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REVENUE CYCLE QUIZ b. reliance on paper documentation is increased

c. data are easily accessible 16.​ Which document triggers the revenue cycle?
T/F d. backup procedures require human intervention a. the sales invoice
1.​ In the revenue cycle, the internal control “limit access” b. the customer purchase order
applies to physical assets only. - TRUE 12.​ The most effective internal control procedure to c. the sales order
2.​ Sales return involves receiving, sales, credit, and prevent or detect the creation of fictitious credit d. the journal voucher
billing departments, but not accounts receivable - memoranda for sales returns is to
FALSE a. supervise the accounts receivable department 17.​ Which journal is not used in the revenue cycle?
3.​ Integrated accounting systems automatically transfer b. require management approval for all credit a. sales journal
data between modules. - TRUE memoranda b. cash receipts journal
4.​ In point-of-sale systems, authorization takes the form c. limit access to credit memoranda c. general journal
of validation of credit card charges. - TRUE d. prenumber and sequence check all credit d. purchases journal
5.​ The principal source document in the sales order memoranda
system is the sales order. - TRUE 18.​ Which control does not help to ensure that accurate
6.​ A remittance advice is a form of turnaround document. 13.​ Which document is included with a shipment sent to a records are kept of customer accounts and inventory?
- TRUE customer? a. authorize credit
7.​ Sales orders should be prenumbered documents. - a. sales invoice b. segregate record keeping duties of general ledger
TRUE b. shipping notice from accounts receivable
8.​ In real-time processing systems, routine credit c. stock release form c. reconcile accounts receivable control to accounts
authorizations are automated. - TRUE d. packing slip receivable subsidiary
9.​ The purpose of the invoice is to bill the customer. - d. segregate custody of inventory from record keeping
TRUE 14.​ The stock release copy of the sales order is not used
to 19.​ The revenue cycle consists of
MULTIPLE CHOICE a. record any out-of-stock items a. two subsystems—order entry and inventory control
b. record the reduction of inventory b. three subsystems—sales order processing, credit
10.​ A remittance advice is c. locate and pick the items from the warehouse authorization, and cash receipts
a. used to increase (debit) an account receivable by shelves c. two subsystems—sales order processing and cash
the cash received d. authorize the warehouse clerk to release custody of receipts
b. is a turnaround document the inventory to shipping d. one subsystem—order entry
c. is retained by the customer to show proof of
payment 15.​ Commercial accounting systems have fully integrated 20.​ The printer ran out of preprinted sales invoice forms
d. none of the above modules. The word “integrated” means that and several sales invoices were not printed. The best
a. batch processing is not an option internal control to detect this error is
11.​ Which of the following is not a risk exposure in a PC b. segregation of duties is not possible a. visual verification that all sales invoices were
accounting system? c. separate entries are made in the general ledger prepared
a. functions that are segregated in a manual accounts and the subsidiary ledgers b. none of the above will detect this error
environment may be combined in a computer d. transfer of information among modules occurs c. sequentially numbered sales invoices
accounting system automatically
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d. a batch total of sales invoices to be prepared d. is mailed to the customer 30.​ At which point is supervision most critical in the cash
compared to the actual number of sales invoices receipts system?
prepared 26.​ The adjustment to accounting records to reflect the a. general ledger
decrease in inventory due to a sale occurs in the b. cash receipts
21.​ The data processing method that can shorten the cash a. warehouse c. accounts receivable
cycle is b. shipping department d. mail room
a. batch, direct access file processing c. billing department
b. batch, sequential file processing d. inventory control department 31.​ The purpose of the sales invoice is to
c. none of the above a. record reduction of inventory
d. real-time file processing 27.​ A weekly reconciliation of cash receipts would include b. bill the customer
comparing c. select items from inventory for shipment
22.​ Periodically, the general ledger department receives a. bank deposit slips with remittance advices d. transfer goods from seller to shipper
all of the following except b. the cash prelist with remittance advices
a. total increases to accounts receivable c. the cash prelist with bank deposit slips 32.​ Usually, specific authorization is required for all of the
b. total of all sales d. journal vouchers from accounts receivable and following except
c. total decreases in inventory general ledger a. sales of goods at the list price
d. total of all sales backorders b. write-off of an uncollectible account receivable
28.​ The accounts receivable clerk destroys all invoices for c. sales on account which exceed the credit limit
23.​ The customer open order file is used to sales made to members of her family and does not d. a cash refund for goods returned without a receipt
a. ship the customer order record the sale in the accounts receivable subsidiary
b. fill the customer order ledger. Which procedure will not detect this fraud? 33.​ An advantage of real-time processing of sales is
c. respond to customer queries a. prenumber and sequence check all invoices a. data entry errors are corrected at the end of each
d. authorize customer credit b. reconcile the accounts receivable control to the batch
accounts receivable subsidiary b. hardcopy documents provide a permanent record of
24.​ Which of following functions should be segregated? ledger the transaction
a. providing information on inventory levels and c. prepare monthly customer statements c. the cash cycle is lengthened
reconciling the bank statement d. reconcile total sales on account to the debits in the d. current inventory information is available
b. maintaining the subsidiary ledgers and handling accounts receivable subsidiary ledger
customer queries 34.​ The credit department
c. opening the mail and making the journal entry to 29.​ Which situation indicates a weak internal control a. authorizes the granting of credit to customers
record cash receipts structure? b. none of the above
d. authorizing credit and determining reorder a. the accounts receivable clerk prepares customer c. approves credits to accounts receivable when
quantities statements every month payments are received
b. the record keeping clerk maintains both accounts d. prepares credit memos when goods are returned
25.​ The shipping notice receivable and accounts payable
a. is a formal contract between the seller and the subsidiary ledgers 35.​ The billing department is not responsible for
shipping company c. the warehouse clerk obtains a signature before a. recording the sale in the sales journal
b. informs the billing department of the quantities releasing goods for shipment b. notifying accounts receivable of the sale
shipped d. the mail room clerk authorizes credit memos c. updating the inventory subsidiary records
c. is always prepared by the shipping clerk d. sending the invoice to the customer
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so, since the personal judgement of the receptionist would not
36.​ Which department is least likely to be involved in the ESSAY prevail over the shipping department because I think , it is
revenue cycle? beyond their expertise.
a. accounts payable 41.​ When Clipper Mail Order Co. receives telephone and
b. shipping fax orders, the billing department prepares an invoice. 5. Lastly, one of the reasons for returns is defective or wrong
c. credit The invoice is mailed immediately. A copy of the products is no one validate the orders before actually sending
d. billing invoice serves as a shipping notice. The shipping to the customer. This job must fall to the shipping department,
department removes inventory from the warehouse however it does not mention any validation of order which
37.​ Good internal controls in the revenue cycle should and prepares the shipment. When the order is arise to this weakness.
ensure all of the following except complete, the goods are shipped. The clerk checks
a. credit is authorized the customer’s credit before recording the sale in the 42.​ How may an employee embezzle funds by issuing an
b. all sales are recorded general journal and the account receivable subsidiary unauthorized sales credit memo if the appropriate
c. all sales are profitable ledger. segregation of functions and authorization controls
d. inventory to be shipped is not stolen were not in place?
The receptionist opens the mail and lists all payments. The
38.​ The reconciliation that occurs in the shipping receptionist also handles all customer complaints and For example, the employee is a cashier, which the very nature
department is intended to ensure that prepares sales return forms for defective merchandise. The of their work is to issue receipts. Potentially, they can issue
a. credit has been approved cashier records all cash receipts in the general journal and receipts that would reflect to different amount than the actual
b. the goods shipped match the goods ordered makes the appropriate entry in the accounts receivable sales, which in this case may consider as fraud.
c. inventory records are reduced for the goods subsidiary ledger. The cashier prepares the daily bank deposit.
shipped
d. the customer is billed for the exact quantity shipped Describe at least five internal control weaknesses at Clipper THE EXPENDITURE CYCLE
Mail Order Co.
39.​ Internal controls for handling sales returns and T/F
allowances do not include 1. Improper division of labor between departments. One of the
a. computing bad debt expense using the percentage example would be is the receptionist, his work must only focus
of credit sales in handling customers complaints and queries but he also 1.​ A three-way match involves a purchase order, a
b. using the original sales invoice to prepare the sales handles listing of payments which is beyond of his expertise. purchase requisition, and an invoice. - FALSE
returns slip 2.​ The blind copy of the purchase order that goes to the
c. verifying that the goods have been returned 2. Checking credit is late. In the case of the clerk, he checks receiving department contains no item descriptions. -
d. authorizing the credit memo by management the customer's credit after packing the order which would FALSE
potentially arise to a risk of doubtful accounts, since there is a 3.​ If accounts payable receives an invoice directly from
40.​ Copies of the sales order can be used for all of the possibility that the customer can not pay. the supplier, it needs to be reconciled with the
following except purchase order and receiving report. - TRUE
a. purchase order 3. The cashier. Since the main focus of their work is only 4.​ Proper segregation of duties requires that the
b. packing slip issuing receipts, but here, they also deposit money in the bank responsibility for approving a payment be separated
c. credit authorization personally, which gives material risk for the company of theft. from posting to the cash disbursements journal. -
d. shipping notice TRUE
4. The receptionist handles sales return form for defective 5.​ Inventory control should be located in the warehouse.
merchandise, when it is the shipping department's job to do - FALSE
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6.​ Inspection of shipments in the receiving department b. before the discount date 25.​ Firms can expect that proper use of a valid vendor file
would be improved if the documentation showed the c. by the end of the month will result in all of the following benefits except
value of the inventory. - FALSE d. as soon as possible a. The risk of purchasing agents receiving kickbacks
7.​ In a voucher system, the sum of all unpaid vouchers in and bribes will be reduced.
the voucher register equals the firm’s total voucher 20.​ When purchasing inventory, which document usually b. Purchases from fictitious vendors will be detected.
payable balance. - TRUE triggers the recording of a liability? c. The most competitive price will be obtained.
8.​ Firms that wish to improve control over cash a. supplier’s invoice d. Purchases from unapproved vendors will be
disbursements use a voucher system. - TRUE b. purchase order prevented.
9.​ A major risk exposure in the expenditure cycle is that c. purchase requisition
accounts payable may be overstated at the end of the d. receiving report 26.​ Authorization for payment of an accounts payable
accounting year. - FALSE liability is the responsibility of
10.​ One reason for authorizing purchases is to enable 21.​ In a firm with proper segregation of duties, adequate a. accounts payable
efficient inventory management. -TRUE supervision is most critical in b. cash disbursements
11.​ In merchandising firms, purchasing decisions are a. general ledger c. inventory control
authorized by inventory control. - TRUE b. purchasing d. purchasing
12.​ Supervision in receiving is intended to reduce the theft c. accounts payable
of assets. - TRUE d. receiving 27.​ Of the following duties, it is most important to separate
13.​ Authorization of purchases in a merchandising firm a. warehouse from inventory control
occurs in the production planning and control 22.​ Usually the open voucher payable file is organized by b. warehouse from stores
department. - FALSE a. vendor c. accounts payable and accounts receivable
14.​ The use of inventory reorder points suggests the need b. purchase order number d. purchasing and accounts receivable
to obtain proper authorization. - FALSE c. payment due date
15.​ The accounts payable department reconciles the d. transaction date 28.​ Which of the following is not a control over the risk of
accounts payable subsidiary ledger to the control unauthorized inventory purchases?
account. - FALSE 23.​ The reason that a blind copy of the purchase order is a. All of the above are controls over the risk of
16.​ Authorization for a cash disbursement occurs in the sent to receiving is to unauthorized inventory purchases.
cash disbursement department upon receipt of the a. require that the goods delivered are inspected b. scanner technology
supplier’s invoice. - FALSE b. inform receiving of the type, quantity, and price of c. transaction authorization
17.​ An automated cash disbursements system can yield items to be delivered d. automated purchase approval
better cash management since payments are made on c. inform receiving when a shipment is due
time. - TRUE d. force a count of the items delivered 29.​ The document which will close the open purchase
18.​ Permitting warehouse staff to maintain the only requisition file is the
inventory records violates separation of duties. - TRUE 24.​ When searching for unrecorded liabilities at the end of a. purchase order
an accounting period, the accountant would search all b. receiving report
MULTIPLE CHOICE of the files except c. payment voucher
a. the purchase order file d. vendor invoice
19.​ To maintain a good credit rating and to optimize cash b. the cash receipts file
management, cash disbursements should arrive at the c. the receiving report file 30.​ All of the following departments have a copy of the
vendor’s place of business d. the purchase requisition file purchase order except
a. on the due date a. the receiving department
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b. accounts payable 41.​ Which of the following statements is not correct?
c. the purchasing department 36.​ In regards to the accounts payable department, which a. The voucher system permits the firm to consolidate
d. general ledger statement is not true? payments of several invoices on one voucher.
a. The purchase order proves that the purchase was b. The voucher system is used to improve control over
31.​ In a merchandising firm, authorization for the payment required. cash disbursements.
of inventory is the responsibility of b. The purchase requisition shows that the transaction c. Many firms replace accounts payable with a
a. accounts payable was authorized. voucher payable system.
b. cash disbursements c. The supplier’s invoice indicates the financial value d. The sum of the paid vouchers represents the
c. purchasing of the transaction. voucher payable liability of the firm.
d. inventory control d. The receiving report provides evidence of the
physical receipt of the goods. 42.​ The major risk exposures associated with the
32.​ When a cash disbursement in payment of an accounts receiving department include all of the following
payable is recorded 37.​ The purpose of the purchase order is to except
a. the liability account is increased a. authorize the purchasing department to order goods a. goods are accepted without a physical count
b. the income statement is changed b. record receipt of goods from vendors b. inventories are not secured on the receiving dock
c. the liability account is decreased c. order goods from vendors c. there is no inspection for goods damaged in
d. the cash account is unchanged d. approve payment for goods received shipment
d. the audit trail is destroyed
33.​ The receiving department is not responsible to 38.​ The purpose of the receiving report is to
a. count items received from vendors a. record receipt of goods from vendors 43.​ In a merchandising firm, authorization for the purchase
b. safeguard goods until they are transferred to the b. order goods from vendors of inventory is the responsibility of
warehouse c. authorize the purchasing department to order goods a. accounts payable
c. inspect shipments received d. bill for goods delivered b. cash disbursements
d. order goods from vendors c. purchasing
39.​ The receiving report is used to d. inventory control
34.​ The open purchase order file in the purchasing a. accompany physical inventories to the storeroom or
department is used to determine warehouse 44.​ The documents in a voucher packet include all of the
a. the quantity of items received b. advise the purchasing department of the dollar following except
b. the orders that have not been received value of the goods delivered a. a check
c. the best vendor for a specific item c. advise the vendor that the goods arrived safely b. a supplier’s invoice
d. the quality of items a vendor ships d. advise general ledger of the accounting entry to be c. a receiving report
made d. a purchase order
35.​ In the expenditure cycle, general ledger does not
a. post the journal voucher from the purchasing 40.​ The financial value of a purchase is determined by 45.​ Which of the following tasks is not performed by the
department reviewing the cash disbursement clerk?
b. reconcile the inventory control account with the a. receiving report a. Review the supporting documents for completeness
inventory subsidiary summary b. purchase requisition and accuracy.
c. post the journal voucher from the accounts payable c. packing slip b. Prepare checks.
department d. supplier’s invoice c. Sign checks.
d. post the account summary from inventory control d. Mark the supporting documents paid.
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warehouse workers are authorized to order inventory
46.​ Which document is least important in determining the when it falls below the reorder level. The workers
financial value of a purchase? complete a purchase order and mail it to the supplier
a. supplier’s invoice of their choice. The inventory is delivered directly to
b. purchase requisition the warehouse. The workers send a memo to
c. purchase order accounts payable reporting the receipt of inventory.
d. receiving report Accounts payable compares the warehouse memo to the
supplier’s invoice. Accounts payable prepares a check which
47.​ When a copy of the receiving report arrives in the the treasurer signs.
purchasing department, it is used to Discuss potential internal control risks inherent in this system.
a. record the physical transfer of inventory from
receiving to the warehouse One of the significant risk associated with this problem is lack
b. analyze the receiving department’s process of segregation duties. As what stated in the case, three
c. recognize the purchase order as closed employees does the same work, meaning , all can order
d. adjust perpetual inventory records inventory, receive goods, and report receipts towards the
treasurer, and this may result into fraud , like, if a worker can
48.​ The purpose of the purchase requisition is to order goods or collude with a supplier to falsify the orders. In
a. record receipt of goods from vendors order to address this kind of problem, employees should
b. order goods from vendors handle different duties specifically assigned in ordering,
c. bill for goods delivered receiving, and recording transactions.
d. authorize the purchasing department to order goods

49.​ The purchase order 52.​ Differentiate between a purchase requisition and a
a. is the source document to make an entry into the purchase order.
accounting records
b. is prepared by the inventory control department A purchase requisition, in its very manner, it is like
c. indicates item description, quantity, and price asking permission to make a purchase while purchase
d. is approved by the end-user department order is a document that is sent to the supplier of an
entity that intends to buy goods.
50.​ Because of time delays between receiving inventory
and making the journal entry
a. liabilities are usually understated
b. liabilities are usually overstated
c. liabilities are usually correctly stated
d. liabilities are not affected

ESSAY

51.​ The Soap Manufacturing Company has three

employees who work in the warehouse. All of the