Accounting Information Systems 10th Edition Gelinas, Dull, Wheeler Test Bank

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Accounting Information Systems 10th Edition Gelinas, Dull, Wheeler Test Bank

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Chapter 11The Billing/Accounts Receivable/Cash Receipts (B/AR/CR) Process

TRUE/FALSE

1. The B/AR/CR process completes the order to cash process by accomplishing the activities of billing customers, managing customer accounts, and securing payment for goods and services rendered.

ANS: T PTS: 1

2. Recording B/AR/CR event data is generally the responsibility of the treasury department, which typically reports to the controller function.

ANS: F PTS: 1

3. Although both the treasurer and controller functions report to the VP of Finance, for good internal control, these functions should be segregated.

ANS: T PTS: 1

4. The credit department uses accounts receivable master data to complete several of their activities.

ANS: T PTS: 1

5. The goal for treasurers, who are responsible for managing an organizations cash resources, is to make funds available so that they can be used to acquire revenue-generating assets, be invested to earn interest, or be used to reduce debt, thus saving interest charges.

ANS: T PTS: 1

6. Float, when applied to cash receipts, is the time between payment by customer and the availability of funds on deposit and available for use.

ANS: T PTS: 1

7. Funds on deposit and available for use are known as good funds.

ANS: T PTS: 1

8. The AR master file address is a postal address, maintained by the firms bank, which is used solely for the purpose of collecting checks.

ANS: F PTS: 1

9. Database systems are Internet based systems for sending bills/invoices to customers and receiving the customer payment electronically.

ANS: F PTS: 1

10. An invoice is a business documenteither paper or electronic transmissionused to notify the customer of an obligation to pay the seller for merchandise which was ordered and shipped.

ANS: T PTS: 1

11. A purchasing statement is a business document designed to inform the payee of the invoices or other items being paid.

ANS: F PTS: 1

12. The accounts receivable master data is a repository of all unpaid invoices issued by an organization and awaiting final disposition.

ANS: T PTS: 1

13. The sales event data store contains invoice records.

ANS: T PTS: 1

14. Electronic bill presentment and payment (EBPP) systems are B2B systems that use a Web site to post customers bills and to receive their electronic payments.

ANS: F PTS: 1

15. The three types of accounts receivable systems discussed in the text are the lockbox, balance-forward, and open-item systems.

ANS: F PTS: 1

16. In a balance-forward accounts receivable system, customer statements display previous balance, payments, and balance forward to which are added any new charges to derive the total balance due.

ANS: T PTS: 1

17. In an open-item accounts receivable system, customer statements display invoices (new or settled in the current period), along with payment details.

ANS: T PTS: 1

18. In a pre-billing system, invoices are prepared after the goods have been shipped and the sales order notification has been matched to the shippings billing notification.

ANS: F PTS: 1

19. In a post-billing system, invoices are prepared upon acceptance of the customer order.

ANS: F PTS: 1

20. The acronym EFT stands for electronic funds transfer.

ANS: T PTS: 1

21. The acronym ACH stands for automated clearing house.

ANS: T PTS: 1

22. A credit card system is better at reducing float time for the collector than a debit card system.

ANS: F PTS: 1

23. In an open-item system, accounts receivable records consist of a customers current balance due, past-due balance, and the finance charges and payments related to the account.

ANS: F PTS: 1

24. The B/AR/CR system supports the repetitive work routines of the credit department, the cashier, and the accounts receivable department.

ANS: T PTS: 1

25. A debit card is a method of payment whereby a third party, for a fee, removes from the collector the risk of non-collection of the account receivable.

ANS: F PTS: 1

26. A credit card is a form of payment authorizing the collector to transfer funds electronically from the payers bank account to the collectors bank account.

ANS: F PTS: 1

27. Forced vacations is the only control procedure that can be used to help prevent or detect lapping.

ANS: F PTS: 1

28. The ACH network electronically transfers funds by crediting the collectors bank account and debiting the payers bank account for the amount of a payment.

ANS: T PTS: 1

29. The payment event data contains the details of each payment received.

ANS: F PTS: 1

30. The stub attached to the customer statement is also known as a turnaround document.

ANS: T PTS: 1

31. The accounts receivable master data is created as sales returns, bad debt write-offs, estimated doubtful accounts, or similar adjustments are processed.

ANS: F PTS: 1

32. A lockbox is a postal address maintained by a third partytypically a bankwhich is used solely for the purpose of collecting checks.

ANS: T PTS: 1

33. EFT includes wire transfers, credit and debit card processing, as well as payments made via the ACH Network.

ANS: T PTS: 1

34. An electronic bill presentment and payment (EBPP) system is a B2C system that uses a Web site to post customer bills and to receive electronic payments.

ANS: T PTS: 1

35. With the biller direct method of an electronic bill presentment and payment (EBPP) system, a company posts its bills/invoices to its own Web site (or to a Web site hosted by a third party) and sends an e-mail notification to its customers telling them that their bill has been posted.

ANS: T PTS: 1

36. With the consolidation/aggregation method of an electronic bill presentment and payment (EBPP) system, a companys bills are posted, along with bills from other companies, to a Web site hosted by a third party. Customers then go to that site to pay bills from a number of companies.

ANS: T PTS: 1

MULTIPLE CHOICE

1. As discussed in the text, the functions of the B/AR/CR process:
a. is identical to those of the order entry/sales process
b. supports the problem-solving processes of marketing managers
c. collects amounts due from customers
d. is unrelated to the functions of the order entry/sales process

ANS: C PTS: 1

2. According to the concept of segregation of duties, which of the following managers should report to the controller rather than to the treasurer?
a. credit department manager
b. accounts receivable department manager
c. cashier
d. investments manager

ANS: B PTS: 1

3. In an organization in which the OE/S and B/AR/CR processes are separate processes, the B/AR/CR process usually accomplishes all of the following activities except:
a. picking goods in the warehouse
b. billing customers
c. managing customer accounts
d. securing payment of customer accounts

ANS: A PTS: 1

4. Which of the following pairs of functions would you expect might report directly to the vice president of finance?
a. credit department and controller
b. shipping department and controller
c. accounts receivable department and treasurer
d. treasurer and controller

ANS: D PTS: 1

5. Which of the following statements regarding Check 21 is false?
a. It allows banks to exchange checks electronically.
b. Before this system, paper checks were flown around the country from bank-to-bank to complete the check-clearing process.
c. It requires that banks exchange check images.
d. It significantly reduced float.

ANS: C PTS: 1

6. Which of the following process bubbles (i.e., activities) would you not expect to see in the logical DFD for a B/AR/CR process?
a. perform billing
b. requisition inventory
c. receive customer payment
d. manage customer accounts

ANS: B PTS: 1

7. Which of the following normally would trigger the billing process in a B/AR/CR process?
a. remittance advice
b. shipping notice
c. picking ticket
d. customer acknowledgment

ANS: B PTS: 1

8. Which of the following normally would trigger the B/AR/CR process to record a customer payment?
a. credit memo
b. remittance advice
c. deposit slip
d. notice to the general ledger to record a cash receipt

ANS: B PTS: 1

9. The principal master data that you would expect to see in a B/AR/CR process is the:
a. sales order
b. shipping notifications
c. sales journal
d. accounts receivable

ANS: D PTS: 1

10. In a B/AR/CR process, which of the following data stores is least likely to interact with a process called perform billing?
a. vendor master data
b. customer master data
c. accounts receivable master data
d. sales event data

ANS: A PTS: 1

11. In a logical DFD for a B/AR/CR process, which of the following data stores would you expect to interact with a process called manage customer accounts?
a. inventory master data
b. accounts receivable master data
c. sales event data
d. cash receipts event data

ANS: B PTS: 1

12. In a logical DFD for a B/AR/CR process, you would expect that a credit memo would be sent by the B/AR/CR process to the customer from which of the following processes?
a. perform billing
b. manage customer accounts
c. receive payment
d. validate sales order

ANS: B PTS: 1

13. Inputs to the B/AR/CR process normally could include all of the following except:
a. a copy of the sales order sent by the sales order function to the billing function
b. a shipping notice sent by the shipping function to the billing function
c. customer acknowledgement
d. remittance advice

ANS: C PTS: 1

14. In general, adjustments to customer balances in the accounts receivable master data will be necessary for all of the following except:
a. sales returns and allowances
b. reversals of mispostings and other errors
c. bad debt write-offs
d. estimates of uncollectible accounts

ANS: D PTS: 1

15. An invoice record usually contains all of the following elements except:
a. the customers credit limit
b. customers identification
c. items and quantities billed
d. invoice date

ANS: A PTS: 1

16. In an entity-relationship (E-R) diagram for the B/AR/CR process, you would expect that the word trigger would appear between the boxes for?
a. CUSTOMER and SHIPMENT
b. CUSTOMER and SALES INVOICE
c. STOCK PICK and SHIPMENTS
d. SALES INVOICE and SHIPMENT

ANS: C PTS: 1

17. A company using a centralized database approach might not maintain a relational table for ACCOUNTS RECEIVABLE. Rather, accounts receivable balances at any point in time could be computed as the difference between the relations for which of the following continuous events?
a. SHIPMENTS and SALES_INVOICES
b. SALES_INVOICES and CASH_RECEIPTS
c. SHIPMENTS and CASH_RECEIPTS
d. CUSTOMER and SALES_INVOICES

ANS: B PTS: 1

18. One type of accounts receivable system is balance-forward, the other is:
a. debit card system
b. Automated Clearing House system
c. Electronic Funds Transfer system
d. open-item system

ANS: D PTS: 1

19. In a pre-billing system, invoices are prepared:
a. immediately upon acceptance of a customer order
b. when there is to be a delay between the time that the order is accepted and the time it is shipped
c. where inventory balances can be determined only through physical count
d. to improve customer relations

ANS: A PTS: 1

20. In a fraud scheme known as ____, the perpetrator attempts to cover the theft of cash received from customer A by applying cash collected from customer B to As account, then applying a receipt from C to Bs account, and so forth.
a. Kiting
b. lapping
c. schmoozing
d. hacking

ANS: B PTS: 1

21. Deposit slips are usually generated by the B/AR/CR process:
a. at the time invoices are prepared
b. by manual procedures
c. electronically
d. as part of processing cash receipts

ANS: D PTS: 1

22. Typically, the operations process goals of the B/AR/CR:
a. vary, depending on the organization and its particular view of these processes
b. remain the same for all organizations
c. vary inversely with the information process goals
d. are the same as the information process goals

ANS: A PTS: 1

23. Which of the following control plans is most likely to appear in the input validity and input accuracy columns, but not in the input completeness column of a control matrix for the billing process?
a. independent billing authorization
b. reconcile input and output batch totals
c. check for authorized prices, term, freight, and discounts
d. procedures for rejected inputs

ANS: C PTS: 1

24. For the cash receipts process, the control plan turnaround documents helps to achieve which of the following pairs of control goals?
a. ensure input validity and ensure input completeness
b. ensure efficient employment of resources and ensure input accuracy
c. ensure input completeness and ensure input accuracy
d. ensure security of resources and ensure input accuracy

ANS: B PTS: 1

25. In the cash receipts process, the control plan of immediately endorsing incoming checks is designed to achieve the control goal of:
a. ensure the timely deposit of cash receipts
b. ensure security of the cash asset
c. ensure cash receipts input accuracy
d. ensure cash receipts input completeness

ANS: B PTS: 1

26. In the billing process, the control plan of review shipped not billed sales orders (tickler file) helps to ensure:
a. effectiveness of operations (timely billing)
b. efficient employment of resources
c. security of resources
d. input accuracy

ANS: A PTS: 1

27. The B/AR/CR process comprises three different but related processesnamely, billing, accounts receivable, and cash receipts. Which of the following would not be an operations process goal for these three processes?
a. ensure effectiveness of operations
b. ensure AR master data update accuracy
c. ensure efficient employment of resources
d. ensure security of resources

ANS: B PTS: 1

28. A remittance advice generally would be recorded in which of the following pairs of data stores?
a. customer master data and accounts receivable master data
b. sales event data and accounts receivable master data
c. accounts receivable adjustments data and accounts receivable master data
d. cash receipts data and accounts receivable master data

ANS: D PTS: 1

29. Digital images:
a. help reduce paper in the B/AR/CR system
b. may be scans of checks
c. may be scans of remittance advices
d. all of the above

ANS: D PTS: 1

30. Which of the following statements is false?
a. The typical B/AR/CR system assists in preparing internal and external reports.
b. Cash receipts can be accelerated by using some form of EFT.
c. The two types of adjustments that commonly result from a periodic review of the aging details of customer account balances are a recurring entry for estimated bad debts and a bad debt write-off.
d. Cash receipts events data are comprised of one or more invoice records.

ANS: D PTS: 1

31. Which of the following statements is true?
a. In a pre-billing system, invoices are prepared after the goods have been shipped and the sales order notification has been matched to the shippings billing notification.
b. In a post-billing system, invoices are prepared upon acceptance of the customer order.
c. Of the two types of billing systems discussed in the text, the pre-billing system requires the more accurate inventory records.
d. Of the two types of billing systems discussed in the text, the pre-billing system is appropriate in situations where there is a significant delay between acceptance of the customers order and the subsequent shipment.

ANS: C PTS: 1

32. Which of the following statements is false?
a. The check and remittance advice trigger the receive payment process.
b. A bank lockbox provides more protection for cash than a system where cash receipts are mailed to the payee company and then deposited.
c. Good funds are funds on deposit and available for use.
d. From the standpoint of reducing the collectors float, a customer check is a better payment method than a debit card.

ANS: D PTS: 1

33. The B/AR/CR process completes the:
a. billing process
b. production process
c. order-to-cash process
d. inventory process

ANS: C PTS: 1

34. Which of the following is not part of the horizontal information flows of the B/AR/CR process?
a. accounts receivable aging report
b. customer payment
c. bank deposit
d. customer invoice

ANS: A PTS: 1

35. Which of the following is most commonly associated with the treasury function?
a. recording of event data
b. security of funds
c. reporting of results of business events
d. maintaining accounting records

ANS: B PTS: 1

36. Which of the following segregation of duties is not required for the B/AR/CR business process controls to be effective?
a. price authorization and billing
b. treasury and controllership
c. bank reconciliation and cash receipts
d. all of these are required for effective control

ANS: D PTS: 1

37. Placing a customers bills on a companys own Web site and sending an e-mail telling the customer that his or her bill is there is called:
a. electronic funds transfer
b. electronic bill presentment
c. electronic bill payment
d. electronic document management

ANS: B PTS: 1

38. The accounts receivable system in which all the accounts receivable master data contains individual open invoices, against which payments and other adjustments are applied:
a. pre-billing system
b. open-item system
c. balance-forward system
d. post-billing system

ANS: B PTS: 1

39. The accounts receivable system typically used by utilities is the:
a. pre-billing system
b. open-item system
c. balance-forward system
d. post-billing system

ANS: C PTS: 1

40. Quantities of items shipped to a customer would typically be found in the relational table for:
a. CUSTOMERS
b. SALES_RELATIONS
c. BANKS
d. DEPOSITS

ANS: B PTS: 1

41. The billing system in which the invoice is prepared after goods have been shipped and the sales order notification has been matched to shippings billing notification is called a(n):
a. post-billing system
b. open-item system
c. pre-billing system
d. balance-forward system

ANS: A PTS: 1

42. A billing system that can be used when there is little or no delay between the receipt of the customer order and the shipment of the goods is a:
a. post-billing system
b. open-item system
c. balance-forward system
d. pre-billing system

ANS: D PTS: 1

43. The technology that allows information on documents to be converted into machine-readable data through a scanner is called a(n):
a. OCR
b. MICR
c. bar code reader
d. Digitizer

ANS: A PTS: 1

44. An overall management objective is to:
a. minimize the number of sales transactions
b. minimize the total amount of accounts receivable
c. minimize the time from the beginning of the selling process to the end of the cash collections process
d. maximize the amount of float

ANS: C PTS: 1

45. The cash receipts process can be accelerated by using the ACH network because it is:
a. an immediate process
b. a periodic process
c. a type of EFT process
d. a batch process

ANS: C PTS: 1

46. A form of fraud in which the payments made by one customer are systematically applied to the account of another is called:
a. lapping
b. malfeasance
c. pre-posting
d. knitting

ANS: A PTS: 1

47. In the billing function described in the text, the control plan that contributes to effective operations is:
a. edit the shipping notification for accuracy
b. independent billing authorization
c. compare input shipping notices to sales order master data
d. review shipped not billed sales orders (tickler file)

ANS: D PTS: 1

48. Which control is most effective in contributing to the goal of ensure input accuracy in the billing function?
a. compare input shipping notices to sales order master data
b. batch sequence checks
c. confirm input acceptance
d. review shipped not billed sales orders (tickler file)

ANS: A PTS: 1

49. Which control plan for the cash receipts function has as its primary control goal to ensure security of resources?
a. reconcile bank account regularly.
b. enter cash receipts close to where cash is received.
c. immediately endorse incoming checks.
d. one-to-one checking of deposit slips and checks.

ANS: C PTS: 1

50. The control independent billing authorization ensures that bills:
a. are accurate
b. are for goods that were picked in the warehouse
c. are for goods actually ordered by the customer
d. have authorized prices

ANS: C PTS: 1

51. A customer is instructed to send his remittance advice and check to a banks postal address. This method for collecting customer cash receipts is called:
a. electronic funds transfer
b. automated clearing house
c. Check 21
d. Lockbox

ANS: D PTS: 1

52. To reduce the cost of collecting its accounts receivable, a company sells its accounts receivable to a financial organization. The service is called:
a. collection agency advance
b. lock-boxing
c. Factoring
d. Funding

ANS: C PTS: 1

COMPLETION

1. The B/AR/CR process completes the order to cash process by accomplishing the activities of: ______________________________, managing customer accounts, and securing payment for goods or services rendered.

ANS: billing customers

PTS: 1

2. Recording B/AR/CR event data is generally the responsibility of the accounts receivable department, which for good internal control typically reports to the ______________________________ function.

ANS: controller

PTS: 1

3. In the organization structure shown in the text, although both report to the VP of Finance, the ______________________________ and ______________________________ functions should be segregated.

ANS:
treasurer, controller
controller, treasurer

PTS: 1

4. Organizations should monitor ______________________________ to ensure that cash is received in a timely manner.

ANS:
open accounts receivable
open accounts receivable (AR)
open AR

PTS: 1

5. There are two types of electronic bill presentment and payment (EBPP) systems the ______________________________ method and the consolidation/aggregation method.

ANS: biller direct

PTS: 1

6. ______________________________, when applied to cash receipts, is the time between the payment by a customer and the availability of funds on deposit and available for use.

ANS: Float

PTS: 1

7. Funds on deposit and available for use are known as ______________________________ funds.

ANS: good

PTS: 1

8. A(n) ______________________________ is a postal address, maintained by a third partytypically a bankwhich is used solely for the purpose of collecting checks.

ANS: lockbox

PTS: 1

9. ______________________________ systems are B2C systems that use a Web site to post customers bills and to receive their electronic payments.

ANS:
Electronic bill presentment and payment (EBPP)
Electronic bill presentment and payment
EBPP

PTS: 1

10. A(n) ______________________________ is a business document used to notify the customer of an obligation to pay the seller for merchandise which was ordered and shipped.

ANS: invoice

PTS: 1

11. A(n) ______________________________ is a business document used by the payer to notify the payee of the items being paid.

ANS:
remittance advice
remittance advice (RA)
RA

PTS: 1

12. The ______________________________ data is a repository of all unpaid invoices issued by an organization and awaiting final disposition.

ANS:
accounts receivable master
accounts receivable (AR) master
AR master

PTS: 1

13. The ______________________________ data store contains invoice records.

ANS: sales event

PTS: 1

14. Organizations should reconcile their ______________________________ on a regular basis to ensure that valid deposits are recorded correctly.

ANS: bank account

PTS: 1

15. The two types of accounts receivable systems discussed in the text are the balance-forward and ______________________________ systems.

ANS: open-item

PTS: 1

16. In a(n) ______________________________ accounts receivable system, accounts receivable records consist of a customers balance, categorized as current and past due, and current account activity, including such items as current charges, finance charges for past-due balances, and payments.

ANS: balance-forward

PTS: 1

17. In a(n) ______________________________ accounts receivable system, the customer statement displays invoices (new or settled in the current period), along with payment details.

ANS: open-item

PTS: 1

18. In a(n) ______________________________ billing system, invoices are prepared after the goods have been shipped and the sales order notification has been matched to the shippings billing notification.

ANS: post-billing

PTS: 1

19. In a(n) ______________________________ billing system, invoices are prepared upon acceptance of the customer order.

ANS: pre-billing

PTS: 1

20. The acronym ACH stands for ______________________________.

ANS: automated clearing house

PTS: 1

21. The acronym EFT stands for ______________________________.

ANS: electronic funds transfer

PTS: 1

22. When customers pay with a(n) ______________________________ card, float is eliminated.

ANS: debit

PTS: 1

23. The ______________________________ process supports the repetitive work routines of the credit department, the cashier, and the accounts receivable department.

ANS:
B/AR/CR
billing/accounts receivable/cash receipts
billing/accounts receivable/cash receipts (B/AR/CR)

PTS: 1

24. The Check Clearing for the 21st Century Act called ______________________________ allows banks to exchange check images electronically.

ANS: Check 21

PTS: 1

25. The ______________________________ type of accounts receivable systems is appropriate in situations where invoices are prepared and sent for each sale (i.e., each shipment), and the customer typically makes payments for specific invoices when those invoices are due.

ANS: open-item

PTS: 1

26. A(n) ______________________________ is a form of payment authorizing the collector to transfer funds electronically from the payers bank account to the collectors bank account.

ANS: debit card

PTS: 1

27. ______________________________ is a fraud resulting from the improper segregation of duties between the functions of handling cash and recording cash receipt events.

ANS: Lapping

PTS: 1

28. The ______________________________ data is created as sales returns, bad debt write-offs, estimated doubtful accounts, or similar adjustments are processed.

ANS:
accounts receivable adjustments
accounts receivable (AR) adjustments
AR adjustments

PTS: 1

29. The ______________________________ network is one of the earliest and most prominent methods for EFT in which the collectors bank account is credited and the payers bank account is debited for the amount of a payment.

ANS:
automated clearing house (ACH)
automated clearing house
ACH

PTS: 1

30. The ______________________________ data store contains the details of each payment as reflected on the remittance advice (RA) accompanying a payment.

ANS: cash receipts event

PTS: 1

31. Often times a stub is attached to the customer statement. This stub is also known as a(n) ______________________________ document.

ANS: turnaround

PTS: 1

32. Electric and gas utility companies typically use the ______________________________ type of accounts receivable system.

ANS: balance-forward

PTS: 1

33. The control plan ______________________________ establishes for the billing personnel that the shipment is supported by an actual sales order.

ANS: independent billing authorization

PTS: 1

34. The control plan ______________________________ ensures that invoices, accounts receivable, and revenue reflect prices, terms, freight, and discounts authorized by management.

ANS: check for authorized prices, terms, freight, and discounts

PTS: 1

35. The control plan ______________________________ assumes that there is a segregation of duties between those who approve prices and those involved in the selling function.

ANS: independent pricing data

PTS: 1

36. The control plan ______________________________ controls the billing and cash receipts functions by asking the customer to review open invoices to determine that they are valid and accurate.

ANS: confirm customer accounts regularly

PTS: 1

37. To help prevent incoming cash receipts from being fraudulently misappropriated, an organization should ______________________________.

ANS: immediately endorse incoming checks

PTS: 1

38. An organization can accelerate cash deposits and prevent lapping by ______________________________.

ANS: immediately separating checks and remittance advices

PTS: 1

PROBLEM

1.
Below is the narrative of the Perform billing portion (i.e., bubble 1.0) of the B/AR/CR process.

Narrative Description

When the OE/S process produces a sales order, it notifies the B/AR/CR process to that effect. This is the flow Sales order notification. When triggered by the data flow, Shippings billing notification (i.e., the shipping notice), process 1.1 validates the sale by comparing the details on the sales order
notification to those shown on shippings billing notification. If discrepancies are noted, the shipping notice is rejected, i.e. a reject stub. Rejected notices are later processed through a separate exception routine.

If the data flows match, process 1.1 sends a validated shipping notification to process 1.2. Process 1.2 then performs the following actions:
Obtains from the customer master data certain standing data which is needed to produce the invoice.
Creates the invoice and sends it to the customer.
Updates the accounts receivable master data.
Adds an invoice to the sales event data (i.e., the sales journal).
Notifies the general ledger process that a sale has occurred (GL invoice update).

Required:
From the DFD in TB Figure 11.1 and the narrative description above, explode bubble 1.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1

2. Below is the narrative of the Manage customer accounts portion (i.e., bubble 2.0) of the B/AR/CR process.

Narrative Description

Processes 2.1 through 2.3 relate to sales returns adjustments. This process begins when there is notification from the receiving department that goods have been returned by a customer. Subprocess 2.1 obtains data from the accounts receivable master data to validate the return. If the sales return is not valid, it will be rejected (see Reject stub) and processed through a separate exception routine. If the sales return is valid, it is sent to subprocess 2.2 where a credit memo is prepared and sent to the customer, and the accounts receivable master data is updated to reflect the credit. At the same time, the validated sales return is sent to subprocess 2.3 where a journal voucher is prepared, which is used to create a record in the AR adjustments event data store (i.e., the journal), and the general ledger is notified that a credit memo has been issued. This results in updates to sales returns and allowances and to AR.

Process 2.4 is triggered by a periodic review of aging details obtained from the accounts receivable master data. The aging details would be used to identify and follow up on late-paying customer accounts. One of two types of adjustments might result from this review:
The recurring adjusting entry for estimated bad debts.
The periodic write-off of definitely worthless customer accounts.

Like process 2.4, bubble 2.5, Prepare customer statements, also is triggered by a periodic event that recurs at specified intervals, often on a monthly basis in practice. Details of unpaid invoices are extracted from the accounts receivable master data and are summarized in a statement of account that is mailed (or sent electronically) to customers.

Required:
From the DFD in TB Figure 11.3 and the narrative description above, explode bubble 2.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1

3. Below is the narrative of the Manage customer accounts portion (i.e., bubble 2.0) of the B/AR/CR process.

Narrative Description

Processes 2.1 through 2.3 relate to sales returns adjustments. This process begins when there is notification from the receiving department that goods have been returned by a customer. Subprocess 2.1 obtains data from the accounts receivable master data to validate the return. If the sales return is not valid, it will be rejected (see Reject stub) and processed through a separate exception routine. If the sales return is valid, it is sent to subprocess 2.2 where a credit memo is prepared and sent to the customer, and the accounts receivable master data is updated to reflect the credit. At the same time, the validated sales return is sent to subprocess 2.3 where a journal voucher is prepared, which is used to create a record in the AR adjustments event data store (i.e., the journal), and the general ledger is notified that a credit memo has been issued. This results in updates to sales returns and allowances and to AR.

Process 2.4 is triggered by a periodic review of aging details obtained from the accounts receivable master data. The aging details would be used to identify and follow up on late-paying customer accounts. One of two types of adjustments might result from this review:
The recurring adjusting entry for estimated bad debts.
The periodic write-off of definitely worthless customer accounts.

Like process 2.4, bubble 2.5, Prepare customer statements, also is triggered by a periodic event that recurs at specified intervals, often on a monthly basis in practice. Details of unpaid invoices are extracted from the accounts receivable master data and are summarized in a statement of account that is mailed (or sent electronically) to customers.

Required:
Using the DFD in TB Figure 11.5 and the narrative description above, identify the words that belong in items 1 to 15 of Diagram 2.0 (TB Figure 11.6).

ANS:
NOTE TO INSTRUCTORS: This question repeats the Manage customer accounts narrative of Problem 2 (in the original banks) but instead of asking students to draw Diagram 2.0 it asks them to identify missing diagram elements.

1. Sales return notification 9. AR adjustments event data
2. 2.1 Validate return 10. Periodic customer statements
3. Validated sales return notification 11. 2.5 Prepare customer statements
4. 2.3 Prepare journal voucher 12. Accounts receivable master data
5. GL sales return update 13. 2.4 Prepare bad debts journal voucher
6. Reject 14. GL estimated bad debts update
7. 2.2 Prepare credit memo 15. GL write-off update
8. Credit memo

PTS: 1

4. Below is the narrative for the Receive payment portion (i.e., bubble 3.0) of the B/AR/CR process.

Narrative Description

The payment and remittance advice data triggers the receive payment process. Upon receipt of the payment and RA from the bank, process 3.1 first validates the remittance by comparing the payment to the RA. Mismatches are rejected for later processing. If the payment and RA agree, the validated remittance is sent to process 3.2, which uses the RA to update the accounts receivable master data to reflect the customers payment and records the collection in the cash receipts events data, and notifies the general ledger process of the amount of the cash deposited. This is an immediate update of the GL for a single cash receipt.

Required:
From the DFD in TB Figure 11.7 and the narrative description above, explode bubble 3.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1

5. TB Figure 11.9 is the control matrix for the billing process presented in Chapter 11, but with certain items omitted. In the matrix, each omission is indicated by a box. Jumbled lists of the omitted items are as follows:

Omitted from Control Goals Columns
1. Accounts receivable master data
2. Ensure efficient employment of resources (people, computers)
3. For completed shipping notice inputs, ensure
4. Ensure security of resources
5. For the accounts receivable and master data, ensure
6. Ensure effectiveness of operations

Omitted Control Plans
7. Confirm customer accounts regularly
8. Compare input shipping notices to sales order master data
9. Independent pricing data
10. Review shipped not billed sales orders (tickler file)
11. Independent billing authorization
12. Check for authorized prices, terms, freight, and discounts

Required:
Complete TB Figure 11.9 by placing one of the numbers, 1 through 12, from the above lists into each box showing a missing item. HINT: Complete the control goal column headings first, and then use the cell entries as a guide in deciding which number (7 through 12 above) belongs in each box in the recommended control plans column.

ANS:

PTS: 1

6. TB Figure 11.11 is a systems flowchart for the billing process with letters indicating omitted descriptions. Fill in the omitted descriptions in the flowchart by matching the numbers from the list below with the letters on the flowchart.

Missing descriptions:
1. Billing completed, changes to AR and related accounts
2. Shipments not yet billed
3. BT
4. Compare batch totals with changes to AR and related accounts
5. Create and print invoice, update AR, sales event, and GL data, send Billing completed notice with amounts posted to AR and related accounts
6. Customer
7. End
8. Select shipments to be billed and prepare batch total
9. Enterprise database
10. Error routine not shown
11. Invoice
12. Prepare and display Shipments not yet billed
13. Request shipments to be billed
14. Select shipments and execute billing program
15. Start

ANS:

Letter from flowchart Missing description
A 15
B 13
C 12
D 2
E 8
F 3
G 14
H 9
I 5
J 1
K 4
L 11
M 6
N 7
O 10

PTS: 1

7. The E-R diagram below represents a B/AR/CR process but with the names of certain entities, and relationship cardinalities removed from the diagram. In alphabetic order, the names omitted are:
BANKS
CASH_RECEIPTS
CUSTOMERS
DEPOSITS
INVENTORY
SALES_INVOICES
SALES_ORDERS
SHIPMENTS

Required:
Complete The E-R Diagram (TB Figure 11.12) by:
a. Inserting the names from the above lists into the boxes where they belong.
b. Inserting a 1 or an M or an N where necessary to indicate whether the cardinality of the relationship is: one-to-one (1:1), one-to-many (1:M), or many-to-many (M:N).

ANS:

PTS: 1

8. The following is a list of 10 control plans:
A. Independent billing authorization F. Immediately endorse incoming checks
B. Review shipped not billed sales orders (tickler file) G. Document design
C. One-for-one checking of deposit slip and checks H. Prenumbered documents
D. Compare input shipping notice to sales order master data I. Turnaround documents
E. Monitor open accounts receivable J. Immediately separate checks and remittance advices

Required:
Listed below are ten statements describing either the achievement of a control goal (i.e., a system success) or a system deficiency (i.e., a system failure). On the answer line to the left of each description, insert the capital letter from the list above of the best control plan to achieve the desired goal or to address the system deficiency described. A letter should be used only once.

Answers CONTROL GOALS OR SYSTEM DEFICIENCIES

1. Helps to ensure that all shipments are billed in a timely manner.

2. This feature can be used to help prevent duplicate document numbers from entering the system to ensure input validity.

3. Helps to ensure the validity of shipping notices.

4. Ensures efficient employment of resources and remittance advice input accuracy.

5. Helps optimize cash flows, solve billing and cash receipts processing problems, and ensure that the organization complies with compensating balance requirements of loan agreements with its bank.

6. Helps to ensure the security of resources (prevent fraudulent appropriation)

7. Helps ensure remittance advice input validity, completeness and accuracy.

8. Ensures that the items and quantities shipped are the same as the items and quantities on the sales order.

9. Should have precluded a field salesman from omitting the sales terms from the sales order, thereby causing the order to be rejected by the computer data entry personnel.

10. Reduces opportunities for lapping.

ANS:
1. B 6. F
2. H 7. C
3. A 8. D
4. I 9. G
5. E 10. J

PTS: 1

9. The following narrative describes a cash receipts process. The annotated systems flowchart for this cash receipts process is TB Figure 11.14 and the related control matrix is Figure TB 11.15.

Narrative Description

TB Figure 11.14 presents a physical description of the cash receipts process in which customer payments are received by mail. The source documents include checks and RAs. Each day, the process begins with mailroom clerks opening the mail. Immediately, the clerks endorse all checks. They assemble RAs (stubs from the customer invoicei.e., turnaround documents) in batches and prepare batch totals. The cash receipts databatch total and remittance detailsare then entered into the computer system via a scanner with OCR. The computer edits the data as the data are entered and computes batch totals. The batched RAs are sent to the accounts receivable department for filing, and the checks are transferred to the cashier. The editing process verifies the correctness of the entered data, including customer number and so forth. By matching the input cash receipts data to the open invoice data that reside on the accounts receivable master data in the enterprise database, the process also verifies that the customer account number, invoice number, and amount due are correct and that any cash discounts taken by the customer are legitimate (i.e., they have been authorized). After the data have passed all the control checks, the cash receipts event data, accounts receivable master data, and general ledger data are updated in the enterprise database. Also, the computer generates various cash reports and prepares the deposit slip. The deposit slip is transferred to the cashier. The cashier compares the checks and the deposit slip; if they agree, all documents are sent to the bank.

Required:
Using the format shown for control plan P-3, write descriptions for control plans P-1, P-2, P-5, M-1 and M-3.

P-3: Enter cash receipts close to where cash is received.
Efficient employment of resources: The direct entry of cash receipts data by mailroom personnel provides for a more efficient employment of resources because this arrangement eliminates the costs associated with the handling of the cash receipts data by additional entities.
Remittance advice input accuracy: Because mailroom personnel would have both the check and the RA, they would be in a position to correct many input errors on the spot, thereby improving input accuracy.

ANS:
P-1: Immediately endorse incoming checks.
Security of resources: The checks are restrictively endorsed to protect them from being fraudulently appropriated.
P-2: Turnaround documents.
Efficient employment of resources: The use of the stub from the customer invoice as a turnaround document reduces the data entry that must be completed.
Remittance advice input accuracy: Scanning the computer-readable turnaround document reduces the risk of data entry errors, thereby improving accuracy.
P-5: Compare input data with master data.
Effectiveness goal A, Efficient employment of resources: Cash receipts data can be entered more quickly and at a lower cost if errors are detected and prevented from entering the system.
Remittance advice input validity: The matching process verifies that any cash discounts deducted by customers have been authorized.
Remittance advice input accuracy: Comparison to the accounts receivable master data should reduce input errors.
M-1: Immediately separate checks and remittance advices.
Effectiveness goals A, B, and C: The checks should be separated from the RAs and the checks deposited as quickly as possible. This helps to optimize cash flow and to ensure that the organization complies with compensating balance requirements of loan agreements with its bank. If the RAs were immediately separated from the checks, the process of recording the RAs also could be accelerated in that the customer payment could be recorded at the same time that the deposit is being prepared. Faster recording of the RAs (i.e., updating customer balances more quickly) helps minimize overdue accounts and reduces the investment in accounts receivable. Furthermore, because the information available from the system is more up to date, this plan also addresses the providing of more meaningful query and reporting functions.
Security of resources: The faster the checks are deposited, the less chance that the cash can be diverted. Also, by separating the check and RA, we can reduce opportunities for lapping.
M-3: Monitor open accounts receivable.
Note: Most organizations regularly review aging reports, but that process is beyond the scope of that depicted in Figure TB 11.14, so we have marked this as missing.
Effectiveness goals A, B, and C: By following up on open accounts receivable, we can optimize cash flows, solve billing and cash receipts processing problems, and ensure that the organization complies with compensating balance requirements of loan agreements with its bank.
Remittance advice input validity, input completeness, and input accuracy: By following up on open accounts receivable, we can detect and correct any errors that may have previously been made in the billing and cash receipts processes.

PTS: 1

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