Question

Each of the points listed next represents an internal control that may be implemented within a company’s accounting information system to reduce various risks. For each point, identify the appropriate business process (revenue, expenditure, conversion, administrative).

(Hint: Review study objective 1,2,7 in Chapter 1).

Customer credit must be authorized before a business transaction takes place. An authorized price list of goods for sale is provided. A shipping report is prepared for all shipments of goods so that customers may be billed in a timely manner. Access to personnel files and paycheck records is available only in accordance with management specifications. New vendors are required to be authorized before a business transaction takes place. Costs of goods manufactured is properly summarized, classified, recorded, and reported. Amounts due to vendors are reconciled by comparing company records with statements received from the vendors. Employee wage rates and paycheck deductions must be authorized by management. Specific procedures such as the performance of a background check are carried out for all new employee hires. The purchasing manager is notified when stock levels are low so that items may be restocked to prevent backorders. Two signatures are required on checks for payments in excess of $5000. When excess cash is on hand, the funds are invested in short-term securities.    Goods received are inspected, and any damaged or unmatched items are promptly communicated to the vendor.

A. REVENUE PROCESS B. EXPENDITURE PROCESS C. ADMINISTRATIVE PROCESS D. CONVERSION PROCESS

Answer 1

1. Customer credit must be authorized before a business transaction takes place.
It is revenue process, since it is to meet sales requirements.

2. An authorized price list of goods for sale is provided.
It is revenue process, since it targeted for sales revenue

3. A shipping report is prepared for all shipments of goods so that customers may be billed in a timely manner
It is a revenue process, since goods are shipped one sales take place

4. Access to personnel files and paycheck records is available only in accordance with management specifications
It is a expenditure process, as it done to make an expenditure or to make payment

5. New vendors are required to be authorized before a business transaction takes place.
It is a expenditure process, as it for making purchases

6. Costs of goods manufactured is properly summarized, classified, recorded, and reported
It is conversion process

7. Amounts due to vendors are reconciled by comparing company records with statements received from the vendors
It is expenditure process, since it is done before making payments

8. Employee wage rates and paycheck deductions must be authorized by management
It is expenditure process

9. Specific procedures such as the performance of a background check are carried out for all new employee hires
It is expenditure process

10. The purchasing manager is notified when stock levels are low so that items may be restocked to prevent backorders
Conversion process

11. Two signatures are required on checks for payments in excess of $5000
Expenditure process

12. When excess cash is on hand, the funds are invested in short-term securities
Administrative process, since it is management decision to make investments

13. Goods received are inspected, and any damaged or unmatched items are promptly communicated to the vendor.
Revenue process