Accounting Information Systems: Controls in Revenue Cycle & Processing Integrity

AIS exam 2

Forms design

The layout and structure of forms used for data entry.

Sequentially prenumbered

Documents that are numbered in a sequential order to prevent duplication.

Turnaround documents

Documents that are sent to a user for completion and then returned for processing.

Cancelation and storage of source documents

The process of marking documents as canceled and storing them for future reference.

Data entry controls

Controls designed to ensure accuracy and completeness of data entered into a system.

Field check

Verifies that characters in a field are of the proper type.

Sign check

Ensures that the data in a field has an appropriate sign (positive/negative).

Limit check

Tests a numerical amount against a fixed value.

Range check

Tests a numerical amount against lower and upper limits.

Size check

Verifies that input data fits into the designated field.

Completeness check

Confirms that all required data has been entered.

Validity check

Compares data from a transaction file to that of a master file to verify existence.

Reasonableness test

Assesses the logical relationship between two data items for correctness.

Check digit verification

Recalculates a check digit to verify that a data entry error has not occurred.

Batch processing

Processing data in groups or batches rather than individually.

Sequence check

Tests that batch data is in the proper numerical or alphabetical sequence.

Batch totals

Summarizes numeric values for a batch of input records.

Financial total

A total that represents the financial value of a batch of records.

Hash total

A total calculated from a non-financial value for verification purposes.

Record count

The total number of records in a batch.

Prompting

A system feature that prompts the user for input to ensure online completeness.

Closed-loop verification

Checks the accuracy of input data by using it to retrieve and display related information.

Data matching

Requires two or more items to be matched before an action can take place.

File labels

Ensures that the correct and most updated file is being used.

Recalculation of batch totals

The process of recalculating totals to verify accuracy.

Cross-footing

Verifies accuracy by comparing two alternative methods of calculating the same total.

Zero-balance tests

Tests for control accounts to ensure they balance to zero.

Write-protection mechanisms

Protect against overwriting or erasing data.

Concurrent update controls

Prevent errors from multiple users updating the same record simultaneously.

User review of output

A process where users review the output to ensure accuracy.

Reconciliation procedures

Procedures to reconcile control reports with actual data.

External data reconciliation

The process of comparing internal data with external sources for accuracy.

Checksums

A value used to verify the integrity of data during transmission.

Parity bits

Bits added to data to ensure that the total number of 1-bits is even or odd.

Preventive maintenance

Regular maintenance performed to prevent system failures.

Fault tolerance

The ability of a system to continue functioning in the event of a failure.

Redundant components

Extra components that can take over in case of a failure.

Data center location and design

The strategic placement and architectural design of a data center for optimal performance.

Uninterruptible power supply (UPS)

A device that provides backup power to a system in case of a power failure.

Disaster recovery plan (DRP)

Procedures to restore an organization's IT function after a disaster.

Cold site

A backup site that has no active equipment but can be set up quickly.

Hot site

A fully equipped backup site that can take over operations immediately.

Business continuity plan (BCP)

A plan that outlines how to resume all operations, not just IT.

Sales order entry

The process of taking customer orders and entering them into the system.

Shipping

The process of delivering goods to customers after an order is placed.

Billing

The process of invoicing customers for goods or services provided.

Cash Collections

The process of receiving payments from customers for goods or services.

Inaccurate or invalid master data

Data that is incorrect or not valid, which can lead to errors in the revenue cycle.

Unauthorized disclosure of sensitive information

The exposure of confidential information without permission.

Loss or destruction of data

The unintentional loss or damage of important data.

Poor performance

Inefficiencies or failures in the revenue cycle processes.

Data processing integrity controls

Controls that ensure the accuracy and completeness of data processing.

Access controls

Measures that restrict access to sensitive data and systems.

Encryption

The process of converting information into a code to prevent unauthorized access.

Tokenization of customer personal information

The process of replacing sensitive data with unique identification symbols.

Backup and disaster recovery procedures

Plans and processes to recover data and systems after a loss event.

Managerial reports

Reports generated for management to review performance and make decisions.

Incomplete/inaccurate orders

Orders that are not fully filled or contain errors.

Invalid orders

Orders that do not meet the necessary criteria for processing.

Uncollectible accounts

Accounts receivable that are unlikely to be collected.

Stockouts and excess inventory

Situations where inventory is either insufficient or in excess.

Loss of customers

The situation where customers stop purchasing from the business.

Data entry edit controls

Controls that check for errors during data entry.

Signature to authorize sale

A required approval from a designated person to proceed with a sale.

Credit limits checked

The process of verifying that a customer's purchase does not exceed their credit limit.

Aging of accounts receivable

The process of categorizing accounts receivable based on the length of time they have been outstanding.

Perpetual inventory system

An inventory management system that continuously updates inventory records.

RFID or bar code technology

Technologies used to track inventory and manage stock levels.

Physical inventory counts

The process of counting actual inventory on hand to verify records.

Shipping Process

The series of steps involved in preparing and sending goods to customers, including picking, packing, and shipping.

Pick and pack the order

The process of selecting items from inventory and preparing them for shipment.

Source documents

Documents that provide evidence of a transaction, such as picking tickets, packing slips, and bills of lading.

Threats in shipping

Potential risks that can affect the shipping process, including picking wrong items or quantities, theft, and shipping errors.

Controls in shipping

Measures implemented to mitigate threats in the shipping process, such as bar code technology and inventory reconciliation.

Billing Process

The procedure of invoicing customers and updating accounts receivable.

Invoicing the customer

The act of creating and sending a sales invoice to the customer for payment.

Updating accounts receivable

The process of recording payments received and adjusting customer account balances.

Threats in billing

Risks that can occur during the billing process, such as failure to bill customers and billing errors.

Controls in billing

Procedures put in place to prevent billing errors and ensure accurate invoicing.

Cash Collection Process

The steps taken to process customer payments and update their account balances.

Remittance

The payment made by a customer to settle their account.

Deposit payments to the bank

The action of placing received payments into a bank account.

Threats in cash collection

Risks associated with the cash collection process, including theft of cash and cash flow problems.

Controls in cash collection

Measures to safeguard cash and ensure proper handling and recording of payments.

Key Terms

Important concepts related to the sales process, including revenue cycle and accounts receivable.

Revenue cycle

The series of processes involved in generating revenue, from sales order to cash collection.

Sales order

A document that confirms a customer's purchase and details the items ordered.

Electronic data interchange (EDI)

The electronic exchange of business documents between organizations.

Credit limit

The maximum amount of credit that a customer is allowed to use.

Accounts receivable aging report

A report that categorizes accounts receivable based on the length of time an invoice has been outstanding.

Packing slip

A document that accompanies a shipment, detailing the items included in the package.