Information Technology Auditing 4th edition James A Hall

IT Audit 4e James A. Hall

ISBN-10:1133949886 , ISBN-13:978-1133949886

Chapter 9: Auditing the Revenue Cycle

TRUE/FALSE

The transport discover is also known as the packing slip.
ANS: F PTS: 1

The invoice of lading is a contractual agreement between the buyer and the seller.
ANS: F PTS: 1

An alternate term for the inventory release form is the picking ticket.
ANS: T PTS: 1

Formal accounting records for inventory are warehouse inventory data.
ANS: F PTS: 1

The purpose of the invoice is to charge the customer.
ANS: T PTS: 1

In most large organizations, the journal voucher record has replaced the formal general ledger.
ANS: T PTS: 1

The cash receipts journal is a specialized journal.
ANS: T PTS: 1

In the revenue cycle, the internal control “restrict access” applies only to physical assets.
ANS: F PTS: 1

Routine credit authorizations are automated in real-time processing systems.
ANS: T PTS: 1

Within a computerized accounting system, segregation of duties involves inventory control, accounts receivable, billing, and general ledger responsibilities.
ANS: F PTS: 1

A written customer purchase order is necessary to initiate the sales order system.
ANS: F PTS: 1

Verifying that the Accounts Receivable balance represents its net realizable value tests the management assertion of existence of occurrence.
ANS: F PTS: 1

The primary source document in the sales order system is the sales order.
ANS: T PTS: 1

Sales orders should be prenumbered documents.
ANS: T PTS: 1

Batch control continues throughout all stages of data processing.
ANS: T PTS: 1

If a customer provides a written purchase order, there is no need to prepare a sales order.
ANS: F PTS: 1

Sales return involves receiving, sales, credit, and billing departments, but not accounts receivable.
ANS: F PTS: 1

A remittance advice is a type of turn-around document.
ANS: T PTS: 1

A bill of lading is a request for payment for shipping costs.
ANS: F PTS: 1

In point of sale systems, authorization takes the form of validation of credit card charges.
ANS: T PTS: 1

The warehouse is responsible for updating the inventory subsidiary ledger.
ANS: F PTS: 1

In a manual system, the billing department is responsible for recording the sale in the sales journal.
ANS: T PTS: 1

The inventory release document is prepared by the shipping department to provide evidence that the goods have been released to the customer.
ANS: F PTS: 1

The accounts receivable clerk is responsible for updating the AR Control accounts to reflect each customer sale.
ANS: F PTS: 1

When customer payments are received, the mailroom clerk sends the checks to the cash receipts clerk and the remittance advices to the AR clerk.
ANS: T PTS: 1

MULTIPLE CHOICE

The revenue cycle includes
a.

one subsystem–order entry

b.

two subsystems–sales order processing and cash receipts

c.

two subsystems–order entry and inventory control

d.

three subsystems–sales order processing, credit authorization, and cash receipts

ANS: B PTS: 1

The reconciliation that occurs in the shipping department is intended to ensure that
a.

credit has been approved

b.

the customer is billed for the actual quantity shipped

c.

the goods shipped match the items ordered

d.

inventory records are reduced for the items shipped

ANS: C PTS: 1

The adjustment to accounting records to reflect the decrease in inventory due to a sale occurs in the
a.

warehouse

b.

shipping department

c.

billing department

d.

inventory control department

ANS: D PTS: 1

Which document triggers the revenue cycle?
a.

the sales order

b.

the customer purchase order

c.

the sales invoice

d.

the journal voucher

ANS: B PTS: 1

Copies of the sales order can be used for all of the following except
a.

purchase order

b.

credit authorization

c.

shipping notice

d.

packing slip

ANS: A PTS: 1

The purpose of the sales invoice is to
a.

record reduction of inventory

b.

transfer goods from vendor to shipper

c.

bill the customer

d.

pick items from inventory for shipment

ANS: C PTS: 1

The customer open order file is used to
a.

respond to customer queries

b.

fulfill the customer order

c.

ship the customer order

d.

authorize customer credit

ANS: A PTS: 1

The stock release copy of the sales order is not used to
a.

locate and pick the items from the warehouse shelves

b.

record any out-of-stock items

c.

authorize the warehouse clerk to release custody of the inventory to shipping

d.

record the reduction of inventory

ANS: D PTS: 1

The shipping notice
a.

is mailed to the customer

b.

is a formal contract between the seller and the shipping company

c.

is always prepared by the shipping clerk

d.

informs the billing department of the quantities shipped

ANS: D PTS: 1

The billing department is not responsible for
a.

updating the inventory subsidiary records

b.

recording the sale in the sales journal

c.

notifying accounts receivable of the sale

d.

sending the invoice to the customer

ANS: A PTS: 1

Customers should be billed for back-orders when
a.

the customer purchase order is received

b.

the backordered items are shipped

c.

the original items are shipped

d.

customers are not billed for backorders because a backorder is a lost sale

ANS: B PTS: 1

Usually special authorization is required for all of the following except
a.

sales on account which exceed the credit limit

b.

sales of goods at the list price

c.

a cash refund for items returned without a receipt

d.

write-off of an uncollectible account receivable

ANS: B PTS: 1

Which of the following functions should be segregated?
a.

opening the mail and making the journal entry to record cash receipts

b.

authorizing credit and determining reorder quantities

c.

maintaining the subsidiary ledgers and handling customer queries

d.

providing information on inventory levels and reconciling the bank statement

ANS: A PTS: 1

Which scenario indicates a weak internal control structure?
a.

the mailroom clerk authorizes credit memos

b.

the record-keeping clerk maintains both accounts receivable and accounts payable subsidiary ledgers

c.

the warehouse clerk obtains a signature before releasing goods for shipment

d.

the accounts receivable clerk prepares customer statements every month

ANS: A PTS: 1

The most effective internal control procedure to prevent or detect the creation of fictitious credit memoranda for sales returns is to
a.

supervise the accounts receivable department

b.

restrict access to credit memoranda

c.

prenumber and sequence check all credit memoranda

d.

require management approval for all credit memoranda

ANS: D PTS: 1

The accounts receivable clerk destroys all invoices for sales made to members of her family and does not record the sale in the accounts receivable subsidiary ledger. Which procedure will not detect this fraud?
a.

prenumber and sequence check all invoices

b.

reconcile the accounts receivable control to the accounts receivable subsidiary ledger

c.

prepare monthly customer statements

d.

reconcile total sales on account to the debits in the accounts receivable subsidiary ledger

ANS: C PTS: 1

Which department is least likely to be involved in the revenue cycle?
a.

credit

b.

accounts payable

c.

billing

d.

shipping

ANS: B PTS: 1

Which document is included with a shipment sent to a customer?
a.

sales invoice

b.

inventory release form

c.

packing slip

d.

shipping notice

ANS: C PTS: 1

Good internal controls in the revenue cycle should ensure all of the following except
a.

all sales are profitable

b.

all sales are recorded

c.

credit is authorized

d.

inventory to be shipped is not stolen

ANS: A PTS: 1

Which control does not help to ensure that accurate records are kept of customer accounts and inventory?
a.

reconcile accounts receivable control to accounts receivable subsidiary

b.

authorize credit

c.

segregate custody of inventory from record keeping

d.

segregate record keeping duties of general ledger from accounts receivable

ANS: B PTS: 1

Internal controls for handling sales returns and allowances do not include
a.

computing bad debt expense using the percentage of credit sales

b.

verifying that the goods were returned

c.

authorizing the credit memo by management

d.

using the original sales invoice to prepare the sales returns slip

ANS: A PTS: 1

The printer ran out of preprinted sales invoice forms and several sales invoices were not printed. The best internal control to detect this error is
a.

a batch total of sales invoices to be prepared compared with the actual number of sales invoices prepared

b.

sequentially numbered sales invoices

c.

visual verification that all sales invoices were prepared

d.

none of the above will detect this error

ANS: A PTS: 1

Which department prepares the bill of lading?
a.

Sales

b.

Warehouse

c.

Shipping

d.

Credit

ANS: C PTS: 1

A weekly reconciliation of cash receipts would include comparing
a.

the cash prelist with bank deposit slips

b.

the cash prelist with remittance advices

c.

bank deposit slips with remittance advices

d.

journal vouchers from accounts receivable and general ledger

ANS: A PTS: 1

At which point is supervision most crucial in the cash receipts system?
a.

accounts receivable

b.

general ledger

c.

mailroom

d.

cash receipts

ANS: C PTS: 1

A cash prelist is
a.

a document that records sales returns and allowances

b.

a document returned by customers with their payments

c.

the source of information used to prepare monthly statements

d.

none of the above

ANS: D PTS: 1

An advantage of real-time processing of sales is
a.

the cash cycle is lengthened

b.

current inventory information is available

c.

hard copy documents provide a permanent record of the transaction

d.

data entry errors are corrected at the end of each batch

ANS: B PTS: 1

Business accounting systems have fully integrated modules. The term “integrated” means that
a.

segregation of duties is not possible

b.

transfer of data among modules occurs automatically

c.

batch processing is not an option

d.

separate entries are made in the general ledger accounts and the subsidiary ledgers

ANS: B PTS: 1

The data processing method that can shorten the cash cycle is
a.

batch, sequential file processing

b.

batch, direct access file processing

c.

real-time file processing

d.

none of the above

ANS: C PTS: 1

Which of the following is not a risk exposure in a PC accounting system?
a.

reliance on paper documentation is increased

b.

functions that are segregated in a manual environment may be combined in a microcomputer accounting system

c.

backup procedures require human intervention

d.

data are easily accessible

ANS: A PTS: 1

Which journal is not used in the revenue cycle?
a.

cash receipts journal

b.

sales journal

c.

purchases journal

d.

general journal

ANS: C PTS: 1

Periodically, the general ledger department receives all of the following except
a.

total increases to accounts receivable

b.

total of all sales backorders

c.

total of all sales

d.

total decreases in inventory

ANS: B PTS: 1

The credit department
a.

prepares credit memos when goods are returned

b.

approves credit to accounts receivable when payments are received

c.

authorizes the granting of credit to customers

d.

none of the above

ANS: C PTS: 1

Adjustments to accounts receivable for payments received from customers is based on
a.

the customer’s check

b.

the cash prelist

c.

the remittance advice that accompanies payment

d.

a memo prepared in the mailroom

ANS: C PTS: 1

The revenue cycle uses all of the following files except
a.

credit memo file

b.

sales history file

c.

shipping record file

d.

price information reference file

ANS: D PTS: 1

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