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Exam 12: Salescollection Process

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Question 1

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Consider the following short case as you respond to the next question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2 / 10, n / 30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period.The entries in VLC's accounting information system to record all the preceding events will include all of the following except:

A) Debit Accounts Receivable, $300. Credit Sales, $300.
B) Debit Cost of Goods Sold, $200. Credit Inventory, $200.
C) Debit Delivery Expense, $10. Credit Cash, $10.
D) Debit Cash, $294. Debit Inventory, $6. Credit Accounts Receivable, $300.

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Question 2

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Which of the following steps in the sales / collection process occurs last?

A) Bill the customer.
B) Approve the customer's credit.
C) Ship the product.
D) Fill the order based on shipping instructions.

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Question 3

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Which of the following transactions would be appropriately processed in the sales / collection process?

Consider the following set of symbols and the ELM case as you respond to the next question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. ELM's customer database could be represented with:

Consider the following statements as you answer the next question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice.ii. In purchasing books, Allison filled out a form on a bookstore's web site.iii. The bookstore's web site verified Allison's credit limit.iv. William, a warehouse worker, prepared Allison's books for shipment.Which of the following phrases relates most closely to the sixth step in the sales / collection process?

The sales / collection process is important in organizations because:

Several journal entries common to the sales / collection process are listed below. For each, explain what transaction the entry is recording.

"The appropriate department processes the customer's check" is an example of which step in the sales / collection process?

In a paper on the role and purpose of the sales / collection process, Bumble Beasley wrote: "The sales / collection process is exclusively concerned with selling products on credit and collecting cash from clients." Which of the following should be deleted from his statement?

Which of the following internal controls can be applied to the sales / collection process based on the role and purpose of the process?

The sales / collection process can be related to which form of risk from Brown's taxonomy?

Consider the following statements as you answer the next question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice.ii. In purchasing books, Allison filled out a form on a bookstore's web site.iii. The bookstore's web site verified Allison's credit limit.iv. William, a warehouse worker, prepared Allison's books for shipment.All of the following steps in the sales / collection process are represented in the four statements except:

Internal controls in the sales / collection process include:

Consider the following short case as you respond to the next question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2 / 10, n / 30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period.The entries in VLC's accounting information system to record all the preceding events will include all of the following except:

Consider the following information items as you respond to the next question: i. Customer master file Ii) Journal entry to record the receipt of cash Iii) Pre-numbered documents Iv) Schedule of accounts receivable Accounting information systems have five generic elements. Which of the following statements is most true?

Sally, a sales representative for WER Corporation, ensures that she does a thorough credit check for customers who want to purchase goods on account. The most important internal control WER should implement is:

Use COSO's internal control framework to develop an internal control plan for Homemade Craft Company based on the following narrative. Focus your plan on internal controls for the sales / collection process.Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity.HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. All HCC's sales are for cash; each inventory item is marked up 25% on its cost to determine the selling price. For example, if a product costs $100 to buy, HCC sells it for $125. The two sales employees bring all cash receipts back to HCC's main office; the receptionist deposits the cash in the bank at least once a week.

Consider the following short case as you respond to the next question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.A systems flowchart of ELM's sales / collection process would include all of the following column headings except:

Consider the following short case as you respond to the next question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales / collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales.Which of the following statements about SPC is most true?

Prepare a narrative description of the sales / collection process depicted in the systems flowchart below. Then, identify three risk exposures for the company's sales / collection process; for each risk exposure, suggest one internal control you would implement.