TURNER, WEICKGENNANT & COPELAND ACCOUNTING INFORMATION SYSTEMS CONTROLS AND PROCESSES
TUTORIAL 5
CHAPTER 8 REVENUE AND CASH COLLECTION PROCESSES
1. Match the term in left with its definition in the right column.
1. Receiving log a. Set of pre-established and approved prices for each
product
2. Shipping log b. Chronological listing of all returned items
3. Bill of lading c. Document used to authorize reducing the balance in a
customer account.
4. Invoice d. Maximum possible account balance for a customer
5. Remittance advice e. Document used to establish responsibility for shipping
goods via a third party.
6. Packing slip f. Document that authorizes removal of merchandise from
inventory
7. Credit limit g. Document returned by customers with payments
8. Credit memorandum h. Document which accompanies shipment made to
customers and which indicates quantity and description of
items shipped
9. Receiving report i. Source document which notifies customers of the amount
to be paid and where to send payment.
10. Pick list j. Source document that documents quantity and condition
of items received in the receiving dock
11. Price list k. Chronological listing of shipments
2. Describe what is likely to occur if company personnel erroneously recorded a sales
transaction for the wrong customer. What if a cash receipt were applied to the wrong
customer? Identify internal controls that would detect or prevent this from occurring.
3. Why should the person responsible for shipping goods to customers not also have
responsibility for maintaining records of customer accounts?
4. Debate the logic used in the following statement: “The person responsible for
handling cash receipts should also prepare the bank reconciliation because he is most
familiar with the deposits that have been made to the bank account.”
5. Describe how the matching of key information on supporting documents can help a
company determine that its revenue transactions have not been duplicated.
6. Describe how the use of prenumbered forms for receiving reports and credit memos
can help a company determine that the sales transactions have not been omitted
from the accounting records.
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TURNER, WEICKGENNANT & COPELAND ACCOUNTING INFORMATION SYSTEMS CONTROLS AND PROCESSES
7. Identify an internal control procedure that would reduce each of the risks that follow
in a manual system. Also describe how (or if) an IT system could reduce these risks:
a. Revenues may be recorded before the related shipment occurs.
b. Employees responsible for shipping and accounts receivable may collude to steal
goods and cover up the theft by recording fictitious sales.
c. Credit memos may be issued at full price, when the goods were originally sold at
a discount.
d. Sales invoices may contain mathematical errors.
e. Amounts collected on accounts receivable may be applied to the wrong
customer.
f. Duplicate credit memos may be issued for a single sales return.
g. Sales invoices may not be prepared for all shipments.
h. Shipments may contain the wrong goods.
i. All sales transactions may not be included in the general ledger.
8. The following list presents various internal control strengths or risks that may be
found in a company’s revenues and cash collection [Link] each
statement,select S for strength,R for risk or N/A if the item is not applicable to the
revenue and cash collection processes.
a. ____ Credit is authorized by the credit manager.
b. ____ Checks paid in excess of $5,000 require the signatures of two authorized
members of management.
c. ____ A cash receipts journal is prepared by the Treasurer’s department.
d. ____ Collections received by check are received by the company receptionist,
who has no additional recordkeeping responsibilities.
e. ____ Collections received by check are immediately forwarded unopened to
the accounting department.
f. _____ A bank reconciliation is prepared on a monthly basis by the Treasurer’s
department.
g. ____ Security cameras are placed in the shipping dock.
h. ____ Receiving reports are prepared on pre-printed, numbered forms.
i. ____ The billing department verifies the amount of customer sales invoices by
referring to the authorized price list.
j. ____ Entries in the shipping log are reconciled with the sales journal on a
monthly basis.
k. ____Payments to vendors are made promptly upon receipt of goods or
services.
l. ____ Cash collections are deposited in the bank account on a weekly basis.
(cash receipts occur daily)
m. ____ Customer returns must be approved by a designated manager before a
credit memo is prepared.
n. ____ Account statements are sent to customers on a monthly basis.
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TURNER, WEICKGENNANT & COPELAND ACCOUNTING INFORMATION SYSTEMS CONTROLS AND PROCESSES
o. ____ Sales returns are presented to the sales department for preparation of a
receiving report.