Revenue Cycle Reconciliation and Internal Controls Quiz

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Questions and Answers

What is the primary purpose of the controller clerk periodically reconciling the remittance lists, deposit slips, cash receipts journal and GL cash account?

To ensure that the company is generating sufficient cash flow

To verify that the company is maintaining proper accounting records

To ensure that all cash receipts have been properly recorded and deposited (correct)

To monitor the performance of the sales department

Which of the following is a key IT control to help prevent data input errors in the revenue cycle?

Automated credit checking

Automated posting of transactions

Segregation of duties between authorization and processing

Data checks and check digit edits (correct)

What is the purpose of the shipping department reconciling the goods being shipped against the packing slip?

To ensure that the correct items and quantities are being shipped to customers (correct)

To identify any discrepancies between the sales order and the shipping notice

To ensure that the billing function is recording sales transactions accurately

To verify that the sales order was processed correctly

What is the purpose of the billing function reconciling the original sales order with the shipping notice?

To verify that the sales transaction was recorded properly in the accounting records Signup and view all the answers

Which of the following is a key IT control to help prevent shipping incorrect items or quantities to customers?

Scanner technology and automated ordering Signup and view all the answers

What is the purpose of the general ledger function reconciling the journal vouchers and summary reports prepared independently in different functional areas?

To ensure that all transactions are being recorded accurately in the general ledger Signup and view all the answers

What is the purpose of the remittance advice mentioned in the text?

To service customers' accounts Signup and view all the answers

When recording cash receipts, what is a deposit slip used for?

To categorize funds being deposited Signup and view all the answers

In the integrated sales order processing system, who adjusts the inventory records after a sales return?

Inventory control function Signup and view all the answers

What is the main purpose of the cash prelist in the cash receipts process?

Logging all cash received Signup and view all the answers

Which department prepares the AR account summary in the revenue cycle process?

Accounts receivable function Signup and view all the answers

What is the final step performed by the GL function in the cash receipts procedure?

Posts the sales return entry in control accounts Signup and view all the answers

What is the primary purpose of remittance advices in the accounts receivable process?

To post customer payments to their accounts Signup and view all the answers

Which of the following statements is true regarding the reconciliation of cash receipts and deposits?

It involves comparing the prelist, deposit slips, and journal vouchers Signup and view all the answers

Which statement best describes the nature of physical accounting information systems?

They are a combination of computer technology and manual procedures Signup and view all the answers

In a point-of-sale (POS) system, which of the following statements is true?

No customer accounts receivable are maintained Signup and view all the answers

Which of the following statements best describes the technology used in a basic revenue cycle system?

It uses independent (non-networked) personal computers Signup and view all the answers

What is the role of the general ledger function in the revenue cycle process?

To reconcile account summaries and post to control accounts Signup and view all the answers

Study Notes

Revenue Cycle Transactions

Primary risks associated with revenue cycle transactions include:
- Undetected data input errors
- Selling to un-creditworthy customers
- Shipping incorrect items or quantities
- Inaccurately recording transactions in journals and accounts

Internal Controls

Physical controls include:
- Proper transaction authorization
- Segregation of duties between transaction authorization and transaction processing
- Independent verification
- Accounting records
- Prenumbered documents
- Special journals
- Subsidiary ledgers
- General ledger control accounts
- Files
IT controls include:
- Data checks and check digit edits
- Automatic credit checking
- Scanner technology
- Automated ordering
- Automated postings
- File backups

Reconciling and Updating Records

The controller clerk reconciles remittance lists, deposit slips, cash receipts journal, and GL cash account
The shipping department reconciles goods being shipped against packing slip to ensure customer receives correct items and quantity
The billing function reconciles original sales order with shipping notice to ensure bills are correct and sales are recorded properly
The GL function reconciles journal vouchers and summary reports prepared independently in different functional areas before posting to control accounts

Cash Receipts Procedures

Cash receipts procedures involve:
- Opening mail and preparing remittance list
- Recording and depositing checks
- Updating accounts receivable records
- Updating general ledger records
- Reconciling cash receipts and deposits

Physical Systems

Physical accounting information systems are a combination of computer technology and human activity
Smaller businesses tend to rely less on technology and more on manual procedures, while larger companies tend to employ advanced technologies
The nature of the mix employed in a system impacts the internal controls needed to control the system

Basic Technology Revenue Cycle

The computers used in these systems are independent (non-networked) personal computers (PCs)
Information between departments is communicated via hard-copy documents
Maintaining physical files of source documents is critical to the audit trail

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Description

Test your knowledge on reconciling remittance lists, deposit slips, cash receipts journal, and GL cash account in the revenue cycle. Learn about risks and internal controls associated with revenue cycle transactions.