Accounting Information Systems, 7e—Test Bank, Chapter 4
5. For the revenue cycle, state two specific independent verifications that should be performed.
6. What task can the accounts receivable department engage in to verify that all checks sent by
customers have been appropriately deposited and recorded?
7. What specific internal control procedure would prevent the sale of goods on account to a fictitious
customer?
8. The clerk who opens the mail routinely steals remittances and checks. Describe a specific internal
control procedure that would prevent or detect this fraud.
9. A customer payment of $247 was correctly posted in the general ledger but was recorded as $274 in
the customer’s account receivable. Describe a specific internal control procedure that would detect this
error.
Accounting Information Systems, 7e—Test Bank, Chapter 4
10. Goods are shipped to a customer, but the shipping department does not notify billing and the customer
never receives an invoice. Describe a specific internal control procedure that would detect this error.
11. A clerk embezzles customer payments on account and covers up the theft by making an adjustment to
the accounts receivable ledger. Describe a specific internal control procedure that would prevent this
fraud.
12. A credit sale is made to a customer, even though the customer’s account is four months overdue.
Describe a specific internal control procedure that would prevent this from happening.
13. What specific internal control procedure would prevent a customer from being billed for all 50 items
ordered although only 40 items were shipped?
14. What specific internal control procedure would prevent the shipping clerk from taking goods from the
storeroom and sending them to someone who had not placed an order?
15. What specific internal control procedure would prevent an accounts receivable clerk from issuing a
fictitious credit memo to a customer (who is also a relative) for goods that were “supposedly” returned
from previous sales?
16. What specific internal control procedure would prevent an increase in sales returns since salesmen
were placed on commission?
17. What specific internal control procedure would detect the misplacement of a sales invoice after
preparation and not mailed to the customer? The invoice was never found.
18. What function does the receiving department serve in the revenue cycle?
19. What are the three rules that ensure that no single employee or department processes a transaction in
its entirety.
1. Transaction authorization should be separate from transaction processing.
2. Asset custody should be separate from asset record keeping.
3. The organization structure should be such that the perpetration of a fraud requires collusion
between 2 or more individuals.
20. What is automation and why is it used?
21. What is the objective of re-engineering?
22. What are the key segregation of duties related to computer programs that process accounting
transactions?
23. How is EDI more than technology? What unique control problems may it pose?
24. What makes point-of-sale systems different from revenue cycles of manufacturing firms?
25. Give three examples of Access Control in a Point-of-Sale (POS) system.
26. Describe the key tasks in the sales order process.
27. What is the purpose(s) of the stock release document?
28. What is the role of the shipping notice?
29. What is a bill of lading?
30. What is the purpose of the credit memo?
31. How is application integrity achieved?
32. What is multilevel security?
33. What does EDI technology do?
ESSAY
1. When Clipper Mail Order Co. receives telephone and fax orders, the billing department prepares an
invoice. The invoice is mailed immediately. A copy of the invoice serves as a shipping notice. The
shipping department removes inventory from the warehouse and prepares the shipment. When the
order is complete, the goods are shipped. The clerk checks the customer’s credit before recording the
sale in the general journal and the account receivable subsidiary ledger.
The receptionist opens the mail and lists all payments. The receptionist also handles all customer
complaints and prepares sales return forms for defective merchandise. The cashier records all cash
receipts in the general journal and makes the appropriate entry in the accounts receivable subsidiary
ledger. The cashier prepares the daily bank deposit.
Describe at least four internal control weaknesses at Clipper Mail Order Co.
2. How may an employee embezzle funds by issuing an unauthorized sales credit memo if the
appropriate segregation of functions and authorization controls were not in place?
3. For each of the following documents, describe its purpose, the functional area preparing it, and the key
data included: sales order, bill of lading, credit memo.
4. What features of a reengineered cash receipts system contribute to improved control and reduced
costs? What complicates the process?
5. What role does each of the following departments play in the sales order processing subsystem: sales,
credit, and shipping? Be complete.
6. With regard to segregation of duties, rule one is that transaction authorization and transaction
processing should be separated. What does this require in the revenue cycle?
Accounting Information Systems, 7e—Test Bank, Chapter 4
7. With regard to segregation of duties, rule two is that asset custody and record keeping should be
separated. What does this require in the revenue cycle?
8. What role does each of the following departments play in the cash receipts subsystem: mail room, cash
receipts, accounts receivable, and general ledger? Be complete.
9. For each of the following documents, describe its purpose, the functional area preparing it, and the key
data included: remittance advice, remittance list, deposit slip.
10. How is independent verification carried out in a manual revenue system?
11. Describe two common methods for achieving multilevel security.
12. What unique control problems does EDI pose?
13. Describe a credit check in an advanced technology system.
