Share CHAPTER 4 ICT14 Mary Ann Domincel

MARY ANN V.
DOMINCEL
BSA-3
CHAPTER 4
1. What document initiates the sales process?
Customer Order
2. Distinguish between a packing slip, a shipping notice, and a bill of lading.

PACKING SLIP-goes to customer to describe the contents of the order.
SHIPPING NOTICE--provides evidence that the customer's order was filled and shipped
BILL OF LADING--a formal contract between the seller and the shipping company to transport
the goods to the customers. Establishes legal ownership and responsibility for assets in transit.
3. What function does the receiving department serve in the revenue cycle?
The receiving department counts and inspects items that are returned by customers. The
receiving department prepares a return slip, copies of which go to the warehouse for restocking,
and to the sales order department so that a credit memo can be issued to the customer.
4. The general ledger clerk receives summary data from which departments? What form of
summary data?
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 be verified against the accounts receivable ledger. The inventory
control department sends summary information in the form of a journal voucher that
reflects the total reductions of inventory in financial terms and the associated charges to
cost of goods sold.
5. What are three authorization controls?
a. 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. What are the three rules that ensure that no single employee or department processes a
transaction in its entirety?
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. At which points in the revenue cycle are independent verification controls necessary?
a. Shipping department—verifies 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 department—reconciles the shipping notice with the invoice to ensure that
customers are appropriately billed.
c. GL clerks—reconcile journal vouchers from various departments such as the
billing department, the accounts receivable department, and inventory control
8. What is automation and why is it used?

Automation involves using technology to improve the efficiency and effectiveness of a task. Too
often, however, the automated system simply replicates the traditional (manual) process that it
replace.
9. What is the objective of reengineering?

Reengineering, on the other hand, involves radically rethinking the business process and the
work flow. The objective of reengineering is to improve operational performance and reduce
costs by identifying and eliminating nonvalue-added tasks. This involves replacing traditional
procedures with procedures that are innovative and often very different from those that
previously existed.
10. Distinguish between an edit run, a sort run, and an update run.
An edit run is the first run; it detects most data entry errors. Only "clean" data progresses to the
sort run. The sort run sequences the transaction records 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 sequential
update, each record is copied from the original master file to the new master file regardless of
whether the balance is affected
11. What are the key features of a POS system?

A point of sale system immediately records both cash and credit transactions and inventory
information. The sales journal, accounts receivable, and inventory accounts may be updated in
real-time, or a transaction file may be used to later update a master file.
12. How is the primary key critical in preserving the audit trail?
The primary key provides the link between the magnetic records stored on a computer
disk and the physical source documents and business events that they represent.
Open sales order file shows the status of customer orders. Shipping log specifies orders shipped
during the period. Credit records file provides customer credit data. Sales order pending file
contains open orders not yet shipped or billed. Back-order file contains customer orders for out-
of-stock items. Journal voucher file is a compilation of all journal vouchers posted to the general
ledger
13. What are the advantages of real-time processing?
1. Real-time processing greatly shortens the cash cycle of the firm. Lags inherent in
batch systems can cause delays of several days between taking an order and billing
the customer. A real-time system with remote terminals reduces or eliminates these
lags. An order received in the morning may be shipped by early afternoon, thus
permitting same-day billing of the customer. 2. Real-time processing can give the
firm a competitive advantage in the marketplace. By maintaining current inventory
information, sales staff can determine immediately whether the inventories are on
hand. This enhances the firm’s ability to maximize customer satisfaction, which
translates into increased sales. In contrast, batch systems do not provide salespeople
with current information. As a result, a portion of the order must sometimes be back-
ordered, causing uncertainty for the customer. 3. Manual procedures tend to produce
clerical errors, such as incorrect account numbers, invalid inventory numbers, and
price–quantity extension miscalculations. These errors may go undetected in batch
systems until the source documents reach data processing, by which time the damage
may have already been done. For example, the firm may find that it has shipped
goods to the wrong address, shipped the wrong goods, or promised goods to a
customer at the wrong price. Real-time editing permits the identification of many
kinds of errors as they occur and greatly improves the efficiency and the effectiveness
of operations. 4. Finally, real-time processing reduces the amount of paper documents
in a system. Hard-copy documents are expensive to produce and clutter the system.
The permanent storage of these documents can become a financial and operational
burden. Documents in digital form are efficient, effective, and adequate for audit trail
purposes.
14. Why does billing receive a copy of the sales order when the order is approved but does not bill
until the goods are shipped?
The billing department's receipt of the sales order occurs in most instances before the
goods are actually shipped; thus, the economic event is not complete. Some of the
goods may not be available to ship; thus, the customer should not be billed until the
goods are shipped and the economic event is complete
15. Why was EDI devised?
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. What types of unique control problems are created by the use of PC accounting systems?
PC Control Issues PC accounting systems create unique control problems for accountants. The
risks arise from inherent weaknesses in the PC environment, as discussed in the following
paragraphs
17. In a manual system, after which event in the sales process should the customer be billed?
` Billing occurs after the product is shipped to the customer
18. What is a bill of lading?

billing of lading is a formal contract between the seller and the shipping company (carrier) to
transport the goods to the customer
19. What document initiates the billing process?

The billing process is initiated by the shipping notice, which signals the shipment of the goods to
the buyer.
20. Where in the cash receipts process does supervision play an important role?
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.

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MARY ANN V.

2. Distinguish between a packing slip, a shipping notice, and a bill of lading.

The three rules that ensure segregation of functions are:

8. What is automation and why is it used?

9. What is the objective of reengineering?

11. What are the key features of a POS system?

13. What are the advantages of real-time processing?

` Billing occurs after the product is shipped to the customer

18. What is a bill of lading?

19. What document initiates the billing process?

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