198 PART II Transaction Cycles and Business Processes

Discussion Questions
1. Why do firms have separate departments for 9. What financial statement misrepresentations may
warehousing and shipping? What about warehous- result from an inconsistently applied credit policy?
ing and inventory control? Doesn’t this just create Be specific.
more paperwork? 10. Give three examples of access control in a POS
2. Distinguish between the sales order, billing, and system.
AR departments. Why can’t the sales order or AR 11. Discuss the trade-off in choosing to update the
departments prepare the bills? general ledger accounts in real time.
3. Explain the purpose of having mail room 12. Discuss how the nature of the necessary internal
procedures. control features is affected by switching from a
4. In a manual accounting system, what advantage manual system to (1) a large-scale computer-based
does the journal voucher system have over the accounting system or (2) a PC-based accounting
traditional general journal system? system.
5. How could an employee embezzle funds by issuing 13. Under what circumstances will automated mail
an unauthorized sales credit memo if the appropri- room procedures provide the most benefit? The
ate segregation of duties and authorization con- least benefit?
trols were not in place? 14. What makes POS systems different from revenue
6. What task can the AR department engage in to cycles of manufacturing firms?
verify that all customers’ checks have been appro- 15. Is a POS system that uses bar coding and a laser
priately deposited and recorded? light scanner foolproof against inaccurate updates?
7. Why is access control over revenue cycle docu- Discuss.
ments just as important as the physical control 16. How is EDI more than technology? What unique
devices over cash and inventory? control problems may it pose?
8. How can reengineering of the sales order proc- 17. Discuss the key segregation of duties related to
essing subsystem be accomplished using the computer programs that process accounting
Internet? transactions.

Multiple-Choice Questions
1. Which document is NOT prepared by the sales c 3. Which function should the billing department c
department? NOT perform?
a. packing slip a. record the sales in the sales journal
b. shipping notice b. send the ledger copy of the sales order to
c. bill of lading accounts receivable
d. stock release c. send the stock release document and the ship-
ping notice to the billing department as proof
2. Which document triggers the update of the inven- B of shipment
tory subsidiary ledger?
d. send the stock release document to inventory
a. bill of lading
control
b. stock release
c. sales order
d. shipping notice
 CHAPTER 4 The Revenue Cycle 199

4. When will a credit check approval most likely A 7. Which function or department below records the D
require specific authorization by the credit decrease in inventory due to a sale?
department? a. warehouse
a. when verifying that the current transaction b. sales department
does not exceed the customer’s credit
c. billing department
limit
d. inventory control
b. when verifying that the current transaction is
with a valid customer 8. Which situation indicates a weak internal control A
structure?
c. when a valid customer places a materially large
order a. the AR clerk authorizes the write off of bad
debts
d. when a valid customer returns goods
b. the record-keeping clerk maintains both AR
5. Which type of control is considered a compensat- C and AP subsidiary ledgers
ing control?
c. the inventory control clerk authorizes inven-
a. segregation of duties
tory purchases
b. access control
d. the AR clerk prepares customer statements ev-
c. supervision ery month
d. accounting records 9. The bill of lading is prepared by the
6. Which of the following is NOT an independent D a. sales clerk.
verification control?
b. warehouse clerk.
a. The shipping department verifies that the goods
c. shipping clerk.
sent from the warehouse are correct in type
and quantity. d. billing clerk.
b. General ledger clerks reconcile journal vouch- 10. Which of following functions should be segregated? A
ers that were independently prepared in vari- a. opening the mail and recording cash receipts in
ous departments. the journal
c. The use of prenumbered sales orders. b. authorizing credit and determining reorder
d. The billing department reconciles the shipping quantities
notice with the sales invoice to ensure that cus- c. shipping goods and preparing the bill of lading
tomers are billed for only the quantities d. providing information on inventory levels and
shipped. reconciling the bank statement

Problems
1. SYSTEMS DESCRIPTION b. What is an appropriate name for the department la-
beled B?
Describe the procedures, documents, and departments
involved when insufficient inventory is available to fill c. What would be an appropriate description for proc-
ess C?
a customer’s approved order.
d. What is the location represented by symbol D?
2. BATCH PROCESSING e. What accounting record is represented by
Refer to Figure 4-22 and explain where the journal symbol E?
vouchers come from and which accounts in the general f. What is an appropriate name for the department
ledger are affected in the end-of-day batch process. labeled H?
g. What device is represented by symbol F?
3. FLOWCHART ANALYSIS h. What device is represented by symbol G?
Use the flowchart for Problem 3 to answer these questions: i. What accounting record is represented by
symbol G?
a. What accounting document is represented by
symbol A?