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Chapter 4 Select Solutions

Review Questions - Page 190

1.

A customer order usually in the form of a purchase order initiates the sales
process.

2.

The packing slip travels with the goods to the customer, and it describes

contents on the order. Upon filling the order, the shipping department
shipping notice to the billing department to notify them that the
filled and shipped. The shipping notice contains additional

the

sends

order

information

the

has

been

that

the

packing slip may not contain, such as shipment date and carrier and freight charges.
The bill of lading is a formal contract

between the seller and the transportation

carrier; it shows legal ownership and responsibility for assets in transit.


3.

The receiving department counts and inspects items that are returned by
customers. The receiving department prepares a return slip, copies of

go to the warehouse for restocking, and to the sales order

which

department so that a credit

memo can be issued to the customer.


4.

The

general ledger clerk receives a total of all sales from the billing

department in the form of a summary journal voucher. The accounts


receivable department sends an account summary of the individual accounts
receivable so that the accounts receivable control account can
the accounts receivable ledger. The inventory control department
information in the form of a journal voucher
inventory in financial terms and the
5.

a.

be verified against
sends

summary

that reflects the total reductions of

associated charges to cost of goods sold.

credit checks

b. returns policy for granting cash refunds and credits, and


c. cash prelists providing verification that customer checks and

remittance

advices match in amount.


6.

The three rules that ensure segregation of functions are:


a. Transaction authorization should be separate from transaction processing.
b. Asset custody should be separate from asset record keeping.
c. The organization structure should be such that the perpetration of a

fraud

requires collusion between two or more individuals.


7.

a.

Shipping departmentverifies that the correct amount and types of goods

are sent from the warehouse by reconciling the stock release document and
the packing slip.
b. Billing departmentreconciles the shipping notice with the invoice to
ensure that customers are appropriately billed.
c. GL clerksreconcile journal vouchers from various departments
as the billing department, the accounts receivable department,
inventory control

and

such

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 number of items ordered) in the on-order

field of

the inventory record. This field has a value of zero when the item in question is not on
order.
10.

An edit run is the first run; it detects most data entry errors. Only clean

progresses to the sort run. The sort run sequences the transaction records

data
according

to its primary key field and possibly a secondary key field. Once the data is sorted, the
update program posts the transactions to the appropriate corresponding records in the
master file. During a
master file to
11.

sequential update, each record is copied from the original


the new master file regardless of whether the balance is affected.

A point of sale system immediately records both cash and credit

and inventory information. The sales journal, accounts


accounts may be updated in real-time, or a

transactions

receivable, and inventory

transaction file may be used to later

update a master file.


12.

In the advanced technology system, the system logic, not a human being, makes

the decision to grant or deny credit based on the customers credit history contained in
the credit history file. If credit is denied, the sales clerk
the transaction to continue.

should not be able to force

In the basic technology system, credit checking of prospective customers is


function of the credit department, which has responsibility for ensuring
application of the firms credit policies. The complexity of credit
depending on the organization, its relationship with
of the transaction. Credit approval for
consultation with an
existing

the

proper

procedures will vary

the customer, and the materiality

first-time customers may take time and involve

outside credit bureau. In contrast, credit decisions about

customers that involve ensuring only that the current transaction does not

exceed the customers credit limit may be dealt with very quickly.
13.

Multilevel security employs programmed techniques that permit

access to a central system by many users with different


prevents them from obtaining information for which
14.

access

before the goods are actually shipped; thus, the economic event
Some of the goods may not be available to ship; thus, the

15.

privileges

but

they lack authorization.

The billing departments receipt of the sales order occurs in most

billed until the goods are shipped and the

simultaneous

is

instances
not

complete.

customer should not be

economic event is complete.

EDI was devised to expedite routine transactions between manufacturers and

wholesalers, and between wholesalers and retailers. An added benefit

is

the

reduction of clerical errors.


16.

Cash and inventory.

17.

Billing occurs after the product is shipped to the customer.

18.

A billing of lading is a formal contract between the seller and the shipping
company (carrier) to transport the goods to the customer.

19.

The billing process is initiated by the shipping notice, which signals the
shipment of the goods to the buyer.

20.

Supervision plays an important role in the mail room where both the check
(asset) and remittance advice (accounting record) are in the hands of one
person. Mail room fraud can result, which involves stealing the check and
destroying the remittance advice to cover the theft.

Multiple Choice Questions Page #191

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

#4 Segregation of Functions Page 193

All are proper segregation of functions except b. The sales department should not be
allowed to approve credit memos since it could potentially overstate sales in one period
to meet quotas and boost bonuses and reverse them in a subsequent period. The
receiving report indicating that goods have been received by the receiving department
should be the source document for credit memos and it should be authorized by
someone independent of the sales department.

Stewardship Pge #195

a.

Customer open order file

Sales

b.

Sales journal

Billing

c.

Journal voucher file

General Ledger

d.

Cash receipts journal

Cash Receipts

e.

Inventory subsidiary ledger

Inventory Control

f.

Acct Rec subsidiary ledger

Accounts Receivable

g.

Sales history file

Sales

h.

Shipping report file

Shipping

i.

Credit memo file

Sales

j.

Sales order file

Sales

k.

Closed sales order file

Sales