l O M oA R c P S D | 6 4 5 0 2 0
SOLUTION MANUAL ACCOUNTING INFORMATION
SYSTEMS 12TH EDITION BY ROMNEY AND
STEINBART
, CHAPTER 12
THE REVENUE CYCLE: SALES AND CASH COLLECTIONS
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
12.1 Customer relationship management systems hold great promise, but their usefulness
is determined by the amount of personal data customers are willing to divulge. To
what extent do you think concerns about privacy-related issues affect the use of
CRM systems?
The basic issue concerns the willingness of consumers to divulge the kind of information
that would allow companies to personalize the sales interaction versus concerns that such
information would be misused or sold to other parties. In addition, with the growing
problem of identity theft, consumers are becoming increasingly concerned about the
safety and security of their personal information. Companies that wish to collect this data
will most likely have to demonstrate the need for this information to the consumer as well
as the company’s ability to keep this information secure.
12.2 Some products, like music and software, can be digitized. How does this affect each
of the four main activities in the revenue cycle?
Digitized products do not change the four basic business activities of the revenue cycle.
For all products, whether digitized or not, an order must be taken, the product shipped,
the customer billed, and cash collected.
The only thing that digitized products change is inventory management as products do
not need to be removed from a warehouse to be delivered. However, a copy of a product
must be shipped (usually electronically, but in some cases it may need to be burned on a
DVD and then shipped).
12.3 Many companies use accounts receivable aging schedules to project future cash
inflows and bad-debt expense. Review the information typically presented in such a
report (see Figure 12-8). Which specific metrics can be calculated from those data
that might be especially useful in providing early warning about looming cash flow
or bad-debt problems?
The accounts receivable aging report shows dollar amounts outstanding by number of
days past due by customer and by invoice. The following metrics can provide useful
early warnings about looming cash flow or bad-debt problems.
, l O M oA R c P S D | 6 4 5 0 2 0 1
Find more on www.downloadslide.com
Ch. 12: The Revenue Cycle: Sales and Cash Collections
• The percentage of total accounts receivable categorized by days past due would alert
management of categories that are increasing. This could also be reported by
customer and by invoice. This way if a particular invoice was not being paid, the
company could more quickly identify the invoice, contact the customer, and
potentially resolve any problems or disputes about the particular invoice.
• Reporting by customer can help to identify chronic “slow paying” customers so that
corrective action could be taken such as offering discounts for quick payment,
changes in terms, and notifying the credit manager to restrict credit for this particular
customer.
• The company may have a threshold for each category of past due accounts either in
percentages or absolute dollars. A metric could be calculated and presented that
highlights the categories exceeding that threshold.
12.4 Table 12-1 suggests that restricting physical access to inventory is one way to reduce
the threat of theft. How can information technology help accomplish that objective?
Possibilities include:
• Electronic locks on all entrances and exits to the inventory area.
• Smart card technology where employees must scan their ID card prior to
entering/exiting the inventory area.
• Biometric access controls (fingerprint reader, face recognition software, etc.)
• Attach RFID tags to inventory items and install RFID tag scanners at each exit of the
inventory area.
• Install and monitor surveillance cameras in the inventory area.
12.5 Invoiceless pricing has been adopted by some large businesses for B2B transactions.
What are the barriers, if any, to its use in B2C commerce?
Many companies are trying to incent their customers to sign up for automatic bill-pay.
The primary barrier is consumer resistance to or fear of online bill payment in general.
However, there are also problems on the seller side – particularly in regards to billing
disputes. A related issue is the threat of asset misappropriation – how easily can the seller
attempt to recover items sold to the consumer?
12.6 The use of some form of electronic “cash” that would provide the same kind of
anonymity for e-commerce that cash provides for traditional physical business
transactions has been discussed for a long time. What are the advantages and
disadvantages of electronic cash to customers? To businesses? What are some of the
accounting implications of using electronic cash?
Any form of electronic or digital cash has the same audit risks as physical cash:
, susceptibility to theft and loss of an audit trail. In addition, digital “cash” also has risks
associated with the durability of the store of value – to what extent can the cash be
recovered if the storage media becomes defective?
Another issue concerns the potential loss of privacy, because the digital currency can be
“marked” in a manner that enables tracing its path through the economy.
Finally, there is the question of how to provide and maintain an adequate audit trail to
prevent unscrupulous businesses from “skimming” digital cash sales and thereby
underreporting sales for tax purposes.
SUGGESTED ANSWERS TO THE PROBLEMS
12.1 Match the term in the left column with its definition in the right column.
1. d CRM system a. Document used to authorize reducing the balance in a customer
account
2. g_ Open-invoice b. Process of dividing customer account master file into subsets
method and preparing invoices for one subset at a time
3. a Credit memo c. System that integrates EFT and EDI information
4. h Credit limit d. System that contains customer-related data organized in a
manner to facilitate customer service, sales, and retention
5. b Cycle billing e. Electronic transfer of funds
6. c FEDI f. Method of maintaining accounts receivable that generates one
payments for all sales made the previous month
7. _n Remittance advice g. Method of maintaining customer accounts that generates
payments for each individual sales transaction
8. _j Lockbox h. Maximum possible account balance for a customer
9. _k Back order i. Electronic invoicing
10. _m Picking ticket j. Post office box to which customers send payments
11. _l Bill of lading k. Document used to indicate stock outs exist
l. Document used to establish responsibility for shipping goods via
a third party
m. Document that authorizes removal of merchandise from
inventory
n. Turnaround document returned by customers with payments
12.2 What internal control procedure(s) would provide protection against the following
threats?
SOLUTION MANUAL ACCOUNTING INFORMATION
SYSTEMS 12TH EDITION BY ROMNEY AND
STEINBART
, CHAPTER 12
THE REVENUE CYCLE: SALES AND CASH COLLECTIONS
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
12.1 Customer relationship management systems hold great promise, but their usefulness
is determined by the amount of personal data customers are willing to divulge. To
what extent do you think concerns about privacy-related issues affect the use of
CRM systems?
The basic issue concerns the willingness of consumers to divulge the kind of information
that would allow companies to personalize the sales interaction versus concerns that such
information would be misused or sold to other parties. In addition, with the growing
problem of identity theft, consumers are becoming increasingly concerned about the
safety and security of their personal information. Companies that wish to collect this data
will most likely have to demonstrate the need for this information to the consumer as well
as the company’s ability to keep this information secure.
12.2 Some products, like music and software, can be digitized. How does this affect each
of the four main activities in the revenue cycle?
Digitized products do not change the four basic business activities of the revenue cycle.
For all products, whether digitized or not, an order must be taken, the product shipped,
the customer billed, and cash collected.
The only thing that digitized products change is inventory management as products do
not need to be removed from a warehouse to be delivered. However, a copy of a product
must be shipped (usually electronically, but in some cases it may need to be burned on a
DVD and then shipped).
12.3 Many companies use accounts receivable aging schedules to project future cash
inflows and bad-debt expense. Review the information typically presented in such a
report (see Figure 12-8). Which specific metrics can be calculated from those data
that might be especially useful in providing early warning about looming cash flow
or bad-debt problems?
The accounts receivable aging report shows dollar amounts outstanding by number of
days past due by customer and by invoice. The following metrics can provide useful
early warnings about looming cash flow or bad-debt problems.
, l O M oA R c P S D | 6 4 5 0 2 0 1
Find more on www.downloadslide.com
Ch. 12: The Revenue Cycle: Sales and Cash Collections
• The percentage of total accounts receivable categorized by days past due would alert
management of categories that are increasing. This could also be reported by
customer and by invoice. This way if a particular invoice was not being paid, the
company could more quickly identify the invoice, contact the customer, and
potentially resolve any problems or disputes about the particular invoice.
• Reporting by customer can help to identify chronic “slow paying” customers so that
corrective action could be taken such as offering discounts for quick payment,
changes in terms, and notifying the credit manager to restrict credit for this particular
customer.
• The company may have a threshold for each category of past due accounts either in
percentages or absolute dollars. A metric could be calculated and presented that
highlights the categories exceeding that threshold.
12.4 Table 12-1 suggests that restricting physical access to inventory is one way to reduce
the threat of theft. How can information technology help accomplish that objective?
Possibilities include:
• Electronic locks on all entrances and exits to the inventory area.
• Smart card technology where employees must scan their ID card prior to
entering/exiting the inventory area.
• Biometric access controls (fingerprint reader, face recognition software, etc.)
• Attach RFID tags to inventory items and install RFID tag scanners at each exit of the
inventory area.
• Install and monitor surveillance cameras in the inventory area.
12.5 Invoiceless pricing has been adopted by some large businesses for B2B transactions.
What are the barriers, if any, to its use in B2C commerce?
Many companies are trying to incent their customers to sign up for automatic bill-pay.
The primary barrier is consumer resistance to or fear of online bill payment in general.
However, there are also problems on the seller side – particularly in regards to billing
disputes. A related issue is the threat of asset misappropriation – how easily can the seller
attempt to recover items sold to the consumer?
12.6 The use of some form of electronic “cash” that would provide the same kind of
anonymity for e-commerce that cash provides for traditional physical business
transactions has been discussed for a long time. What are the advantages and
disadvantages of electronic cash to customers? To businesses? What are some of the
accounting implications of using electronic cash?
Any form of electronic or digital cash has the same audit risks as physical cash:
, susceptibility to theft and loss of an audit trail. In addition, digital “cash” also has risks
associated with the durability of the store of value – to what extent can the cash be
recovered if the storage media becomes defective?
Another issue concerns the potential loss of privacy, because the digital currency can be
“marked” in a manner that enables tracing its path through the economy.
Finally, there is the question of how to provide and maintain an adequate audit trail to
prevent unscrupulous businesses from “skimming” digital cash sales and thereby
underreporting sales for tax purposes.
SUGGESTED ANSWERS TO THE PROBLEMS
12.1 Match the term in the left column with its definition in the right column.
1. d CRM system a. Document used to authorize reducing the balance in a customer
account
2. g_ Open-invoice b. Process of dividing customer account master file into subsets
method and preparing invoices for one subset at a time
3. a Credit memo c. System that integrates EFT and EDI information
4. h Credit limit d. System that contains customer-related data organized in a
manner to facilitate customer service, sales, and retention
5. b Cycle billing e. Electronic transfer of funds
6. c FEDI f. Method of maintaining accounts receivable that generates one
payments for all sales made the previous month
7. _n Remittance advice g. Method of maintaining customer accounts that generates
payments for each individual sales transaction
8. _j Lockbox h. Maximum possible account balance for a customer
9. _k Back order i. Electronic invoicing
10. _m Picking ticket j. Post office box to which customers send payments
11. _l Bill of lading k. Document used to indicate stock outs exist
l. Document used to establish responsibility for shipping goods via
a third party
m. Document that authorizes removal of merchandise from
inventory
n. Turnaround document returned by customers with payments
12.2 What internal control procedure(s) would provide protection against the following
threats?
