
customers pay their invoices. What is a solution to this potential internal control problem?
A) Establish a lockbox arrangement with a bank.
B) Have customers send a remittance advice with their payment.
C) Have mailroom personnel prepare a remittance list which can be forwarded to accounts
receivable.
D) all of the above
11) The benefits of a lockbox arrangement with a bank are maximized when
A) the bank is located nearby to the company, so remittance advices can be delivered to the
company every day.
B) several banks around the country are used, in order to minimize the time payments spend in
the mail.
C) an arrangement is made with only one bank, so all remittance advices can be batched for
processing.
D) the bank deposits the payments and accesses the customer’s information system to record the
payments.
12) An ________ is an arrangement where a bank receives customer payments and transmits
payment data to the organization.
A) e-commerce.
B) electronic funds transfer (EFT).
C) electronic lockbox.
D) electronic data interchange (EDI).
13) Customers that send their payments electronically directly to the billing company’s bank are
using
A) electronic funds transfer (EFT).
B) electronic data interchange (EDI).
C) procurement cards.
D) an electronic lockbox.
14) A way to incorporate the advantages of Electronic Data Interchange with the Electronic
Funds Transfer is
A) Financial Electronic Data Interchange.
B) e-commerce.
C) to use procurement cards.
D) an electronic lockbox.
15) To ensure proper segregation of duties, only the ________ has authority to issue credit
memos.
A) accounts receivable supervisor
B) controller
C) credit manager
D) cashier
16) It has been discovered that credit sales have been made to customers with a poor credit
rating. If this continues, the company will face increasing uncollectible receivables and losses
due to bad debts. Separation of duties between ________ and ________ should help resolve the
problem.
A) shipping; billing duties
B) credit approval; marketing
C) billing; credit approval
D) marketing; accounts receivable
17) Consider the following revenue cycle scenario: The company has been exposed to customer
dissatisfaction and the suggested control procedure to be implemented is to install and use bar-
code scanners. What is the threat?
A) The company may be shipping the wrong merchandise.
B) The company may be shipping the wrong quantities of merchandise.
C) The company may be shipping orders to the wrong address.
D) All of the above threats may apply to this scenario.
18) Separating the shipping and billing functions is designed to reduce the threat of
A) failure to bill customers.
B) billing customers for wrong quantities.
C) billing customers before merchandise has been shipped.
D) shipping the wrong merchandise.
19) All of the following edit checks for online editing of accounts receivable transactions would
probably be included except
A) validity checks on customer ID and invoice numbers.
B) check digit verification on the amount of the sale.
C) closed loop verification on the customer ID.
D) field checks on the values in dollar fields.
20) When a proper segregation of duties exists in the area of handling cash receipts, the
________, who reports to the ________, actually handles the cash and is not the same person
who posts cash receipts to customer accounts.
A) cashier; treasurer
B) cashier; controller
C) accountant; treasurer
D) accountant; controller
21) In a revenue cycle with proper controls, the ________ who reports to the ________, is not
involved in any cash handling activities.
A) accounts receivable clerk; treasurer
B) accounts receivable clerk; controller
C) cashier; controller
D) cashier; treasurer
22) A serious exposure in the revenue cycle is loss of assets. What is the related threat and
applicable control procedure that address this exposure?
A) shipping errors; reconciliation of sales order with picking ticket and packing slip
B) theft of cash; segregation of duties and minimization of cash handling
C) making sales that turn out to be uncollectible; force sales people to make collection calls on
customers with past due balances
D) poor performance; preparation and review of performance reports
23) Which of the following duties could be performed by the same individual and not violate
segregation of duty controls?
A) handling cash and posting to customer accounts
B) issuing credit memos and maintaining customer accounts
C) handling cash and authorizing credit memos
D) handling cash receipts and mailing vendor payments
24) Internal file labels can be used to prevent the loss of data in the revenue cycle since they
A) record off-site storage locations.
B) keep competitors from accessing files.
C) organize the on-site physical storage site.
D) reduce the possibility of erasing important files.
25) The manager of Callow Youth Clothing was entering an order online from Sad Clown
Pajamas. He ordered 100 one-size fits all pajama bottoms, but when he ordered 1000 one-size
fits all pajama tops, the following error message popped up: “Did you mean to enter a quantity of
1000 for your order?” This message is the result of a
A) reasonableness test.
B) validity check.
C) limit check.
D) closed-loop verification.
26) The manager of Cezary Foods was purchasing inventory from Bogumil Distributors online.
The manager entered the items and quantities, completed the checkout and payment process, but
received the following error message before the order could be processed: “Please enter your
phone number.” This message is likely the result of a
A) validity check.
B) completeness test.
C) closed-loop verification.
D) customer relationship management software application.
27) Bogumil Distributors is an Internet-based wholesaler. Customers enter their orders online.
The manager of Cezary Foods was entering an order when the following error message popped
up: “Your order exceeds your available credit. You will be contacted within 8 hours.” This
message is the result of a
A) sign check.
B) validity check.
C) reasonableness test.
D) limit check.
28) Because it is the most fungible of all assets, the management of cash has always been the
most difficult of all control issues. The most important of cash controls is
A) minimization of cash handling.
B) lockbox arrangements.
C) segregation of duties.
D) frequent reconciliation of records.
29) A clerk at a grocery store scanned the bar code for a low cost bag of frozen chicken wings
then gave his friend an expensive brand-name bag of frozen chicken wings.Which of the
following controls would best prevent the clerk from getting away with doing this?
A) physical inventory count
B) segregation of duties
C) limited physical access to bar codes
D) use of RFID tags
30) The accounts receivable clerk destroys all invoices for sales made to family and friends and
does not record the sales in the accounts receivable subsidiary ledgers. The family and friends
usually give the clerk cash as a “thank you.” Which procedure will not prevent or detect this
fraud?
A) Send monthly statements to all customers with balances owed.
B) Reconcile sales invoices in the billing department to the total debits to accounts receivable
subsidiary ledgers.
C) Sequentially prenumber all invoices and prepare a sequence check at the end of each day.
D) Reconcile the accounts receivable control account to the accounts receivable subsidiary
ledger.
31) 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 both
sign the pick list.
C) Sales representatives have authority to increase customers’ credit limits in $1,000 increments.
D) When customer payments are received in the mail, checks are sent to the cashier’s office and
remittance advices are sent to the accounts receivable department.
32) The least effective control for preventing an organization from processing fraudulent credit
memo is to
A) match each credit memo with a receiving report.
B) require approval for each credit memo by the credit manager.
C) reconcile total of credit memos to total debits posted to customers’ subsidiary ledgers.
D) sequentially prenumber all credit memos and perform a sequence check at the end of each
day.
33) Explain how validity checks, completeness tests and reasonableness tests can be
implemented to ensure accuracy of customer orders.
34) Failure to collect cash on credit sales is a threat in the revenue cycle. What controls can be
used to help neutralize this threat?
35) Describe four threats in the revenue cycle and identify appropriate controls for each threat.
36) Discuss the general control issue of the loss of data, as it relates to the revenue cycle.
37) Explain how to effectively segregate duties in the sales order activity.
38) Discuss the revenue cycle threat of stockouts, carrying costs, and markdowns.
39) You have been hired by a catalog company to computerize its sales order entry process.
Approximately 70% of all orders are received over the telephone by a sales person. The other
30% of orders are received by a sales person through mail or fax. The catalog company wants the
phone orders processed real-time. The mail and fax orders will be processed in batches of 50
orders. The following attributes are collected for every sales order:
Customer number (if the order is from a new customer, a new number needs to be assigned)
Customer name
Address
Payment method (credit card for phone and fax orders and check for mailed orders)
Credit card number and expiration date
Items ordered and quantity of each
Unit price of each item ordered
Identify and describe at least ten specific control policies and procedures you will implement for
the sales order process. Be very specific describing the controls and number each new control
you suggest.
40) Which of the following is not a threat to the revenue cycle sales order entry process?
A) incomplete orders
B) invalid orders
C) cash flow problems
D) uncollectible accounts
41) Which of the following is not a threat to the revenue cycle shipping process?
A) incomplete orders
B) inventory theft
C) picking the wrong items
D) wrong shipping address
42) Which of the following is not a threat to the revenue cycle billing process?
A) accounts receivable errors
B) loss of customers
C) failure to bill
D) inaccurate credit memos
43) Which of the following is not a general threat to the revenue cycle?
A) inaccurate master data
B) loss of customers
C) poor performance
D) unauthorized disclosure of sensitive information
44) Which of the following is not a general threat to the revenue cycle?
A) inaccurate master data
B) loss of customers
C) poor performance
D) unauthorized disclosure of sensitive information
45) The legitimacy of customer orders is established by ________ in paper-based customer
orders.
A) the customer’s signature
B) the customer’s pin number
C) the customer’s verbal authorization
D) prior experience with the customer
46) The legitimacy of customer orders is established by ________ in Internet-based customer
orders.
A) digital signatures
B) the customer’s pin number
C) the customer’s credit card number
D) prior experience with the customer
47) For strongest segregation of duties, the credit manager should never report to
A) the marketing department.
B) the accounting department.
C) the credit department.
D) the IT department.
48) For strongest segregation of duties, a sales representative should never be allowed to
A) discuss the company’s products.
B) negotiate the sales price.
C) approve a sale on credit.
D) send a customer a gift.
49) True or False: A credit sale should always be denied if it exceeds the customer’s credit limit.
50) True or False: A credit sale should always be reviewed by a credit manager if it exceeds the
customer’s credit limit.