SHORT ANSWER

1. Distinguish between a packing slip, shipping notice, and a bill of lading

The packing slip is a shipping document that travels with the products to the customer, and describes
the contents on the order. Once the order is filled, the shipping department then sends the shipping
notice to the billing department to give notice to them that the order has been filled and shipped. The
shipping notice contains additional information that the packing slip may not enclosed, such as the
carrier, shipment date, and freight charges. The bill of lading, on the other hand, is a formal contract
between the seller and the transportation carrier, wherein it shows the legal ownership and
responsibility for assets in transit.

2. State two specific functions or jobs that should be segregated in the sales processing system.

ANS: Sales order processing and credit approval; inventory control (record keeping) from warehouse
(custody); and general ledger from accounts receivable subsidiary ledger

3. State two specific functions or jobs that should be segregated in the cash receipts system.

ANS: cash receipts (custody) from accounts receivable (record keeping); and general ledger from
accounts receivable subsidiary ledger mail room (receiving cash) and accounts receivable subsidiary
ledger

4. List two points in the sales processing system when authorization is required.

ANS: credit check, sales returns policy, preparation of cash prelist

5. For the revenue cycle, state two specific independent verifications that should be performed.

ANS: shipping verifies that the goods sent from the warehouse are correct in type and quantity; billing
reconciles the shipping notice with the sales order to ensure that customers are billed only for the
quantities shipped; general ledger reconciles journal vouchers submitted by the billing department
(sales journal), inventory control (inventory subsidiary ledger), and cash receipts (cash receipts journal)
treasurer determines that all cash received got to the bank

6. What task can the accounts receivable department engage in to verify that all checks sent by

the customers have been appropriately deposited and recorded?

ANS: The company should periodically, perhaps monthly, send an account summary to each customer
listing invoices and amounts paid by check number and date. This form allows the customer to verify the
accuracy of the records. If any payments are not recorded, they will notify the company of the
discrepancy. These reports should not be handled by the accounts receivable clerk or the cashier.

7. What specific internal control procedure would prevent the sale of goods on account to a fictitious
customer?
ANS: Credit check is the specific internal control procedure would prevent the sale of goods on
account to a fictitious customer

8. The clerk who opens the mail routinely steals remittances. Describe a specific internal control
procedure that would prevent or detect this fraud.

ANS: supervision (two people) when opening the mail; customer complaints when monthly statements
mailed

9. A customer payment of $247 was correctly posted in the general ledger but was recorded as $274 in
the customer’s account receivable. Describe a specific internal control procedure that would detect this
error.

ANS: reconcile the accounts receivable control account to the accounts receivable subsidiary ledger;
compare control totals of cash received with total credits to A/R subsidiary ledger

10. Goods are shipped to a customer, but the shipping department does not notify billing and the
customer never receives an invoice. Describe a specific internal control procedure that would detect this
error.

ANS: Billing department matches the stock release copy of the sales order (from shipping) to the invoice,
ledger, and file copies of the sales order (sent directly to billing), and then mails the invoice to the
customer. After a certain amount of time has passed, the billing department should investigate any
unmatched invoice, ledger, and file copies of the sales order.