Consider the Following Short Case as You Respond to the Next

question 10

Multiple Choice

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?

• A)Their sales / collection process demonstrates the strongest possible level of internal control.
• B)Their risk exposures include credit risk, systems risk and human error risk.
• C)Both A and B are true.
• D)Neither A nor B is true.

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Definitions:

Debtor's Debt

Debtor's debt refers to the monetary obligation owed by a debtor to a creditor, resulting from a loan or another credit agreement.

Real Property

Land and anything permanently attached to it, such as buildings and structures.

Mortgage

A secured loan agreement where property or real estate is used as collateral for borrowing money.

Debtor

A party that has incurred a debt by borrowing money or obtaining goods or services on credit.