Chapter 12: The Revenue Cycle Practice Flashcards

This set of 100 flashcards provides a deep dive into Chapter 12: The Revenue Cycle, focusing on key functions, risks, controls, and essential source documents.

What is the title of the chapter discussed in these notes?

Chapter $12$

What is the main topic of Chapter $12$?

The Revenue Cycle

What specific type of sales are the functions of the revenue cycle associated with?

Credit sales

What is the main objective of the Order Entry function?

To accurately enter approved orders on a timely basis

Which function ensures the collectability of customer accounts?

Credit and Collection

What does the Shipping function ensure regarding customer orders?

That customers get what they ordered, when they want it, and where they want it

Which function tracks who owes the company and the amount owed?

Billing and Accounts receivable

What timing detail is managed by the Billing and Accounts receivable function?

When the amount owed is due

What is the dual goal of the Cash Receipts function?

To accurately know what is received by the customer and safeguard cash

What two things does the Sales Returns function ensure?

That returns are properly authorized and tracked

What is the name of the internally generated source document for Order Entry?

Sales Order

What is a key physical characteristic of a Sales Order document?

It is Prenumbered

How must a customer authorize a Sales Order?

Properly authorized in writing

What is a primary risk in Order Entry related to data quality?

Inaccurate/incomplete order

What risk involves the legitimacy of the order in the Order Entry phase?

Invalid/fake orders

What is the risk associated with customer payment capacity at Order Entry?

Uncollectible order

What risk in Order Entry relates to inventory availability?

Stockouts

What control should be used to minimize inaccurate or incomplete orders?

Data entry controls

How can a company reduce the risk of invalid or fake orders?

Proper authorization by customer

What procedure should occur before processing to reduce uncollectible orders?

Approve new customer credit

What system is used to minimize the risk of inventory stockouts?

Perpetual Inventory System

What specific scanning technology can be used with a Perpetual Inventory System?

Barcode scanners

What is a secondary technology mentioned for tracking inventory in the revenue cycle?

RFID

What is a risk in Credit and Collection regarding new customer screening?

May approve customers who are not creditworthy

What social risk exists in the credit approval process?

May give undeserving credit to friends

What is a risk regarding the ongoing management of unpaid accounts?

May fail to follow-up on delinquent customers

What ethical or procedural risk exists in the collection of overdue accounts?

May use inappropriate methods to collect overdue accounts

How should credit information for new customers be handled?

Always check customer credit and request credit information

Which department should be excluded from checking credit to ensure control?

Sales

How frequently should payment histories be reviewed?

Periodically

What is a suggested solution for handling difficult collections?

Outsource collections to a third party

What are the two internally generated prenumbered source documents for Shipping?

Picking slip & Packing Slip

What is the name of the externally generated source document used in the Shipping function?

Bill of Lading

What is a human error risk during the inventory selection phase of Shipping?

Picking the wrong item/wrong quantity

What security risk is present within the Shipping function?

Theft of Inventory

What general risk category applies to inaccuracies in the shipping process?

Errors in Shipping

What technology reduces the risk of picking the wrong item or quantity?

Bar code scanning

How can a company reduce inventory theft in the shipping area?

Restrict access / document inventory transfers

To ensure items are shipped to the correct address, what documents are reconciled to the sales order?

Picking slip, packing slip, and Bill of Lading

What is the name of the internally generated source document for Billing & Accounts Receivable?

Sales Invoice

What is a key physical characteristic of the Sales Invoice?

It is Prenumbered

What is the administrative nature of Billing & Accounts Receivable?

It is an administrative function

What risk involves the complete omission of the billing step?

Not sending the invoice

What risk involves inaccuracies within the invoice document itself?

Invoice errors

What risk is associated with the recording phase in Accounts Receivable?

Posting errors

To reduce invoice errors, what should be reconciled to the invoice?

Order & shipping documents

What controls are used to prevent errors during the billing process?

Data entry controls

How are posting errors in Accounts Receivable reduced?

Reconcile subsidiary ledger to the General Ledger

What is a risk regarding the physical handling of cash receipts?

Funds can be lost or stolen

What is a risk regarding the accuracy of cash documentation?

Funds may be recorded inaccurately

What risk exists regarding the speed of processing cash receipts?

Collected funds may not be recorded on a timely basis

What control should be implemented for the custody of cash?

Proper segregation of duties

What banking system is recommended for companies with high volumes of cash receipts?

A lockbox system with a bank

What is the primary objective of Billing and Accounts receivable?

Who owes the company, how much is owed, and when is it due

Which function involves ensuring returns are properly authorized?

Sales Returns

What is an 'uncollectible order' specifically in the context of Order Entry?

A risk that can be reduced by approving credit before processing

Is a Bill of Lading an internally or externally generated document?

Externally generated

Are Picking slips and Packing slips internal or external documents?

Internally generated

In which function is a 'Lockbox system' used as a control?

Cash Receipts

Which function uses a Perpetual Inventory System to reduce the risk of stockouts?

Order Entry

What does a Packing Slip provide to the customer?

A description of what was ordered and what is in the package

What does a Picking Slip identify for warehouse workers?

The items and quantities that need to be picked from inventory

What is the purpose of reconciling the subsidiary ledger to the General Ledger?

To reduce posting errors in Billing & Accounts Receivable

In Shipping, what ensures that the correct address is used?

Reconciling sales order to shipping documents like the Bill of Lading

What is 'FlatWorld' in the context of the lecture materials?

The publisher/source of the Revenue Cycle materials

A Sales Order must be authorized by whom?

The customer

What is documented during inventory transfers to reduce theft?

Inventory transfers

What does 'accurately knowing what is received' refer to in the context of your functions?

Cash Receipts

What type of document is a Sales Order?

Internally generated source document

What type of document is a Sales Invoice?

Internally generated source document

What is a 'Picking slip' used for?

Retrieving inventory for an order

What is a 'Packing slip' used for?

Accompanying the shipment to show order fulfillment

Which document acts as the formal request for payment from the customer?

Sales Invoice

Reconciling the order and shipping documents to the invoice helps reduce which risk?

Invoice errors

Why is it important to approve new customer credit before processing a Sales Order?

To avoid uncollectible orders

What is the relationship between Sales personnel and credit checks?

Sales should not check credit to maintain segregation of duties

What does 'properly authorized in writing by the customer' apply to?

The Sales Order

What occurs if the Subsidiary Ledger and General Ledger are not reconciled?

Posting errors may persist in the records

What is a 'stockout'?

A condition where item demand exceeds current inventory levels

In Shipping, reconciling the Bill of Lading helps verify what detail?

That items were shipped to the customer at the correct address

What function manages tracking the status of returns?

Sales Returns

What is the role of barcodes in Shipping?

To reduce errors in picking items or quantities

Why should access be restricted in the Shipping function?

To prevent the theft of inventory

What function is responsible for accurate entry of orders?

Order Entry

According to the transcript, 'funds may be recorded inaccurately' is a risk of which function?

Cash Receipts

What ensures the operating effectiveness of a revenue cycle?

Controls

What does a manager need to understand for each revenue cycle function?

The objective of each function

What is the goal concerning delinquent customers in Credit and Collection?

Regular follow-up

What is a 'Bill of Lading'?

An externally generated document used in Shipping

What is meant by 'Safeguard cash'?

Ensuring funds are not lost or stolen in the Cash Receipts function

The risk 'not sending the invoice' pertains to which part of the cycle?

Billing & Accounts Receivable

What technology uses radio frequencies to track inventory?

RFID

Reconciliation of order and shipping documents to the invoice ensures what?

Accuracy of the Sales Invoice

Which function uses the Perpetual Inventory System?

Order Entry

What can happen if a company fails to check credit for a new customer?

They may approve someone who is not creditworthy

What document is used to track returns?

Returns must be authorized and tracked (Sales Returns function)

What describes the identification of risks and application of controls in the revenue cycle?

Evaluating how effectively a revenue cycle is functioning

Are picking slips, packing slips, and sales invoices all prenumbered?

Yes

In which document category does the 'Bill of Lading' fall?

External source document

What is the direct benefit of data entry controls in Billing?

Reduction of invoice errors