Chapter 11—The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process

TRUE/FALSE

1. The B/AR/CR process completes the order to cash process by accomplishing the activities of billing
customers, managing customer accounts, and securing payment for goods and services.

ANS: T

2. Recording billing/accounts receivable/cash receipts event data is generally the responsibility of the
treasury department, which typically reports to the controller function.

ANS: F

3. In the organization structure shown in the text, although both report to the VP of Finance, the treasurer
and controller functions should be segregated..

ANS: T

4. There sales department should be responsible for credit approval so sales personnel can immediately
increase sales volume.

ANS: F

5. The objective of cash management is to free up funds so that they can either be invested to earn
interest, or used to reduced debt, thus reducing interest charges.

ANS: T

6. Float, when applied to cash receipts, is the time between customer payment and the availability of
funds on deposit and available.

ANS: T

7. Funds on deposit and available are known as good funds.

ANS: T

8. The AR master file address is a postal address, maintained by the firm’s bank, which is used solely for
the purpose of collecting checks.

ANS: F

9. With electronic cash, a financial institution issues cash to an individual, which is placed into an
electronic wallet.

ANS: T

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10. Database systems are Internet based systems for sending bills/invoices to customers and receiving the
customer payment electronically.

ANS: F

11. An invoice is a business document used by a vendor to notify the customer of an obligation to pay the
seller for merchandise which was ordered and shipped.

ANS: T

12. A purchasing statement is a business document designed to inform the payee of the invoices or other
items covered by the check amount.

ANS: F

13. The accounts receivable master file is a repository of all unpaid invoices issued by an organization and
awaiting final disposition.

ANS: T

14. The logical data dictionary definition of the sales event data file would comprise one or more invoice
records.

ANS: T

15. Accepted sales requests are later processed through a separate exception routine.

ANS: F

16. The three types of accounts receivable systems discussed in the text are the lockbox, balance forward,
and open item systems.

ANS: F

17. In a balance forward accounts receivable system, the details of open invoices for prior periods do not
appear on the current-period customer statement.

ANS: T

18. In an open item accounts receivable system, the details of open invoices for both the current and prior
periods appear on the current-period customer statement.

ANS: T

19. In a prebilling billing system, invoices are prepared after the goods have been shipped and the sales
order notification has been matched to the shipping's billing notification.

ANS: F
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 245

20. In a post billing system, invoices are prepared upon acceptance of the customer order, and there is no
separate sales order document as such.

ANS: F

21. Digital image processing systems are computerized systems for capture, storage, and retrieval of real
or simulated objects, such as live scenes and photographs.

ANS: T

22. A bar code reader is used to translate an object's image into electronic digital signals.

ANS: F

23. The acronym MICR stands for magnetic information character recognition.

ANS: F

24. The acronym EFT stands for electronic funds transfer.

ANS: T

25. The acronym ACH stands for automated clearing house.

ANS: T

26. A credit card system is better at reducing float time than a debit card system.

ANS: F

27. In an open item system accounts receivable records consist of a customer's current balance due, past-
due balance, and the finance charges and payments related to the account.

ANS: F

28. The B/AR/CR system supports the repetitive work routines of the credit department, the cashier, and
the accounts receivable department.

ANS: T

29. A debit card is a method of payment whereby a third party, for a fee, removes from the collector the
risk of noncollection of the account receivable.

ANS: F

30. A credit card is a form of payment authorizing the collector to transfer funds electronically from the
payer's to the collector's balance.

ANS: F
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31. An electronic check closely resembles a paper check with the inclusion of the customer's name, the
seller's name, the customer's financial institution, the check amount, and a digital signature.

ANS: T

32. Lapping is a fraud resulting from the improper segregation of duties between the functions of handling
cash and recording cash receipt events.

ANS: T

33. The ACH network electronically transfers funds by which the collector's bank account is credited and
the payer's account is debited for the amount of a payment.

ANS: T

34. The inventory payment data contains the details of each payment received.

ANS: F

35. The stub attached to the customer statement is also known as a turnaround document.

ANS: T

36. The accounts receivable master data is created as sales returns, bad debt write-offs, estimated doubtful
accounts, or similar adjustments are processed.

ANS: F

37. Electronic cash is an electronic bank note issued by a financial institution to an individual who, in turn,
can transfer the electronic note to make purchases or other payments.

ANS: T

38. An electronic lockbox is a banking service in which the bank keys the remittance advice details into its
computer system from the customer's remittance advice and then transfers the remittance advice data
electronically from the bank's computer to the collector's accounts receivable computer system.

ANS: T

39. A customer relationship management system is an information systems extension that allows a
customer to complete an inquiry or perform a task within an organization's business process without
the aid of the organization's employees.

ANS: F

40. In the control matrix for the cash receipts function the first present control plan should be to
immediately endorse checks.

ANS: T
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 247

MULTIPLE CHOICE
1. As discussed in the text, the functions of the billing/accounts receivable/cash receipts process:
a. is identical to those of the order entry/sales process
b. support decision making by managers in the order entry/sales process
c. incomes collections of receivables
d. is unrelated to the functions of the order entry/sales process
ANS: C
2. According to the concept of segregation of duties, which of the following managers should report to
the controller rather than to the treasurer?
a. credit department manager
b. accounts receivable department manager
c. cashier
d. investments manager
ANS: B
3. In an organization in which the order entry/sales (OE/S) and billing/accounts receivable/cash receipts
(B/AR/CR) processes are separate processes, the B/AR/CR process usually accomplishes all of the
following activities except:
a. shipping goods to customers
b. billing customers
c. managing customer accounts
d. securing payment of customer accounts
ANS: A
4. Which of the following pairs of functions would you expect might report directly to the vice president
of finance?
a. credit department and controller
b. shipping department and controller
c. accounts receivable department and treasurer
d. treasurer and controller
ANS: D

5. For a charge sale event, the cashier is to the cash custodial function as the __________ is to the
recording function.
a. shipping department
b. credit department
c. accounts receivable department
d. none of the above
ANS: C
6. For a charge sale event, the cashier is to the cash custodial function as the __________ is to the
authorization function.
a. shipping department
b. credit department
c. accounts receivable department
d. warehouse
ANS: B
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7. In the context diagram for a billing/accounts receivable/cash receipts process, which of the following
is least likely to be an external entity?
a. the bank
b. the customer
c. the general ledger
d. the cashier
ANS: D

8. Which of the following process bubbles would you not expect to see in the logical DFD for a
billing/accounts receivable/cash receipts process?
a. perform billing
b. requisition inventory
c. receive customer payment
d. manage customer accounts
ANS: B

9. Which of the following normally would trigger the billing process in a billing/accounts receivable/cash
receipts process?
a. a copy of the sales order
b. a shipping notice
c. a picking ticket
d. a customer acknowledgment
ANS: B

10. Which of the following normally would trigger the billing/accounts receivable/cash receipts process to
record a customer payment?
a. invoice
b. remittance advice
c. deposit slip
d. a notification to the general ledger to record a cash receipts update
ANS: B

11. The principal master data that you would expect to see in a billing/accounts receivable/cash receipts
process is the:
a. sales order data
b. shipping notifications data
c. sales journal
d. accounts receivable master data
ANS: D

12. In a logical DFD for a billing/accounts receivable/cash receipts process, which of the following data
stores is least likely to interact with a process called "perform billing"?
a. inventory master data
b. customer master data
c. accounts receivable master data
d. sales event data
ANS: A
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 249

13. In a logical DFD for a billing/accounts receivable/cash receipts process, which of the following data
stores would you expect to interact with a process called "manage customer accounts"?
a. inventory master data
b. accounts receivable master data
c. sales event data
d. cash receipts event data
ANS: B

14. In a logical DFD for billing/accounts receivable/cash receipts process, you would expect that a credit
memo would be sent by the B/AR/CR process to the customer from which of the following processes?
a. perform billing
b. manage customer accounts
c. receive payment
d. validate sales order
ANS: B

15. Inputs to the billing/accounts receivable/cash receipts process normally could include all of the
following except:
a. a copy of the sales order sent by the sales order function to the billing function
b. a shipping notice sent by the shipping function to the billing function
c. deposit slip
d. remittance advice
ANS: C

16. In an organization in which the order entry/sales (OE/S) and billing/accounts receivable/cash receipts
(B/AR/CR) processes are separate processes, outputs of the B/AR/CR process normally could include
all of the following except:
a. invoice
b. deposit slip
c. credit memo
d. shipping notice
ANS: D

17. In general, adjustments to customer balances in the accounts receivable master data will be necessary
for all of the following except:
a. sales returns and allowances
b. reversals of mispostings and other errors
c. bad debt write-offs
d. estimates of uncollectible accounts
ANS: D

18. The data dictionary definition of an invoice usually contains all of the following elements except:
a. the customer's credit limit
b. an invoice header
c. an invoice line(s)
d. all of the above
ANS: D
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19. In an entity-relationship (E-R) diagram for the billing/accounts receivable/cash receipts (B/AR/CR)
process, you would expect that the word trigger would appear between the boxes for ?
a. CUSTOMER and SHIPMENT
b. CUSTOMER and SALES INVOICE
c. STOCK PICK and SHIPMENTS
d. SALES INVOICE and SHIPMENT
ANS: C

20. A company using a database approach to data management might not maintain a relational table for
ACCOUNTS RECEIVABLE. Rather, accounts receivable balances at any point in time could be
computed as the difference between the relations for which of the following continuous events?
a. SHIPMENTS and SALES INVOICES
b. SALES INVOICES and CASH RECEIPTS
c. SHIPMENTS and CASH RECEIPTS
d. CUSTOMER and SALES INVOICES
ANS: B

21. In a database containing (among others) five relations--CUSTOMERS, SHIPMENTS, SALES

INVOICES, CASH RECEIPTS, and SALES-RELATIONS--you would expect that the Remit_No
(Remittance number) would be the primary key for the __________ relation.
a. CUSTOMERS
b. SHIPMENTS
c. SALES INVOICES
d. CASH RECEIPTS
ANS: D

22. All of the following are types of accounts receivable systems except:
a. debit card system
b. balance-only system
c. balance-forward system
d. open-item system
ANS: A

23. The following is a list of three types of accounts receivable systems and two organizations/systems:

I. Open item
II. Balance forward
III. Balance only
IV. Public utilities
V Credit card companies (i.e., VISA)

Which of the following pairs normally are correct?

a. I and IV, II and V
b. I and V, II and IV
c. II and IV, III and V
d. II and V, III and IV
ANS: D
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 251

24. In a prebilling system, invoices are prepared

a. immediately upon acceptance of a customer order
b. when there is to be a delay between the time that the order is accepted and the time it is
shipped
c. where inventory balances can be determined only through physical count
d. to improve customer relations
ANS: A

25. In a fraud scheme known as __________, the perpetrator attempts to cover the theft of cash received
from customer A by applying cash collected from customer B to A's account, then applying a receipt
from C to B's account, and so forth.
a. kiting
b. lapping
c. schmoozing
d. hacking
ANS: B

26. Deposit slips are usually generated by the billing/accounts receivable/cash receipts process:
a. at the time invoices are prepared
b. by manual procedures
c. to satisfy particular control goals
d. as part of processing cash receipts
ANS: D

27. Typically, the operations process goals of the billing/accounts receivable/cash receipts process:
a. vary, depending on whether we are dealing with the functions of billing, accounts
receivable, or cash receipts
b. remain the same when dealing with the functions of billing, accounts receivable, or cash
receipts
c. vary inversely with the information process goals
d. are the same as the information process goals
ANS: A

28. In the control matrix for a cash receipts process, the first present control is:
a. receive turnaround documents
b. endorse incoming checks
c. edit cash receipts for accuracy
d. procedure for rejecting inputs
ANS: B

29. Which of the following is most likely to appear in the UC and UA columns of a control matrix for the
billing process?
a. immediately endorse incoming checks
b. receive turnaround documents
c. manual agreement of batch totals
d. one for one checking of deposit slip and checks
ANS: C
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30. For the cash receipts process, the control plan receive turnaround documents helps to achieve which of
the following pairs of information process control goals?
a. input validity and input completeness
b. input validity and input accuracy
c. input accuracy and input completeness
d. input accuracy and update accuracy
ANS: B

31. For the cash receipts process, which of the following control plans addresses the information process
control goal of master data update accuracy?
a. immediately endorse incoming checks
b. compare input data with master data
c. receive turnaround documents
d. enter cash receipts close to where cash is received
ANS: B

32. In the cash receipts process, the control plan of immediately endorsing incoming checks is designed to
achieve the control goal of:
a. assuring the timely deposit of cash receipts
b. ensuring security of the cash asset
c. ensuring cash receipts input accuracy
d. ensuring cash receipts input completeness
ANS: B

33. In the billing process, the control plan of review shipped not billed sales orders (tickler file) helps to
ensure:
a. effectiveness of operations
b. efficient employment of resources
c. security of resources
d. none of the above
ANS: A

34. The billing/accounts receivable/cash receipts process comprises three different but related process--
namely, B, AR, and CR. Which of the following would not be an operations process goal?
a. ensure effectiveness of operations
b. ensure AR master data update accuracy
c. ensure effectiveness of operations
d. ensure security of resources
ANS: B

35. The __________ normally would comprise one or more invoice records, but each record would not
contain all of the detail reflected on the invoice itself.
a. invoice data
b. sales event data
c. accounts receivable adjustments data
d. cash receipts data
ANS: B
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 253

36. A remittance advice generally would be recorded in which of the following pairs of data stores?
a. customer master data and accounts receivable master data
b. sales event data and accounts receivable master data
c. accounts receivable adjustments data and accounts receivable master data
d. cash receipts data and accounts receivable master data
ANS: D

37. Digital images

a. help reduce paper in the B/AR/CR system
b. are stored in electronic folders
c. may be scanned or created via software
d. all of the above
ANS: D

38. In addition to storing an image of the document itself, the typical electronic-based image processing
system accompanies the document image with:
a. a paper file of the documents
b. an index used to retrieve the document image
c. the MICR code contained on each document
d. a "jukebox"
ANS: B

39. Which of the following statements is false?

a. The typical billing/accounts receivable/cash receipts system assists in preparing internal
and external reports, including GAAP-based financial statements.
b. Separating the credit function from the sales function is often defended on the grounds that
if they were not separated, credit might be extended to high-risk customers, simply to
achieve sales targets.
c. The two types of adjustments that commonly result from a periodic review of the aging
details of customer account balances are a recurring entry for estimated bad debts and a
bad debt write-off.
d. The logical data dictionary definition of the cash receipts events data would comprise one
or more invoice records.
ANS: D

40. Which of the following statements is true?

a. In a prebilling system, invoices are prepared after the goods have been shipped and the
sales order notification has been matched to the shipping's billing notification.
b. In a postbilling system, invoices are prepared upon acceptance of the customer order, and
there is no separate sales order document as such.
c. Of the two types of billing systems discussed in the text, the prebilling system requires the
more accurate inventory records.
d. Of the two types of billing systems discussed in the text, the prebilling system is
appropriate in situations where there is a significant delay between acceptance of the
customer's order and its shipment.
ANS: C
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41. Which of the following statements is false?

a. The check and remittance advice trigger the receive payment process.
b. A bank lockbox provides more protection for cash than a system where cash receipts are
mailed to the payee company and then deposited.
c. The hardware, software, maintenance, and communications costs associated with operating a
credit card system are lower than for a debit card system.
d. From the standpoint of reducing the collector's float, a customer check is a better payment
method than a debit card.
ANS: D

42. The billing/accounts receivable/cash receipts process completes the:

a. billing process
b. production process
c. order to cash process
d. inventory process
ANS: C

43. An example of the vertical information flows supported by the B/AR/CR process is a(n):
a. accounts receivable aging report
b. customer invoice
c. remittance advice
d. general ledger accounts receivable notification
ANS: A

44. Which of the following is most commonly associated with the treasury function?
a. recording of event data
b. security of funds
c. reporting of results of business events
d. maintaining accounting records
ANS: B

45. Segregation of duties is most clearly accomplished in most organizations by separating:

a. billing and accounts receivable
b. treasury and controllership
c. sales and accounts receivable
d. order entry and cash receipts
ANS: B

46. Which of the following is not an external entity for the B/AR/CR process?
a. order entry/sales process
b. general ledger
c. customer
d. inventory process
ANS: D
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 255

47. Which of the following is part of the header section of the invoice?
a. seller identification
b. invoice lines
c. invoice total
d. item description
ANS: A
48. Which of the following is a ratio used to monitor the investment in accounts receivable?
a. accounts receivable aging report
b. days' sales outstanding
c. sales turnover
d. inventory turnover
ANS: B
49. A customer statement serves a control purpose by:
a. notifying that payment is due
b. triggering the receive payment process
c. confirming with the customer the amount still owed
d. updating the accounts receivable master file
ANS: C
50. The accounts receivable system in which all the outstanding invoices are listed is called the:
a. balance-only system
b. open-item system
c. balance-forward system
d. postbilling system
ANS: B
51. The accounts receivable system typically used by credit card companies is the:
a. balance-only system
b. open-item system
c. balance-forward system
d. postbilling system
ANS: C

52. Quantities of items shipped to a customer would typically be found in the relational table for:
a. CUSTOMERS
b. SALES_RELATIONS
c. BANKS
d. DEPOSITS
ANS: B
53. The billing system in which the invoice is prepared immediately on acceptance of a customer order is
called a:
a. postbilling system
b. balance-only system
c. prebilling system
d. balance-forward system
ANS: C
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54. A billing system that is used when there is little or no delay between the receipt of the customer order
and the shipment of the goods is a:
a. postbilling system
b. balance-only system
c. balance-forward system
d. prebilling system
ANS: D

55. The technology that allows information on documents to be converted into machine-readable data
through a scanner is called a(n):
a. OCR
b. MICR
c. Bar code reader
d. digitizer
ANS: A

56. An overall management objective is to:

a. minimize the number of sales transactions
b. minimize the total amount of accounts receivable
c. minimize the time from the beginning of the selling process to the end of cash collections
d. maximize the amount of float
ANS: C

57. Which of the following is most effective in reducing the amount of float?
a. credit cards
b. debit cards
c. MICRs
d. charge cards
ANS: B

58. Which of the following implies computer-to-computer interchange of data?

a. CIP
b. lockbox
c. EDI
d. MICR
ANS: C

59. A form of fraud in which the payments made by one customer are systematically applied to the
account of another is called:
a. lapping
b. malfeasance
c. ACH
d. aged trial balance
ANS: A
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 257

60. In the billing function described in the text, the control goal that contributes to effective operations is:
a. edit the shipping notification for accuracy
b. independent billing authorization
c. calculate batch totals
d. review shipped not billed sales orders (tickler file)
ANS: D

61. Which control is most effective in contributing to the goal of input completeness in the billing
function?
a. one-to-one checking of sales orders to invoices
b. batch sequence checks
c. key verification
d. none of the above
ANS: A

62. Which control plan for the cash receipts function has as its primary control goal to ensure security of
resources?
a. Reconcile bank account regularly.
b. Enter cash receipts close to where cash is received.
c. Immediately endorse incoming checks.
d. One-to-one checking of deposit slips and checks.
ANS: C

63. The cashier deposits checks in the bank for XYZ Corp. Who should reconcile the bank statement on a
regular basis for operational purposes?
a. the treasurer
b. internal auditor
c. the cashier
d. an external auditor
ANS: B

64. Which of the following is not an example of a customer self-service system?

a. pay-at-the-pump gasoline station
b. drive-thru lanes at a bank
c. web-based courier tracking system
d. telephone access to credit card balances
ANS: B

65. A customer is instructed to send his remittance advice and check to a bank's postal address. This
method for collecting customer cash receipts is called:
a. electronic cash
b. automated clearing house
c. electronic lockbox
d. lockbox
ANS: D
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66. To reduce the cost of collecting its accounts receivable, a company sells its accounts receivable to a
financial organization. The service is called:
a. a collection agency
b. automated clearing house
c. factoring
d. funding
ANS: C

COMPLETION

1. The B/AR/CR process completes the order to cash process by accomplishing the activities of billing
customers, managing customer accounts, and ___________________.

ANS:
securing payment for goods or services
or
collection

2. Recording billing/accounts receivable/cash receipts event data is generally the responsibility of the
accounts receivable department, which typically reports to the ____________________ function.

ANS: controller

3. In the organization structure shown in the text, although both report to the VP of Finance, the
____________________ and ____________________ functions should be segregated..

ANS:
treasurer
controller

4. There should be a segregation of duties between the sales department and the ___________
department.

ANS: credit

5. The objective of ____________________ is to free up funds so that they can either be invested to earn
interest, or used to reduced debt, thus reducing interest charges.

ANS: cash management

6. __________, when applied to cash receipts, is the time between customer payment and the availability
of funds on deposit and available.

ANS: Float

7. Funds on deposit and available are known as ________ funds.

ANS: good
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 259

8. A __________ is a postal address, maintained by the firm’s bank, which is used solely for the purpose
of collecting checks.

ANS: lockbox

9. With _______________, a financial institution issues an individual cash that is placed into an
electronic wallet.

ANS: electronic cash

10. ___________ systems are Internet based systems for sending bills/invoices to customers and receiving
the customer payment electronically.

ANS:
EBPP
or electronic bill presentment and payment

11. A(n) ____________________ is a business document used by a vendor to notify the customer of an
obligation to pay the seller for merchandise which was ordered and shipped.

ANS: invoice

12. A(n) ____________________ is a business document designed to inform the payee of the invoices or
other items covered by the check amount.

ANS: remittance advice

13. The ____________________ file is a repository of all unpaid invoices issued by an organization and
awaiting final disposition.

ANS: accounts receivable master

14. The logical data dictionary definition of the ____________________ event data file would comprise
one or more invoice records.

ANS: sales

15. Rejected sales requests are later processed through a separate _____________.

ANS: exception routine

16. The two types of accounts receivable systems discussed in the text are the balance only and
____________________ systems.

ANS: open-item

17. In a(n) ____________________ accounts receivable system, the details of open invoices for prior
periods do not appear on the current-period customer statement.

ANS: balance-only
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18. In a(n) ____________________ accounts receivable system, the details of open invoices for both the
current and prior periods appear on the current-period customer statement.

ANS: open-item

19. In a(n) ____________________ billing system, invoices are prepared after the goods have been
shipped and the sales order notification has been matched to the shipping's billing notification.

ANS: postbilling

20. In a(n) ____________________ billing system, invoices are prepared upon acceptance of the customer
order, and there is no separate sales order document as such.

ANS: prebilling

21. ____________________ processing systems are computerized systems for capture, storage, and
retrieval of real or simulated objects, such as live scenes and photographs.

ANS: Digital image (or image)

22. A(n) ____________________ or image processing camera is used to translate an object's image into
electronic digital signals.

ANS: optical scanner

23. The acronym MICR stands for ____________________.

ANS: magnetic ink character recognition

24. The acronym ACH stands for ____________________.

ANS: automated clearinghouse

25. The acronym EFT stands for ____________________.

ANS: electronic funds transfer

26. A(n) ____________________ card system has the advantage of eliminating float.

ANS: debit

27. The ____________________ supports the repetitive work routines of the credit department, the
cashier, and the accounts receivable department.

ANS: billing/accounts receivable/cash receipts (B/AR/CR)

28. In a(n) ____________________, accounts receivable records consist of a customer's current balance
due, past-due balance, and the finance charges and payments related to the account.

ANS: balance-only system

 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 261

29. A(n) ____________________ is a method of payment whereby a third party, for a fee, removes from
the collector the risk of noncollection of the account receivable.

ANS: bank credit card

30. A(n) ____________________ is a form of payment authorizing the collector to transfer funds
electronically from the payer's to the collector's balance.

ANS: debit card

31. A(n) ____________________ closely resembles a paper check with the inclusion of the customer's
name, the seller's name, the customer's financial institution, the check amount, and a digital signature.

ANS: electronic check

32. ____________________ is a fraud resulting from the improper segregation of duties between the
functions of handling cash and recording cash receipt events.

ANS: Lapping

33. The ____________________ is created as sales returns, bad debt write-offs, estimated doubtful
accounts, or similar adjustments are processed.

ANS: accounts receivable adjustments data

34. The ____________________ network electronically transfers funds by which the collector's bank
account is credited and the payer's account is debited for the amount of a payment.

ANS: automated clearing house (ACH)

35. The ____________________ contains the details of each payment received.

ANS: cash receipts event data

36. Often times a stub is attached to the customer statement. This stub is also known as a ___________
document.

ANS: turnaround

37. ____________________ is an electronic bank note issued by a financial institution to an individual

who, in turn, can transfer the electronic note to make purchases or other payments.

ANS: Electronic cash

38. A(n) ____________________ is a banking service in which the bank keys the remittance advice
details into its computer system from the customer's remittance advice and then transfers the
remittance advice data electronically from the bank's computer to the collector's accounts receivable
computer system.

ANS: electronic lockbox

 262 Chapter 11

39. A(n) ______________________ is an information systems extension that allows a customer to

complete an inquiry or perform a task within an organization's business process without the aid of the
organization's employees.

ANS: customer self-service system

40. In the control matrix for the cash receipts function the first present control plan should be to
_________________________.

ANS: immediately endorse checks

PROBLEM

1. The figure below is the billing/accounts receivable/cash receipts process level 0 DFD shown in
Chapter 11. The narrative that follows describes process 1.0 in the diagram.

Narrative Description

When the OE/S process produces a sales order, it notifies the B/AR/CR process to that effect. When
triggered by the data flow “Shipping’s billing notification,” the process validates the sale by
comparing the details on the sales order notification to those shown on shipping’s billing notification.
If discrepancies are noted, the request is rejected, as shown by the reject stub. Rejected requests later
would be processed through a separate exception routine.

If the data flows match, a validated shipping notification is sent to the next process. This process
performs the following actions simultaneously:
 Obtains from the customer master data certain standing data needed to produce the invoice.
 Creates the invoice and sends it to the customer.
 Updates the accounts receivable master data.
 Adds an invoice to the sales event data.
 Notifies the general ledger process that a sale has occurred (GL invoice update).

Required:

From the DFD figure below and the narrative description above, explode bubble 2.0 into a lower-level
diagram showing the details of that process.
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 263

ANS:
 264 Chapter 11

2. The figure below is the billing/accounts receivable/cash receipts process level 0 DFD shown in
Chapter 11. The narrative that follows describes process 2.0 in the diagram, manage customer
accounts.

Narrative Description
The sales return notification is sent to the first process by the receiving department where it is either
validated or rejected. If the sales return is not valid, it will be rejected and run through a separate error
routine. If the sales return is valid, it is sent to both of the next two processes, where a credit memo is
prepared and a journal voucher is prepared.

Upon preparation of the credit memo, the AR master data is updated, notice of the credit memo may
be sent to the receiving department, and the credit memo is sent to the customer.

Upon preparation of the journal voucher, the voucher is sent to the general ledger for the sales return
update and to the AR adjustments event data.

By using the updated information in the AR master data, customer statements are prepared and sent
out to customers. Preparing customer statements recurs at specified intervals, often on a monthly basis.
Details of unpaid invoices are extracted from the accounts receivable master data and are summarized
in a statement of account that is mailed to customers. The statement both confirms with the customer
the balance still owing and reminds the customer that payment is due.

The process of preparing a bad debts journal voucher, is triggered by the periodic review of aging
details obtained from the accounts receivable master data. One of two types of adjustments might
result from this review:
1. The recurring adjusting entry for estimated bad debts.
2. The periodic write-off of definitely worthless customer accounts.

Note that, regardless of type, adjustments are recorded in the AR adjustments event data, updated to
customer balances in the accounts receivable master data, and summarized and posted to the general
ledger master data by the general ledger process.

Required:

From the DFD below and the narrative description above, explode bubble 2.0 into a lower-level
diagram showing the details of that process.
The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 265
 266 Chapter 11

ANS:

3. The figure below is the billing/accounts receivable/cash receipts process level 0 DFD shown in
Chapter 11. The narrative that follows describes process 3.0 in the diagram, manage customer
accounts.

Narrative Description
In receiving a cash payment, the check and remittance advice trigger the receive payment process. A
remittance advice (RA) is a business document used by the payer to notify the payee of the items being
paid. The B/AR/CR process uses the RA to initiate the recording of a cash receipt. Upon receipt of the
check and remittance advice from a customer, the first process validates the remittance by comparing
the check to the RA. Mismatches are rejected for later processing. If the check and RA agree, the
validated remittance is sent to the next process, which endorses the check and separates it from the
RA.

The endorsed checks are accumulated and a deposit is prepared. The deposit is sent to the bank with
the deposit slip and the endorsed checks.and the deposit is recorded with the cash receipts events data.
Proof of the amount of the cash deposited.is sent on to the GL cash receipts for an update of the
general ledger. While the bank deposit is prepared, the RA is used to record the customer payment
and update the accounts receivable master data to reflect the customers payment and then files the RA
in the remittance advice file.
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 267

Required:

From the DFD below and the narrative description above, explode bubble 2.0 into a lower-level
diagram showing the details of that process.
 268 Chapter 11

ANS:

4. The figure below is the control matrix for the billing business process presented in Chapter 11, but
with certain items omitted. In the matrix, each omission is indicated by a box. Jumbled lists of the
omitted items are as follows:

Omitted from Control Goals Columns

1. Accounts receivable master data
2. Ensure efficient employment of resources
3. For completed shipping notice inputs, ensure:
4. Ensure security of resources
5. Accounts receivable master data
6. Ensure effectiveness of operations

Omitted Control Plans

7. Review shipped not billed sales orders
8. Edit the shipping notification for accuracy (programmed edits)
9. Employ a prebilling system
10. Confirm customer accounts regularly
11. Independent billing authorization
12. Check for authorized prices, terms, freight, and discounts
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 269

Required:

Complete the matrix by placing one of the numbers, 1 through 12, from the above lists into each box
showing a missing item. HINT: Complete the goal column headings first, and then use the cell entries
as a guide in deciding which number (7 through 12 above) belongs in each box in the recommended
control plans column.

Control Goals of the Operations Control Goals of the

Process Information Process
For the
For

Present
Controls A B C IV IC IA UC UA
P-1 P-1

P-2 P-2

P-3

P-4 P-4

P-5: Independent P-5 P-5 P-5

pricing data
P-6: Calculate P-6 P-6
batch totals
P-7: Interactive P-7 P-7
feedback
P-8: Record input P-8 P-8 P-8 P-8 P-8 P-8
P-9: Reconcile P-9 P-9 P-9 P-9 P-9
input and output
batch totals
P-10: Procedures P- P-10
for rejected inputs 10
Missing
Controls
M-1 M-1 M-1

M-2 M-2 M-2 M-2

M-3: Computer M-3 M-3 M-3 M-3 M-3 M-3

agreement of
batch totals
270 Chapter 11

ANS:
Control Goals of the
Control Goals of the Operations Information Process
Process
6 2 4 For the
For 3 5 or 1
Present 1 or 5
Controls A B C IV IC IA UC UA
7
P-1 P-1
8
P-2 P-2
11
P-3
12
P-4 P-4
P-5: Independent P-5 P-5 P-5
pricing data
P-6: Calculate P-6 P-6
batch totals
P-7: Interactive P-7 P-7
feedback
P-8: Record input P-8 P-8 P-8 P-8 P-8 P-8
P-9: Reconcile P-9 P-9 P-9 P-9 P-9
input and output
batch totals
P-10: Procedures P-10 P-10
for rejected inputs
Missing
Controls
9 M-1 M-1 M-1

10 M-2 M-2 M-2 M-2

M-3: Computer M-3 M-3 M-3 M-3 M-3 M-3

agreement of
batch totals
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 271

5. Below is a systems flowchart for the billing process with certain items omitted.
From the list of the following 15 items, fill in the missing items in the flowchart.

1. "Billing completed," changes to AR and related balances

2. "Shipments not yet billed"
3. BT
4. Compare batch totals with changes to AR and related balances
5. Create and print invoice, update AR and GL data, send "Billing completed" notice with
amounts posted to AR and related accounts
6. Customer
7. End
8. Enter selected shipments and prepare batch total
9. Enterprise database
10. Error routine not shown
11. Invoice
12. Prepare and display "Shipments not yet billed"
13. Request shipments to be billed
14. Select shipments and execute billing program
15. Start
AR Billing Computer
 272 Chapter 11

ANS:

6. The E-R diagram in Figure TB-11.15 represents a B/AR/CR process. However, the names of certain
entities and relationships removed from the boxes and diamonds, respectively. In alphabetic order, the
names omitted are:

 BANKS
 CASH_RECEIPTS
 CUSTOMERS
 DEPOSITS
 Inventory
 SALES_INVOICES
 SALES_ORDERS
 SHIPMENTS
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 273

Required:

Complete The ER Diagram by:

a. Inserting the numbers from the above lists into the boxes or diamonds, respectively,
where they belong.
b. Inserting a 1 or an M or an N into each blank circle to show whether each
relationship is one-to-one (1:1), one-to-many (1:M), or many-to-many (M:N).

received_
SALES_ from
RELATIONS rom

activate

STOCK_PICK

trigger

made_to

generate

billed_to

produce

yield

go_to Prepared
_by

EMPLOYEES
274 Chapter 11

ANS:
For the answer, refer to figure 11.9 in the text. The image is also reproduced below.
 The Billing/Accounts Receivable/ Cash Receipts (B/AR/CR) Process 275

The following is a list of thirteen control plans:

7.

A. Independent billing authorization E. Manual agreement of batch totals

B. Shipped but not billed sales order tickler F. Immediately endorse incoming checks
file in billing
C. One-for-one checking of deposit slip and G. Document design
checks
and invoice H. Prenumbered documents
D. Programmed edits of shipping I. Turnaround documents
notification J. Edit cash receipts for accuracy

Required:
Listed below are ten statements describing either the achievement of a control goal (i.e., a system
success) or a system deficiency (i.e., a system failure). On the answer line to the left of each
description, insert the capital letter from the list above of the best control plan to achieve the desired
goal or to address the system deficiency described. A letter should be used only once.

CONTROL GOALS OR SYSTEM DEFICIENCIES

Answers

_____ 1. Helps to ensure that all shipments are billed in a timely manner.

_____ 2. By preventing duplicate document numbers from entering the system, helps to ensure
input validity.

_____ 3. Helps to ensure the validity of shipping notifications.

_____ 4. Ensures efficient employment of resources and ensures input accuracy of remittance
advice inputs (cash receipts)

_____ 5. Provides for update completeness and accuracy of the accounts receivable master file
data

_____ 6. Helps to ensure the security of resources (cash, AR master data)

_____ 7. Provides for input validity, completeness, and accuracy of the dollar amount of deposited
checks

_____ 8. Provides a preventive control to help ensure the accuracy of items shipped

_____ 9. Should have precluded a field salesman from omitting the sales terms from the sales
order, thereby causing the order to be rejected by the computer data entry personnel.

_____ 10. Meets the operations system control goal of efficiency of resources use by reducing the
number of data elements to be entered from source documents.
ANS:
1. B 6. F
2. H 7. C
3. A 8. D
4. M 9. G
5. E 10. I