Aguila, Paulo Timothy - Cis c9

Aguila, Paulo Timothy DR.
III – BSA
CIS: Chapter 9
Multiple-Choice Questions
1. C
2. B
3. C
4. B
5. C
6. C
7. D
8. A
9. C
10. A
Review Questions
1. What documents initiates the sales process?
A customer order, sometimes in the form of purchase order usually initiates a sales order.
2. Distinguish between packing slip, a shipping notice, and a bill of lading.
Packing slip is a document that travels with the goods to the customer to describe the contents
of the order. Shipping notice is a document that informs the billing department that the customer's
order has been filled and shipped. Bill of lading is a formal contract between the seller and the shipping
company that transport the goods to the customer.
3. What are three input controls?
The three input controls are Data Validation Controls, Testing Validation Controls and Batch
Controls.
4. What are the three rules that ensure that no single employee or department process a transaction in
its entirety?
Rule 1: Transaction authorization should be separate from transaction processing.

Rule 2: Asset custody should be separated from the record-keeping task.
Rule 3: The organization should be structed that the perpetration of fraud requires collusion between
two or more individuals.
5. What is automation, and why it is used?
Automation involves using technology to improve the efficiency and effectiveness of a task.
Automation is used to reduced overhead costs, make better credit granting decisions, and collect
outstanding accounts receivable.
Discussion Questions
1. Distinguish between the sales order, billing, and AR departments. Why can't the sales order or AR
departments prepare the bills?
Answer: The sales order department is responsible for taking the customer order and placing it into a
standard format. This department records information such as the customer's name, address, account
number, quantities and units of each item, discounts, freight preferences, etc. The sales order
processing may, in some instances, play a role in verifying or determining the promised shipping date.
The billing department receives a copy of the sales order from the sales department. Upon receipt of the
shipping notice and the stock release documents, the billing department prepares the sales invoice,
which is the customer's bill reflecting charges for items shipped, which may be different from items
ordered, taxes and freight, and any discounts offered. The sales order department should not prepare
the bills because the salespeople may bill their favorite clients less than they should be billed. The
salespeople place the order, and thus start the wheels in motion for inventory to be shipped. Further,
the salespeople should not be allowed to determine how much the customers pay for their inventory,
because they may be tempted to charge lower prices and receive kickbacks. The accounts receivable
department receives the sales orders and posts them to the accounts receivable subsidiary ledger. As
remittance advices are received, they are posted to the customer's account in the accounts receivable
subsidiary ledger. The accounts receivable department should not be allowed to prepare the bills since
this department has custody over the accounts receivable assets. Accounts receivable personnel record
customer payments and track unpaid bills by customers. If they were allowed to prepare the bills, they
might not bill certain customers and receive a kickback from the customers for the free goods.
2. Explain the risk associated with mailroom procedures.
Answer: hecks received in payment for accounts receivable are a crucial asset for the firm. These checks
must be protected from individuals who might try to deposit these checks into their own accounts. The
process of having a member of the mail room personnel open the mail and record all checks received
before they are routed to the cashier or the accounts receivable department is to ensure that the
accounts receivable personnel do not engage in such activities as lapping the accounts receivable
accounts.
3. How could an employee embezzle funds by issuing an unauthorized sales credit memo if the
appropriate segregation of duties and authorization controls were not in place?
Answer: An employee who has access to incoming payments, either cash or check, as well as the
authorization to issue credit memos may pocket the cash or check of a payment for goods received. This
employee could then issue a credit memo to this person's account so that the customer does not show a
balance due.
4. What task can the AR department engage in to verify that all customers' checks have been
appropriately deposited and recorded?
Answer: The company should periodically, perhaps monthly, send an account summary to each
customer listing invoices and amounts paid by check number and date. This form allows the customer to
verify the accuracy of the records. If any payments are not recorded, they will notify the company of the
discrepancy. These reports should not be handled by the accounts receivable clerk or the cashier.
5. Why is access control over revenue cycle documents just as important as the physical control devices
over cash and inventory?
Answer: Access control to the billing and accounts receivable records that are part of the revenue cycle
is just as important as the physical control devices over cash and inventory because these records affect
the collectability of an asset— accounts receivable— which should eventually be converted into cash. If
these records are not adequately controlled, inventory may not be ultimately converted into the cash
amount deserved by the firm.

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Aguila, Paulo Timothy DR.

1. What documents initiates the sales process?

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

3. What are three input controls?

Rule 1: Transaction authorization should be separate from transaction processing.

2. Explain the risk associated with mailroom procedures.

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