CHAPTER 4
THE REVENUE CYCLE
REVIEW QUESTIONS
2. The packing slip travels with the goods to the customer, and it describes the contents on the
order. Upon filling the order, the shipping department sends the shipping notice to the billing
department to notify them that the order has been filled and shipped. The shipping notice
3. The receiving department counts and inspects items that are returned by customers. The
receiving department prepares a return slip, copies of which go to the warehouse for restocking,
and to the sales order department so that a credit memo can be issued to the customer.4. The
5. a. credit checks
6. The three rules that ensure segregation of functions are:
a. Transaction authorization should be separate from transaction processing.
7. a. Shipping department—verifies that the correct amount and types of goods are sent from
the warehouse by reconciling the stock release document and the packing slip.
8. The purpose of physical controls is to control the actions of people.
9. Once an item is on order, control should be in place to ensure that it is not ordered again
until the original order has been received from the supplier. By entering a value (e.g., the
10. An edit run is the first run; it detects most data entry errors. Only “clean” data progresses to
the sort run. The sort run sequences the transaction records according to its primary key field and
11. A point of sale system immediately records both cash and credit transactions and inventory
12. In the advanced technology system, the system logic, not a human being, makes the
decision to grant or deny credit based on the customer’s credit history contained in the credit
history file. If credit is denied, the sales clerk should not be able to force the transaction to continue.
In the basic technology system, credit checking of prospective customers is a function of the
not exceed the customer’s credit limit may be dealt with very quickly.
13. Multilevel security employs programmed techniques that permit simultaneous access to a
14. The billing department’s receipt of the sales order occurs in most instances before the goods
15. EDI was devised to expedite routine transactions between manufacturers and
18. A billing of lading is a formal contract between the seller and the shipping company
20. Supervision plays an important role in the mail room where both the check (asset) and
DISCUSSION QUESTIONS
1. The separation of the warehouse and the shipping department allows for segregation of
functions over two departments for the custody of the assets during two distinct phases of the
revenue cycle. The warehouse attendants have custody over the finished goods until they receive a
stock release form from the sales department. The warehouse clerks pick the inventory items from
the warehouse and send them to shipping along with a copy of the stock release form. The shipping
2. The sales order department (included in the sales department in the text) is responsible for
taking the customer order and placing it into a standard format. This department records
information such as the customer’s name, address, account number, quantities and units of each item,
3. The checks received in payment for accounts receivable are a crucial asset for the firm.
These checks must be protected from individuals who might try to deposit these checks into
4. In this environment, segregation of duties is accomplished through multilevel security
procedures. Multilevel security employs programmed techniques that permit simultaneous access to a
5. An employee who has access to incoming payments, either cash or check, as well as the
6. The company should periodically, perhaps monthly, send an account summary to each
customer listing invoices and amounts paid by check number and date. This form allows the
7. Access control to the billing and accounts receivable records that are part of the revenue
cycle is just as important as the physical control devices over cash and inventory because these
8. The Internet is rapidly becoming a popular source for information gathering, price comparison,
9. Accounts receivable may be overstated because allowance for doubtful accounts is
10. Lock on the cash drawer. Internal cash register tape that can be accessed only by the manager.
Physical security over the inventory. The following are examples: Steel cables to secure expensive
11. The advantage of real-time updating is that the general ledger would be current after every
12. If credit is denied, the sales clerk should not be able to force the transaction to continue.
However, to allow for operational flexibility in unusual circumstances, the system provides a
13. All of the record keeping functions, which in the basic technology system were
performed manually by accounting clerks, are automated in the advanced technology system. In the
advanced technology system, a computer application, which is not influenced by situational
14. In point-of-sale systems, the customer literally has possession of the items purchased,
thus the inventory is in hand. Typically, for manufacturing firms, the order is placed and the good is
15. No, the bar-codes are not read with 100% accuracy. Another potential error can occur if the
wrong bar-coded stickers are attached to the merchandise, which can occur in some discount retail
16. EDI represents a unique business arrangement between the buyer and seller in which they
agree, in advance, to the terms of their relationship on such items as selling price, quantities,
17. Two common methods for achieving multilevel security are the access control list (ACL)
and role based access control (RBAC). The ACL method assigns privileges, such as the right to
perform computer program procedures and access data files, directly to the individual. In large
organizations with thousands of employees, this can become a considerable administrative
Multiple Choice
1. C
2. A