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CHAPTER 12
THE REVENUE CYCLE: SALES TO CASH COLLECTIONS
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
12.1 Customer relationship management systems hold great promise, but their usefulness
is determined by the amount of personal data customers are willing to divulge. How
can companies encourage customers to share useful personal information?
12.2 Some products, like music and software, can be digitized. How does this affect each
of the four main activities in the revenue cycle?
12.3 Many companies use accounts receivable aging schedules to project future cash
inflows and bad-debt expense. Review the information typically presented in such a
report (see Figure 12-8). Which specific metrics can be calculated from those data
that might be especially useful in providing early warning about looming cash flow
or bad-debt problems?
12.4 Table 12-1 suggests that restricting physical access to inventory is one way to reduce
the threat of theft. How can information technology help accomplish that objective?
12.5 Invoiceless pricing has been adopted by some large businesses for B2B transactions.
What are the barriers, if any, to its use in B2C commerce?
12.6 If AOE decides to begin selling directly to individual customers, what changes will it
need to make in its business processes?
SUGGESTED ANSWERS TO THE PROBLEMS
12.1 Match the term in the left column with its definition in the right column.
1. __d__ CRM system
a. Document used to authorize reducing the balance in a
customer account
2. __g_ Open-invoice
method
b. Process of dividing customer account master file into subsets
and preparing invoices for one subset at a time
3. __a__ Credit memo
c. System that integrates EFT and EDI information
4. __h__ Credit limit
d. System that contains customer-related data organized in a
manner to facilitate customer service, sales, and retention
5. __b__ Cycle billing
e. Electronic transfer of funds
6. __c___ FEDI
f. Method of maintaining accounts receivable that generates one
payments for all sales made the previous month
7. _n__ Remittance advice
g. Method of maintaining customer accounts that generates
payments for each individual sales transaction
8. _j__ Lockbox
h. Maximum possible account balance for a customer
9. _k__ Back order
i. Electronic invoicing
10. _m__ Picking ticket
j. Post office box to which customers send payments
11. _l__ Bill of lading
k. Document used to indicate stock outs exist
l. Document used to establish responsibility for shipping goods
via a third party
m. Document that authorizes removal of merchandise from
inventory
n. Turnaround document returned by customers with payments
12.2 What internal control procedure(s) would provide protection against the following
threats?
a. Theft of goods by the shipping dock workers, who claim that the inventory
shortages reflect errors in the inventory records.
b. Posting the sales amount to the wrong customer account because a customer
account number was incorrectly keyed into the system.
c. Making a credit sale to a customer who is already four months behind in making
payments on his account.
d. Authorizing a credit memo for a sales return when the goods were never actually
returned.
e. Writing off a customer’s accounts receivable balance as uncollectible to conceal
the theft of subsequent cash payments from that customer.
f. Billing customers for the quantity ordered when the quantity shipped was
actually less due to back ordering of some items.
g. Theft of checks by the mailroom clerk, who then endorsed the checks for deposit
into the clerk’s personal bank account.
h. Theft of funds by the cashier, who cashed several checks from customers.
who paid cash.
j. Shipping goods to a customer but then failing to bill that customer.
k. Lost sales because of stockouts of several products for which the computer
records indicated there was adequate quantity on hand.
l. Unauthorized disclosure of buying habits of several well-known customers.
m. Loss of all information about amounts owed by customers in New York City
because the master database for that office was destroyed in a fire.
n. The company’s Web site was unavailable for seven hours because of a power
outage.
o. Interception and theft of customers’ credit card numbers while being sent to the
company’s Web site.
p. A sales clerk sold a $7,000 wide-screen TV to a friend and altered the price to
$700.
q. A shipping clerk who was quitting to start a competing business copied the
names of the company’s 500 largest customers and offered them lower prices
and better terms if they purchased the same product from the clerk’s new
company.
r. A fire in the office next door damaged the company’s servers and all optical and
magnetic media in the server room. The company immediately implemented its
disaster recovery procedures and shifted to a backup center several miles away.
The company had made full daily backups of all files and stored a copy at the
backup center. However, none of the backup copies were readable.
12.3 For good internal control, which of the following duties can be performed by the
same individual? Explain your answer.
1. Approve changes to customer credit limits
3. Shipping merchandise
5. Depositing customer payments
7. Issuing credit memos
9. Checking inventory availability
Cells with an “X” indicate duties that can be performed by the same individual:
Duty
1
2
3
4
5
6
7
8
9
1
2
3
4
5
6
X
7
8
9
X
this combination does not provide any way to commit and conceal a theft.
• The same person can create invoices (bill customers) and maintain accounts
receivable.
Key duties to segregate include:
• Approving changes to customer credit and sales order entry. If both duties are
the theft and adjust the customer’s account so that they do not complain about a
missing credit.
• Depositing customer payments and reconciling the bank account. If the same
person did both duties, they could steal cash and cover up the difference by listing
fraudulent bank expenses to adjust the cash balance.
