Ais Master Reviewer 1 8 Accounting Info System Test Bank
Ais Master Reviewer 1 8 Accounting Info System Test Bank
Ais Master Reviewer 1 8 Accounting Info System Test Bank
TRUE/FALSE ANS: F
1. Information is a business resource. 13. The internal auditor represents the interests of
third-party outsiders.
ANS: T
ANS: F
2. An information system is an example of a natural
system. 14. Information Technology (IT) audits can be
performed by both internal and external auditors.
ANS: F
ANS: T
3. Transaction processing systems convert non-
financial transactions into financial transactions. 15. The single largest user of computer services is
the personnel function.
ANS: F
ANS: F
4. Information lacking reliability may still have value.
16. Increased control is one of the key advantages of
ANS: F distributed data processing.
5. A balance sheet prepared in conformity with ANS: F
GAAP is an example of discretionary reporting.
17. The flat-file approach is most often associated
ANS: F with so-called legacy systems.
6. The Management Reporting System provides the ANS: T
internal financial information needed to manage a
business. 18. In a flat-file system, files are easily shared by
users.
ANS: T
ANS: F
7. Most of the inputs to the General Ledger System
come from the Financial Reporting System. 19. Legacy systems were eliminated in the effort to
make systems Y2K compliant.
ANS: F
ANS: F
8. When preparing discretionary reports,
organizations can choose what information to report 20. One of the greatest disadvantages of database
and how to present it. systems is that all data is always available to all
users.
ANS: T
ANS: F
9. Retrieval is the task of permanently removing
obsolete or redundant records from the database. 21. Under SOX legislation auditors are no longer
allowed to provide consulting services to audit
ANS: F clients.
10. Systems development represents 80 to 90 ANS: T
percent of the total cost of a computer system.
22. Under SOX legislation auditors are no loger
ANS: F allowed to provide consulting services to their
11. The database administrator is responsible for the clients.
security and integrity of the database. ANS: F
ANS: T They cannot provide such services to audit clients
but may still provide them to non-audit clients
b. recording financial transactions in the accounting 15. In a database, a complete set of attributes for a
records single occurrence of an entity class is called
ANS: A ANS: A
13. When designing the data collection activity, 18. The author distinguishes between the
which type of data should be avoided? Accounting Information System and the
management Information System based on
a. data that is relevant
a. whether the transactions are financial or
b. data that is efficient nonfinancial
c. data that is redundant b. whether discretionary or nondiscretionary reports
d. data that is accurate are prepared
14. The most basic element of useful data in the d. the organizational structure of the business
database is ANS: A
a. the record
19. Which activity is not part of the finance function? b. separation of duties, such as record keeping and
custody of physical resources
a. cash receipts
c. generation of accurate and timely information
b. portfolio management
d. business segmentation by function
c. credit
ANS: B
d. general ledger
24. In the distributed data processing approach
ANS: D
a. computer services are consolidated and managed
20. Market research and advertising are part of as a shared organization resource
which business function?
b. the computer service function is a cost center
a. materials management
c. the end users are billed using a charge-back
b. finance system
c. marketing d. computer services are organized into small
d. production information processing units under the control of
end users
ANS: C
ANS: D
21. Which function manages the financial resources
of the firm through portfolio management, banking, 25. The data control group is responsible for
credit evaluation, and cash receipts and a. performing the day-to-day processing of
disbursements? transactions
a. accounting b. security and integrity of the database
b. finance c. liaison between the end user and data processing
c. materials management d. providing safe storage for off-line data files
d. distribution ANS: C
ANS: B 26. Data processing does not involve
22. Which of the following is not part of the a. data control
accounting function?
b. computer operations
a. managing the financial information resource of
the firm c. system maintenance
28. Which individual is least involved in new systems d. confidence that all data is current
development?
ANS: B
a. systems analyst
33. Disadvantages of distributed data processing
b. external auditor include all of the following except
29. The objectives of all information systems include d. difficulty in hiring qualified IT professionals
all of the following except
ANS: C
a. support for the stewardship function of
management 34. Advantages of distributed data processing
include each of the following except
b. evaluating transaction data
a. cost reductions
c. support for the day-to-day operations of the firm
b. better management of organization resources
d. support for management decision making
c. improved operational efficiency
ANS: B
d. increased user satisfaction
30. Which individuals may be involved in the
Systems Development Life Cycle? ANS: B
31. An appraisal function housed within the d. system is not responsive to the user’s situation
organization that performs a wide range of services
for management is ANS: D
a. elimination of data redundancy 37. All of the following are external end users except
1. Entities outside the organization with a direct or 10. Audits are conducted by
indirect interest in the firm, such as stockholders, ____________________, ____________________,
financial institutions, and government agencies, are and ____________________ auditors.
called ____________________.
ANS: internal, external, IT
ANS: stakeholders
11. Sales of products to customers, purchases of
2. The process of breaking a system into smaller inventory from vendors, and cash disbursements are
subsystem parts is called all example of __________________________.
______________________________.
ANS: financial transactions
ANS: system decomposition
12. The three major subsystems of the AIS are their audit clients. This is now prohibited from doing
_______________________________, so under SOX legislation.
___________________________, and
_______________________________. 19. What is discretionary reporting?
ANS: the transaction processing system, the general ANS: Reports used by management that the
ledger/financial reporting system, the management company is not obligated by law, regulation, or
reporting system contract to provide. These are often used for
internal problem-solving issues rather than by
13. The __________________________ and external constituents.
__________________________ standards that
characterize the AIS clearly distinguish it from the 20. Name the five characteristics of information?
MIS. ANS: Relevance, accuracy, completeness,
ANS: legal, professional summarization, and timeliness.
ANS: revenue, expenditure, conversion 1. Processing more transactions at a lower unit cost
makes batch processing more efficient than real-
15. The REA model identifies an organization’s time systems.
____________________, ____________________,
and ____________________. ANS: T
ANS: resources, events, agents. 2. The process of acquiring raw materials is part of
the conversion cycle.
16. Sarbanes-Oxley legislation requires that
management designs and implements controls over ANS: F
the entire financial reporting process. What systems 3. Directing work-in-process through its various
does this include? stages of manufacturing is part of the conversion
ANS: This includes the financial reporting system, the cycle.
general ledger system, and the transaction ANS: T
processing systems that supply the data for financial
reporting. 4. The top portion of the monthly bill from a credit
card company is an example of a turn-around
17. Why is it necessary to distinguish between AIS document.
and MIS?
ANS: T
ANS: Because of the highly integrative nature of
modern information systems, management and 5. The general journal is used to record recurring
auditors need a conceptual view of the information transactions that are similar in nature.
system that distinguishes key processes and areas of
risk and legal responsibility from the other (non- ANS: F
legally binding) aspects of the system. Without such 6. Document flowcharts are used to represent
a model, critical management and audit systems at different levels of detail.
responsibilities under SOX may not be met.
ANS: F
18. How has SOX legislation impacted the consulting
practices of public accounting firms? 7. Data flow diagrams represent the physical system.
11. Program flowcharts are used to describe the updated in real time.
logic represented in system flowcharts.
ANS: F
ANS: T
23. Operational inefficiencies occur because
12. Batch processing systems can store data on accounts common to many concurrent transactions
direct access storage devices. need to be
ANS: D ANS: A
3. Which of the following is a turn-around 8. Subsidiary ledgers are used in manual accounting
document? environments. What file is comparable to a
a. airline reservations 25. Which method of processing does not use the
destructive update approach?
b. credit authorization
a. batch processing using direct access files
c. payroll processing
b. real-time processing
d. adjustments to perpetual inventory
c. batch processing using sequential files
ANS: C
d. all of the above use the destructive update
21. The type of transaction most suitable for real- approach
time processing is
ANS: C
a. recording fixed asset purchases
26. Which symbol represents a data store?
b. recording interest earned on long-term bonds
27. Which symbol represents a manual operation?
c. adjusting prepaid insurance
28. Which symbol represents accounting records?
d. recording a sale on account
29. Which symbol represents a document?
ANS: D
30. Which symbol represents a magnetic tape
22. Which step is not found in batch processing using (sequential storage device)?
sequential files?
31. Which symbol represents a decision?
a. control totals
32. The characteristics that distinguish between
b. sort runs batch and real-time systems include all of the
following
c. edit runs
except
d. immediate feedback of data entry errors
a. time frame
ANS: D
b. resources used
23. Both the revenue and the expenditure cycle can
be viewed as having two key parts. These are c. file format
c. input and output 33. A file that stores data used as a standard when
processing transactions is
d. batch and real-time
a. a reference file
ANS: B
b. a master file
24. All of the following can provide evidence of an
economic event except c. a transaction file
36. Which accounting application is least suited for ANS: expenditure cycle, conversion cycle, revenue
batch processing? cycle
38. Operational inefficiencies occur because ANS: Special journals are used to record large
volumes of recurring transactions that are similar in
a. accounts both common and unique to many nature.
concurrent transactions need to be updated in real
time. 6. What are the subsystems of the revenue cycle?
b. accounts common to many concurrent ANS: sales order processing, cash receipts
transactions need to be updated in real time.
7. What are the subsystems of the expenditure ANS: time lag, resource use, efficiency
cycle?
16. Give one advantages of real-time data collection.
ANS: purchasing, cash disbursements, payroll
ANS: certain transaction errors can be prevented or
8. Most organizations have replaced the general detected and corrected at their source.
journal with a _______________________________.
17. In one sentence, what does updating a master
ANS: journal voucher system file record involve?
9. Provide a specific example of a general ledger ANS: Updating a master file record involves changing
account and a corresponding subsidiary ledger. the value of one or more of its variable fields to
reflect the effects of a transaction.
ANS:
18. What is destructive update?
accounts receivable control account and accounts
receivable subsidiary, accounts payable control ANS: Destructive update involves replacing an old
data value with a new value and thus destroying the
account and accounts payable subsidiary, inventory original.
control and a subsidiary of specific inventory
Chapter 3—Ethics, Fraud, and Internal
items, fixed asset control account and a subsidiary of
specific fixed assets, notes receivable/payable Control
and individual notes receivable and payable TRUE/FALSE
10. Name five documentation techniques? 1. The ethical principle of justice asserts that the
benefits of the decision should be distributed fairly
ANS: entity-relationship diagrams, data flow to those who share the risks.
diagrams, document flowcharts, system flowcharts,
program flowcharts ANS: T
11. Why is the audit trail important? 2. The ethical principle of informed consent suggests
that the decision should be implemented so as to
ANS: The audit trail is used to track transactions minimize all of the risks and to avoid any
from the source document to the financial unnecessary risks.
statements and vice versa. Accountants use the
audit trail to correct errors, answer queries, and ANS: F
perform audits. 3. Employees should be made aware of the firm’s
12. List a method of data processing that uses the commitment to ethics.
destructive update approach? ANS: T
ANS: batch method using direct access files or real- 4. Business ethics is the analysis of the nature and
time processing social impact of computer technology, and the
13. Only four symbols are used in data flow corresponding formulation and justification of
diagrams. What are they? policies for the ethical use of such technology.
14. Which flowchart depicts the relationship 5. Para computer ethics is the exposure to stories
between processes and the documents that flow and reports found in the popular media regarding
between them and trigger activities? the good or bad ramifications of computer
technology.
ANS: document flowcharts
ANS: F
15. What are the three characteristics that are used
to distinguish between batch and real-time systems. 6. Source code is an example of intellectual property.
ANS: T ANS: F
7. Copyright laws and computer industry standards 19. A key modifying assumption in internal control is
have been developed jointly and rarely conflict. that the internal control system is the responsibility
of management.
ANS: F
ANS: T
8. Business bankruptcy cases always involve
fraudulent behavior. 20. Database management fraud includes altering,
updating, and deleting an organization’s data.
ANS: F
ANS: F
9. Defalcation is another word for financial fraud.
21. While the Sarbanes-Oxley Act prohibits auditors
ANS: T from providing non-accounting services to their
10. The trend toward distributed data processing audit clients, they are not prohibited from
increases the exposure to fraud from remote performing such services for non-audit clients or
locations. privately held
ANS: T companies.
c. permitting access to data by unauthorized 8. Which of the following best describes lapping?
individuals
a. applying cash receipts to a different customer’s
d. providing correct data to unauthorized individuals account in an attempt to conceal previous thefts of
funds
ANS: B
b. inflating bank balances by transferring money
4. Which characteristic is not associated with among different bank accounts
software as intellectual property?
c. expensing an asset that has been stolen
a. uniqueness of the product
d. creating a false transaction
b. possibility of exact replication
ANS: A
c. automated monitoring to detect intruders
9. Operations fraud includes
d. ease of dissemination
a. altering program logic to cause the application to
ANS: C process data incorrectly
5. For an action to be called fraudulent, all of the b. misusing the firm’s computer resources
following conditions are required except
c. destroying or corrupting a program’s logic using a
a. poor judgment computer virus
b. false representation d. creating illegal programs that can access data files
c. intent to deceive to alter, delete, or insert values
a. errors are made due to employee fatigue 17. The bank reconciliation uncovered a
transposition error in the books. This is an example
b. fraud occurs because of collusion between two of a
employees
a. preventive control
c. the industry is inherently risky
b. detective control
d. management instructs the bookkeeper to make
fraudulent journal entries c. corrective control
a. preventive control 18. In balancing the risks and benefits that are part
of every ethical decision, managers receive guidance
b. accounting control from each of the following except
c. detective control a. justice
d. corrective control b. self interest
ANS: A c. risk minimization
14. Which of the following is a preventive control? d. proportionality
a. credit check before approving a sale on account ANS: B
b. bank reconciliation 19. Which of the following is not an element of the
c. physical inventory count internal control environment?
b. organizational structure of the firm a. to avoid collusion between the programmer and
the computer operator
c. well-designed documents and records
b. to ensure that supervision is not required
d. the functioning of the board of directors and the
audit committee c. to prevent the record keeper from authorizing
transactions
ANS: C
d. to enable the firm to function more efficiently
20. Which of the following suggests a weakness in
the internal control environment? ANS: C
a. the firm has an up-to-date organizational chart 24. Segregation of duties in the computer-based
information system includes
b. monthly reports comparing actual performance to
budget are distributed to managers a. separating the programmer from the computer
operator
c. performance evaluations are prepared every three
years b. preventing management override
d. the audit committee meets quarterly with the c. separating the inventory process from the billing
external auditors process
a. the internal audit group reports to the audit 25. Which of the following is not an internal control
committee of the board of directors procedure?
ANS: A ANS: B
22. According to SAS 78, an effective accounting 26. The decision to extend credit beyond the normal
system performs all of the following except credit limit is an example of
d. records all financial transactions promptly 27. When duties cannot be segregated, the most
important internal control procedure is
ANS: C
a. supervision
23. Which of the following is the best reason to
separate duties in a manual system? b. independent verification
c. access controls
ANS: D ANS: B
38. The four principal types of fraud include all of the 42. Which of the following situations is not a
following except segregation of duties violation?
39. The characteristics of useful information include c. The sales manager has the responsibility to
approve credit and the authority to write off
a. summarization, relevance, timeliness, accuracy, accounts.
and completeness
d. The department time clerk is given the
b. relevance, summarization, accuracy, timelessness, undistributed payroll checks to mail to absent
and completeness employees.
c. timeliness, relevance, summarization, accuracy, e. The accounting clerk who shares the record
and conciseness keeping responsibility for the accounts receivable
subsidiary ledger performs the monthly
d. disaggregation, relevance, timeliness, accuracy,
reconciliation of the subsidiary ledger and the
and completeness
control account.
ANS: A
ANS: B
40. Internal control system have limitations. These
43. Which of the following is not an issue to be
include
addressed in a business code of ethics required by
a. possibility of honest error the SEC?
e. All of the above are issues to be addressed ANS: A. preventive; B. detective; C. preventive; D.
detective; E. detective
ANS: E
Use the internal control procedures listed below to
SHORT ANSWER complete the statements.
1. What are the main issues to be addressed in a segregation of duties
business code of ethics required by the SEC?
specific authorization
ANS: Conflicts of interest, Full and Fair Disclosures,
Legal Compliance, Internal Reporting of Code general authorization
Violations, Accountability
accounting records
2. List the four broad objectives of the internal
control system. access controls
ANS: the control environment, risk assessment, 9. Locking petty cash in a safe is an example of
information and communication, monitoring, and __________________________.
control activities
ANS: access controls
5. What are management responsibilities under
section 302 and 404? 10. Approving a price reduction because goods are
damaged is an example of
ANS: Section 302 requires that corporate __________________________.
management (including the CEO) certify their
organization’s internal controls on a quarterly and ANS: specific authorization
annual basis. Section 404 requires the management 11. Using cameras to monitor the activities of
of public companies to assess and formally report on cashiers is an example of
the effectiveness of their organization’s internal __________________________.
controls.
ANS: supervision
6. Identify to indicate whether each procedure is a
preventive or detective control. 12. Not permitting the computer programmer to
enter the computer room is an example of
a. authorizing a credit sale _______________________________.
b. preparing a bank reconciliation ANS: segregation of duties
13. Sequentially numbering all sales invoices is an the stolen check. This is in effect a small scale Ponzi
example of __________________________. scheme.
ANS: accounting records 20. What are the six broad classes of physical control
activities defined by SAS 78?
14. What are the five conditions necessary for an act
to be considered fraudulent? ANS: Transaction authorization, segregation of
duties, supervision, access controls, accounting
ANS: false representation, material fact, intent, records, independent verification
justifiable reliance, and injury or loss
Chapter 4—The Revenue Cycle
15. What is the objective of SAS 99?
TRUE/FALSE
ANS: The objective of SAS 99 is to seamlessly blend
the auditor’s consideration of fraud into all phases of 1. The packing slip is also known as the shipping
the audit process. notice.
16. Distinguish between exposure and risk. ANS: F
ANS: Exposure is the absence or weakness of a 2. The bill of lading is a legal contract between the
control which increases the firm’s risk of financial buyer and the seller.
loss or injury. Risk is the probability of incurring such
a loss or injury. ANS: F
17. Explain the characteristics of management fraud. 3. Another name for the stock release form is the
picking ticket.
ANS: Management fraud typically occurs at levels
above where the internal control system is effective. ANS: T
Financial statements are frequently modified to 4. Warehouse stock records are the formal
make the firm appear more healthy than it actually accounting records for inventory.
is.
ANS: F
If any misappropriation of assets occurs, it is usually
5. The purpose of the invoice is to bill the customer.
well hidden.
ANS: T
18. The text discusses many questions about
personal traits of employees which might help 6. In most large organizations, the journal voucher
uncover fraudulent activity. What are three? file has replaced the formal general journal.
ANS: executives: with high personal debt, living ANS: T
beyond their means, engaged in habitual gambling,
appear to abuse alcohol or drugs, appear to lack 7. The cash receipts journal is a special journal.
personal codes of ethics, appear to be unstable
ANS: T
19. Give two examples of employee fraud and
8. In the revenue cycle, the internal control “limit
explain how the theft might occur.
access” applies to physical assets only.
ANS: Charges to expense accounts: Cash could be
ANS: F
stolen and charged to a miscellaneous expense
account. Once the account is closed, detection 9. In real-time processing systems, routine credit
would be more difficult. authorizations are automated.
Lapping: This involves converting cash receipts to ANS: T
personal use. If a customer’s check is taken, his/her
balance will not reflect a payment and will be 10. In a computerized accounting system,
detected when a statement is sent. In order to segregation of functions refers to inventory control,
conceal this fraud, a later payment is used to cover accounts receivable, billing, and general ledger tasks.
19. A bill of lading is a request for payment for d. the journal voucher
shipping charges. ANS: B
ANS: F 5. Copies of the sales order can be used for all of the
20. In point of sale systems, authorization takes the following except
form of validation of credit card charges. a. purchase order
ANS: T b. credit authorization
MULTIPLE CHOICE c. shipping notice
1. The revenue cycle consists of d. packing slip
a. one subsystem–order entry ANS: A
b. two subsystems–sales order processing and cash 6. The purpose of the sales invoice is to
receipts
a. record reduction of inventory
c. two subsystems–order entry and inventory control
b. transfer goods from seller to shipper a. the customer purchase order is received
d. select items from inventory for shipment c. the original goods are shipped
c. is always prepared by the shipping clerk 14. Which situation indicates a weak internal control
structure?
d. informs the billing department of the quantities
shipped a. the mailroom clerk authorizes credit memos
c. prenumber and sequence check all credit d. inventory to be shipped is not stolen
memoranda
ANS: A
d. require management approval for all credit
memoranda 20. Which control does not help to ensure that
accurate records are kept of customer accounts and
ANS: D inventory?
16. The accounts receivable clerk destroys all a. reconcile accounts receivable control to accounts
invoices for sales made to members of her family receivable subsidiary
and does not record the sale in the accounts
receivable subsidiary ledger. Which procedure will b. authorize credit
not detect this fraud? c. segregate custody of inventory from record
a. prenumber and sequence check all invoices keeping
b. reconcile the accounts receivable control to the d. segregate record keeping duties of general ledger
accounts receivable subsidiary ledger from accounts receivable
d. reconcile total sales on account to the debits in 21. Internal controls for handling sales returns and
the accounts receivable subsidiary ledger allowances do not include
a. sales ANS: D
26. At which point is supervision most critical in the b. transfer of information among modules occurs
cash receipts system? automatically
32. Which of the following is not a risk exposure in a d. a memo prepared in the mailroom
microcomputer accounting system?
ANS: C
a. reliance on paper documentation is increased
37. The revenue cycle utilizes all of the following files
b. functions that are segregated in a manual except
environment may be combined in a microcomputer
accounting system a. credit memo file
a. cash receipts journal 38. All of the following are advantages of real-time
processing of sales except
b. sales journal
a. The cash cycle is shortened
c. purchases journal
b. Paper work is reduced
d. general journal
c. Incorrect data entry is difficult to detect
ANS: C
d. Up-to-date information can provide a competitive
34. Periodically, the general ledger department advantage in the marketplace
receives all of the following except
ANS: C
a. total increases to accounts receivable
SHORT ANSWER
b. total of all sales backorders
1. Distinguish between a packing slip, shipping
c. total of all sales notice, and a bill of lading.
d. total decreases in inventory ANS: The packing slip travels with the goods to the
customer, and it describes the contents on the
ANS: B order.
35. The credit department Upon filling the order, the shipping department
a. prepares credit memos when goods are returned sends the shipping notice to the billing department
to notify them that the order has been filled and
b. approves credits to accounts receivable when shipped. The shipping notice contains additional
payments are received information that the packing slip may not contain,
such as shipment date, carrier and freight charges.
c. authorizes the granting of credit to customers
The bill of lading is a formal contract between the
d. none of the above seller and the transportation carrier; it shows legal
ANS: C ownership and responsibility for assets in transit.
36. Adjustments to accounts receivable for 2. State two specific functions or jobs that should be
payments received from customers is based upon segregated in the sales processing system.
a. the customer’s check ANS: sales order processing and credit approval;
inventory control (record keeping) from warehouse
b. the cash prelist (custody); and general ledger from accounts
receivable subsidiary ledger
c. the remittance advice that accompanies payment
3. State two specific functions or jobs that should be procedure that would prevent or detect this fraud.
segregated in the cash receipts system.
ANS: supervision (two people) when opening the
ANS: cash receipts (custody) from accounts mail; customer complaints when monthly
receivable (record keeping); and general ledger from statements mailed
accounts receivable subsidiary ledger
9. A customer payment of $247 was correctly posted
mail room (receiving cash) and accounts receivable in the general ledger but was recorded as $274 in
subsidiary ledger the customer’s account receivable. Describe a
specific internal control procedure that would detect
4. List two points in the sales processing system this error.
when authorization is required.
ANS: reconcile the accounts receivable control
ANS: credit check, sales returns policy, preparation account to the accounts receivable subsidiary ledger;
of cash prelist compare control totals of cash received with total
5. For the revenue cycle, state two specific credits to A/R subsidiary ledger
independent verifications that should be performed. 10. Goods are shipped to a customer, but the
ANS: shipping verifies that the goods sent from the shipping department does not notify billing and the
warehouse are correct in type and quantity; customer never receives an invoice. Describe a
specific internal control procedure that would detect
billing reconciles the shipping notice with the sales this error.
order to ensure that customers are billed only for
the quantities shipped; ANS: Billing department matches the stock release
copy of the sales order (from shipping) to the
general ledger reconciles journal vouchers submitted invoice, ledger, and file copies of the sales order
by the billing department (sales journal), (sent directly to billing), and then mails the invoice
to the customer. After a certain amount of time has
inventory control (inventory subsidiary ledger), and passed, the billing department should investigate
cash receipts (cash receipts journal) any unmatched invoice, ledger, and file copies of the
treasurer determines that all cash received got to sales order.
the bank 11. A clerk embezzles customer payments on
6. What task can the accounts receivable account and covers up the theft by making an
department engage in to verify that all checks sent adjustment to the accounts receivable ledger.
by the customers have been appropriately deposited Describe a specific internal control procedure that
and recorded? would prevent this fraud.
ANS: The company should periodically, perhaps ANS: segregation of duties; do not let one person
monthly, send an account summary to each have custody of payments and the ability to make
customer listing invoices and amounts paid by check adjustments to the records; all adjustments to
number and date. This form allows the customer to accounts receivable records must be authorized
verify the accuracy of the records. If any payments 12. A credit sale is made to a customer, even though
are not recorded, they will notify the company of the the customer’s account is four months overdue.
discrepancy. These reports should not be handled by Describe a specific internal control procedure that
the accounts receivable clerk or the cashier. would prevent this from happening.
7. What specific internal control procedure would ANS: perform a credit check and require
prevent the sale of goods on account to a fictitious management approval for all sales to accounts that
customer? are overdue
ANS: credit check 13. What specific internal control procedure would
8. The clerk who opens the mail routinely steals prevent a customer from being billed for all 50 items
remittances. Describe a specific internal control ordered although only 40 items were shipped?
ANS: billing should reconcile the shipping report with 3. The organization structure should be such that the
the sales order perpetration of a fraud requires collusion between 2
or more individuals.
14. What specific internal control procedure would
prevent the shipping clerk from taking goods from 20. What is automation and why is it used?
the storeroom and sending them to someone who
had not placed an order? ANS: Automation involves using technology to
improve the efficiency and effectiveness of a task.
ANS: shipping clerk should not have access to the
storeroom Automation of the revenue cycle is typically used to
reduce overhead costs, make better credit granting
15. What specific internal control procedure would decisions, and better collect outstanding accounts
prevent an accounts receivable clerk from issuing a receivable.
fictitious credit memo to a customer (who is also a
relative) for goods that were “supposedly” returned 21. What is the objective of re-engineering?
from previous sales? ANS: The objective of re-engineering is to greatly
ANS: credit memo should be authorized after reduce costs by identifying and eliminating non
verifying the return of goods based on evidence value-added tasks and also by streamlining
from the person who received the goods necessary existing processes.
16. What specific internal control procedure would 22. What are the key segregation of duties related to
prevent an increase in sales returns since salesmen computer programs that process accounting
were placed on commission? transactions.
ANS: customer credit should be verified by the credit ANS: Response: The tasks of design, maintenance,
department reduce commissions for sales returns and operation of computer programs need to be
segregated. The programmers who write the original
17. What specific internal control procedure would computer programs should not also be responsible
detect the misplacement of a sales invoice after for making program changes. Both of these functions
preparation and not mailed to the customer? The must also be separate from the daily task of
invoice was never found. operating the system.
ANS: all documents should be prenumbered 23. How is EDI more than technology? What unique
control problems may it pose?
18. What function does the receiving department
serve in the revenue cycle? ANS: EDI represents a unique business arrangement
between the buyer and seller in which they agree, in
ANS: The receiving department counts and inspects advance, to the terms of their relationship on such
items which are returned by customers. The items as selling price, quantities, delivery times,
receiving department prepares a return slip of which payment terms and methods of handling disputes.
a copy goes to the warehouse for restocking, and a The terms of agreement are binding. One problem is
copy goes to the sales order department so that a ensuring that only valid transactions are processed.
credit memo can be issued to the customer. Another risk is that a non-trading partner will
19. What are the three rules that ensure that no masquerade as a trading partner and access the
single employee or department processes a firm's processing systems.
transaction in its entirety. 24. What makes point-of-sales systems different
ANS: The three rules that ensure segregation of from revenue cycles of manufacturing firms?
functions are: ANS: In point-of-sale systems, the customer literally
1. Transaction authorization should be separate has possession of the items purchased, thus the
from transaction processing inventory is in hand. Typically, for manufacturing
firms, the order is placed and the good is shipped to
2. Asset custody should be separate from asset the customer at some later time period. Thus,
record keeping. updating inventory at the time of sale is necessary in
point-of-sale systems since the inventory is changing 7. Proper segregation of duties requires that the
hands, while it is not necessary in manufacturing responsibility approving a payment be
firms until the goods are actually shipped to the separated from posting to the cash
customer. disbursements journal.
ANS: T
25. Give three examples of Access Control in a Point- 8. A major risk exposure in the expenditure cycle is
of-Sale (POS) system. that accounts payable may be overstated at the
ANS: Lock on the cash drawer end of the accounting year.
ANS: F
Internal cash register tape that can be accessed only 9. When a trading partner agreement is in place,
by the manager the traditional three way match may be
eliminated.
Physical security over the inventory. The following ANS: T
are examples: Steel cables to secure expensive 10. Authorization of purchases in a merchandising
leather coats to the clothing rack. Locked showcases firm occurs in the inventory control department.
to display jewelry and costly electronic equipment. ANS: T
Magnetic tags attached to merchandise, which will 11. A three way match involves a purchase order, a
sound an alarm when removed from the store. purchase requisition, and an invoice.
Note to Instructor: Some physical security devices ANS: F
could also be classified as supervision 12. Authorization for a cash disbursement occurs in
the cash disbursement department upon receipt
Chapter 5—The Expenditure Cycle Part I: of the supplier’s invoice.
Purchases and Cash Disbursements ANS: F
13. An automated cash disbursements system can
Procedures
yield better cash management since payments
are made on time.
ANS: T
TRUE/FALSE 14. Permitting warehouse staff to maintain the only
inventory records violates separation of duties.
1. Purchasing decisions are authorized by
ANS: T
inventory control.
15. A purchasing system that employs electronic
ANS: T data interchange does not use a purchase order.
ANS: F
2. The blind copy of the purchase order that goes 16. Inventory control should be located in the
to the receiving department contains no item warehouse.
descriptions. ANS: F
ANS: F 17. Inspection of shipments in the receiving
3. Firms that wish to improve control over cash department would be improved if the
disbursements use a voucher system. documentation showed the value of the
ANS: T inventory.
4. In a voucher system, the sum of all unpaid ANS: F
vouchers in the voucher register equals the 18. One reason for authorizing purchases is to
firm’s total voucher payable balance. enable efficient inventory management.
ANS: T ANS: T
5. The accounts payable department reconciles the 19. If accounts payable receives an invoice directly
accounts payable subsidiary ledger to the from the supplier it needs to be reconciled with
control account. the purchase order and receiving report.
ANS: F ANS: T
6. The use of inventory reorder points suggests the 20. Supervision in receiving is intended to reduce
need to obtain specific authorization. the theft of assets.
ANS: F ANS: T
b. record receipt of goods from vendors a. is the source document to make an entry into the
accounting records
c. authorize the purchasing department to order
goods b. indicates item description, quantity, and price
a. order goods from vendors 7. The reason that a blind copy of the purchase order
is sent to receiving is to
b. record receipt of goods from vendors
a. inform receiving when a shipment is due
c. authorize the purchasing department to order
goods b. force a count of the items delivered
d. bill for goods delivered c. inform receiving of the type, quantity, and price of
items to be delivered
ANS: B
d. require that the goods delivered are inspected
3. All of the following departments have a copy of
the purchase order except ANS: B
a. order goods from vendors d. advise the vendor that the goods arrived safely
c. authorize the purchasing department to order 9. When a copy of the receiving report arrives in the
goods purchasing department, it is used to
a. the quality of items a vendor ships d. recognize the purchase order as closed
c. the orders that have not been received 10. The financial value of a purchase is determined
by reviewing the
a. a check ANS: C
21. The cash disbursement clerk performs all of the d. general ledger
following tasks except
ANS: B
a. reviews the supporting documents for
completeness and accuracy 26. The receiving department is not responsible to
a. the liability account is increased 27. The major risk exposures associated with the
receiving department include all of the following
b. the income statement is changed except
c. the cash account is unchanged a. goods are accepted without a physical count
c. the purchase order file c. checks over a certain dollar amount manually
signed by the treasurer
d. the receiving report file
d. checks over a certain dollar amount manually
ANS: B signed by the cash disbursements clerk
29. In regards to the accounts payable department, ANS: C
which statement is not true?
33. The document which will close the open
a. the purchase requisition shows that the purchase requisition file is the
transaction was authorized
a. purchase order
b. the purchase order proves that the purchase was
required b. vendor invoice
30. In a computerized system that uses an economic a. determine that the goods are in good condition
order quantity (EOQ) model and the perpetual b. determine the quantity of goods received
inventory method, who determines when to reorder
inventory? c. preclude payment for goods not received or
received in poor condition
a. the inventory control clerk
d. all of the above
b. the purchasing department
ANS: D
c. the vendor
35. If a company uses a standard cost system,
d. the computer system inventory records can be updated from the
ANS: D a. vendor invoice
31. Firms can expect that proper use of a valid b. purchase order
vendor file will result in all of the following benefits
except c. receiving report
37. Copies of a purchase order are sent to all of the ANS: receiving report
following except
3. List specific jobs that should be segregated in
a. inventory control the purchases processing system.
40. The cash disbursement function is ANS: The supporting documents should be marked
“paid” after the check is signed. A computerized
a. part of accounts payable system will tag the invoice number as paid.
b. an independent accounting function 8. Explain why supervision is so important in the
receiving department.
c. a treasury function
ANS: Receiving department employees have custody
d. part of the general ledger department
of the asset and record keeping responsibilities.
ANS: C Without proper supervision, employees may fail to
count and inspect incoming shipments. Without
SHORT ANSWER proper supervision, shipments may disappear from
the receiving dock before being transferred to the
1. Which internally generated document should be
warehouse.
compared to the supplier’s invoice to verify the
price of an item? 9. What type of error or fraud might happen if the
accounts payable ledger is not periodically
ANS: purchase order
reconciled to the control account in the general
2. Which internally generated document should be ledger?
compared to the supplier’s invoice to verify the
quantity being billed for?
ANS: errors in A/P processing would go undetected, 17. Explain why a three way match may not be
overstated payments produce debit balances in A/P. required for transactions covered by a trading
partner agreement.
10. What type of error or fraud might happen if
suppliers’ invoices are not compared to ANS: Under a trading partner agreement the parties
purchase orders or to receiving reports before contractually agree to terms of trade such as price,
payment? quantities to be shipped, discounts, and lead times.
With these sources of potential discrepancy
ANS: payment at higher than anticipated prices, eliminated, financial information about purchases is
overpayment for goods not received known in advance and the vendor’s invoice provides
11. What internal accounting control(s) would be no critical information that cannot be derived from
the most effective in preventing a storekeeper the receiving report. Thus, a three way match is
from taking inventory home at night? When unnecessary.
shortages become apparent, he claims the
Chapter 6—The Expenditure Cycle Part II:
goods were never received.
Payroll Processing and Fixed Asset
ANS: receiving records items received on a receiving
report, storekeeper initials receipt of goods Procedures
14. Name two major benefits of automating the 4. To improve internal control, paychecks should be
purchasing effort. distributed by the employee's supervisor.
10. Work-in-process records are updated by payroll 1. The document that captures the total amount of
personnel. time that individual workers spend on each
production job is called a
ANS: F
a. time card
11. Ideally, payroll checks are written on a special
bank account used only for payroll. b. job ticket
12. The supervisor is the best person to determine d. labor distribution form
the existence of a “phantom employee” and should
distribute paychecks. ANS: B
14. Timekeeping is part of the personnel function. b. personnel compares the number of employees
authorized to receive a paycheck
ANS: F
c. production compares the number of hours
15. Fixed asset accounting systems include cost reported on job tickets to the number of hours
allocation and matching procedures that are not part reported on time cards
of routine expenditure systems.
d. payroll compares the labor distribution summary
ANS: T to the hours reported on time cards
16. Asset maintenance involves only the recording of ANS: A
depreciation charges. Physical improvements are
always expensed. 3. Which internal control is not an important part of
the payroll system?
ANS: F
a. Supervisors verify the accuracy of employee time
17. Fixed Asset Systems must keep track of the cards.
physical location of each asset to promote
accountability. b. Paychecks are distributed by an independent
paymaster.
ANS: T
c. Accounts payable verifies the accuracy of the
18. Time cards capture the total time an individual payroll register before transferring payroll funds to
worker spends on each production job. the general checking accounting.
ANS: F d. General ledger reconciles the labor distribution
19. Accounting conventions and IRS rules sometime summary and the payroll disbursement voucher.
specify the depreciation parameters to be used. ANS: C
ANS: T 4. Which transaction is not processed in the Fixed
Asset System?
a. is calculated by the department that uses the fixed b. Retirements are reported on an authorized
asset disposal report form.
b. allocates the cost of the asset over its useful life c. Acquisition cost is allocated over the expected life
of the asset.
c. is recorded weekly
d. Transfer of fixed assets among departments is
d. results in book value approximating fair market recorded in the fixed asset subsidiary ledger.
value
ANS: A
ANS: B
10. In the payroll subsystem, which function should
6. Depreciation records include all of the following distribute paychecks?
information about fixed assets except
a. personnel
a. the economic benefit of purchasing the asset
b. timekeeping
b. the cost of the asset
c. paymaster
c. the depreciation method being used
d. payroll
d. the location of the asset
ANS: C
ANS: A
11. Where does the responsibility lie for reconciling
7. Which control is not a part of the Fixed Asset the labor distribution summary and the payroll
System? disbursement voucher?
a. formal analysis of the purchase request a. cash disbursements
b. review of the assumptions used in the capital b. cost accounting
budgeting model
c. personnel
c. development of an economic order quantity
model d. general ledger
8. Objectives of the Fixed Asset System do not a. Routine payroll processing begins with the
include submission of time cards.
a. authorizing the acquisition of fixed assets b. Payroll clerks must verify the hours reported on
the time cards.
b. recording depreciation expense
c. Payroll reconciles personnel action forms with
c. computing gain and/or loss on disposal of fixed time cards and prepares paychecks.
assets
d. Cash disbursements signs paychecks and forwards b. to prevent an absent employee’s check from
them to the paymaster for distribution. being lost
13. In a manufacturing firm, employees use time d. to prevent the paymaster from cashing unclaimed
cards and job tickets. Which of the following checks
statements is not correct?
ANS: A
a. Job tickets are prepared by employees for each
job worked on, so an employee may have more that 17. Which of the following is not a reasonable
one job ticket on a given day. control for fixed assets?
b. An individual employee will have only one time a. Proper authorization is required for acquisition
card. and disposal of fixed assets.
c. The time reported on job tickets should reconcile b. Fixed asset records show the location of each
with the time reported on time cards. asset.
d. Paychecks should be prepared from the job c. Fully depreciated assets are immediately disposed
tickets. of.
16. Why would an organization require the a. the regular checking account
paymaster to deliver all unclaimed paychecks to the
internal audit department? b. a payroll imprest account
b. verifying pay rates for employees a. a security camera viewing the time clock
c. informing payroll of new hires b. the supervisor taking role during the shift
d. is the responsibility of the department using the for another, absent employee.
asset
ANS: supervision of the time clock at the start of the
ANS: C shift
32. The Fixed Asset System is similar to the 2. Why should the employee’s supervisor not
expenditure cycle except distribute paychecks?
a. fixed asset transactions are non-routine and ANS: A form of payroll fraud involves a supervisor
require special authorization and controls submitting fraudulent time cards for nonexistent
employees. The resulting paychecks, when returned
b. fixed assets are capitalized, not expensed to the supervisor are then cashed by the supervisor.
c. both a and b 3. Describe an internal control procedure that would
d. none of the above prevent a supervisor from stealing the unclaimed
paychecks of employees who have been terminated.
ANS: C
ANS: This type of fraud can be reduced or eliminated
33. Asset maintenance involves by using a paymaster to distribute paychecks to
employees in person. Any uncollected paychecks are
a. the recording of periodic depreciation then returned to payroll. Also, mail final paychecks
b. adjusting the asset records to reflect the cost of to terminated employees.
physical improvements 4. Why should employee paychecks be drawn
c. keeping track of the physical location of the assets against a special checking account?
ANS: C
ANS: A form of payroll fraud involves employees longer on hand. Prepare reports about the disposal
clocking the time cards of absent employees. of assets.
Bysupervising the clocking in and out process, this
fraud can be reduced or eliminated. 13. Describe an internal control that would prevent
the charging of depreciation expense to the
6. What is a personnel action form? maintenance department for a sweeper that is now
located in and used by the engineering department.
ANS: The personnel action form provides the payroll
department with a list of currently active employees, ANS: Prepare reports about the transfer of fixed
so that any submission of time cards by supervisors assets. Perform an annual physical inventory and
for fictitious or ex-employees will not be processed. note the location of assets. Budget and then hold
each department accountable for depreciation
7. In a manufacturing firm, employees typically fill expense for assets located in each department.
out two different documents regarding their time
worked. What are they? Why are there two? 14. Describe an internal control that would prevent
the acquisition of office equipment which is not
ANS: The two documents are the time card and the needed by the firm.
job ticket. Two are required because the time card
records all the time worked by an employee during ANS: A higher organizational level or other
the period while the job ticket details the time by appropriate person authorizes fixed asset
project. acquisitions; part of the authorization is showing
that a need for the asset exists.
8. List two types of authorization required in the
Fixed Asset System. 15. What negative consequences result when fixed
asset records include assets that are no longer
ANS: authorization to purchase the asset and to owned by the firm?
dispose of the asset
ANS: On the financial statements, assets will be
9. List four types of data that appear on a overstated and depreciation expense could be
depreciation schedule. overstated. Assets on property tax returns will be
ANS: item description, depreciation method, useful overstated and too much tax will be paid. Insurance
life, date acquired, cost, salvage value, accumulated premiums will be paid on nonexistent assets.
depreciation, depreciation expense per period, book 16. Explain the purpose of each of the following
value documents used in the payroll system: the personnel
10. Which documents prompt the fixed asset action form, the job ticket, the time card.
department to create a fixed asset record? ANS: The personnel action form is a document which
ANS: the receiving report and the disbursement identifies employees who should receive a paycheck;
voucher reflects changes in pay rates, payroll deductions, and
job classifications. The job ticket collects information
11. Describe an internal control that would prevent on the time individual workers spend on each
an employee from stealing a computer and then production job. The time card captures the total
reporting it as scrapped. time that an employee is at work.
ANS: Supervisors must authorize the disposal of the 17. How do fixed asset systems differ from the
computer. Unless so authorized, the record will expenditure cycle?
continue to show that the employee is responsible
for the computer. ANS: The fixed asset system processes nonroutine
transactions for a wider group of users in the
12. Describe an internal control that would prevent organization than the expenditure cycle. Further, the
the payment of insurance premiums on an expenditure cycle processes routine acquisitions of
automobile that is no longer owned by the company. raw materials inventories for the production
function and finished goods inventories for the sales
ANS: Perform an annual physical inventory of fixed function. The expenditure cycle transactions are
assets and adjust the records to reflect assets no oftentimes automatically approved by the system,
Chapter 6—The Expenditure Cycle Part II: Payroll 12. The supervisor is the best person to determine
Processing and Fixed Asset Procedures the existence of a “phantom employee” and should
distribute paychecks.
TRUE/FALSE
ANS: F
1. Time cards are used by cost accounting to allocate
direct labor charges to work in process. 13. Payroll processing can be automated easily
because accounting for payroll is very simple.
ANS: F
ANS: F
2. The personnel department authorizes changes in
employee pay rates. 14. Timekeeping is part of the personnel function.
ANS: T ANS: F
3. Most payroll systems for mid-size firms use real- 15. Fixed asset accounting systems include cost
time data processing. allocation and matching procedures that are not part
of routine expenditure systems.
ANS: F
ANS: T
4. To improve internal control, paychecks should be
distributed by the employee's supervisor. 16. Asset maintenance involves only the recording of
depreciation charges. Physical improvements are
ANS: F always expensed.
17. Fixed Asset Systems must keep track of the a. Supervisors verify the accuracy of employee time
physical location of each asset to promote cards.
accountability.
b. Paychecks are distributed by an independent
ANS: T paymaster.
18. Time cards capture the total time an individual c. Accounts payable verifies the accuracy of the
worker spends on each production job. payroll register before transferring payroll funds to
the general checking accounting.
ANS: F
d. General ledger reconciles the labor distribution
19. Accounting conventions and IRS rules sometime summary and the payroll disbursement voucher.
specify the depreciation parameters to be used.
ANS: C
ANS: T
4. Which transaction is not processed in the Fixed
20. The fixed asset disposal report authorizes the Asset System?
user department to dispose of a fixed asset.
a. purchase of building
ANS: F
b. improvement of equipment
MULTIPLE CHOICE
c. purchase of raw materials
1. The document that captures the total amount of
time that individual workers spend on each d. sale of company van
production job is called a
ANS: C
a. time card
5. Depreciation
b. job ticket
a. is calculated by the department that uses the fixed
c. personnel action form asset
d. labor distribution form b. allocates the cost of the asset over its useful life
2. An important reconciliation in the payroll system d. results in book value approximating fair market
is value
3. Which internal control is not an important part of a. formal analysis of the purchase request
the payroll system?
8. Objectives of the Fixed Asset System do not a. Routine payroll processing begins with the
include submission of time cards.
a. authorizing the acquisition of fixed assets b. Payroll clerks must verify the hours reported on
the time cards.
b. recording depreciation expense
c. Payroll reconciles personnel action forms with
c. computing gain and/or loss on disposal of fixed time cards and prepares paychecks.
assets
d. Cash disbursements signs paychecks and forwards
d. maintaining a record of the fair market value of all them to the paymaster for distribution.
fixed assets
ANS: B
ANS: D
13. In a manufacturing firm, employees use time
9. Which of the following is not a characteristic of cards and job tickets. Which of the following
the Fixed Asset System? statements is not correct?
a. Acquisitions are routine transactions requiring a. Job tickets are prepared by employees for each
general authorization. job worked on, so an employee may have more that
one job ticket on a given day.
b. Retirements are reported on an authorized
disposal report form. b. An individual employee will have only one time
card.
c. Acquisition cost is allocated over the expected life
of the asset. c. The time reported on job tickets should reconcile
with the time reported on time cards.
d. Transfer of fixed assets among departments is
recorded in the fixed asset subsidiary ledger. d. Paychecks should be prepared from the job
tickets.
ANS: A
ANS: D
10. In the payroll subsystem, which function should
distribute paychecks? 14. Which department is responsible for approving
changes in pay rates for employees?
a. personnel
a. payroll
b. timekeeping
b. treasurer
c. paymaster
c. personnel
d. payroll
d. cash disbursements
ANS: C
ANS: C
11. Where does the responsibility lie for reconciling
the labor distribution summary and the payroll 15. Which of the following situations represents a
disbursement voucher? serious control weakness?
16. Why would an organization require the a. the regular checking account
paymaster to deliver all unclaimed paychecks to the b. a payroll imprest account
internal audit department?
c. a wages payable account
a. to detect a “phantom employee” for whom a
check was produced d. petty cash
d. to prevent the paymaster from cashing unclaimed a. preventing paychecks for terminated employees
checks
b. verifying pay rates for employees
ANS: A
c. informing payroll of new hires
17. Which of the following is not a reasonable
control for fixed assets? d. all of the above
b. the supervisor taking role during the shift a. assures that assets are reported at fair market
value
c. paychecks being distributed by an independent
paymaster b. is discretionary for many firms
d. reconciliation of time cards and job tickets c. allocates the cost of an asset over its useful life
28. All of the following are processed by the Fixed c. both a and b
Asset System except d. none of the above
a. sale of unneeded equipment ANS: C
b. purchase of raw materials 33. Asset maintenance involves
c. repair of production equipment a. the recording of periodic depreciation
d. purchase of a new plant b. adjusting the asset records to reflect the cost of
ANS: B physical improvements
29. The Fixed Asset System performs all of the c. keeping track of the physical location of the assets
following except d. all of the above
ANS: D ANS: F
34. The Fixed Asset Systems does all of the following 7. The SAP R/3 system organizes business processes
except into four categories: financial, logistics, human
resources, and business process support.
a. records acquisition of assets
ANS: T
b. records improvements to assets
8. The objective of the Economic Order Quantity
c. estimates the fair market value of assets in service model is to reduce total inventory costs by
d. records the disposal of assets minimizing carrying costs and ordering costs.
ANS: C ANS: T
17. Internal control procedures are virtually identical b. authorize release of raw materials
in a world-class manufacturing environment and in a
traditional manufacturing environment. c. direct the movement of work-in-process
d. monitoring the flow of cost information related to a. last year’s production level
production b. raw material inventory levels
ANS: D c. the standard cost of the item
3. The purpose of the cost accounting system is to d. the sales forecast
a. produce information for inventory valuation ANS: D
a. the expected demand for the firm’s finished goods 12. The storekeeper releases raw materials based on
for a given year the
ANS: B ANS: B
b. specifies the materials and production required b. total cost per year of placing orders is fixed
for each batch c. lead time is known and is constant
c. records the work done in each work center d. there are no quantity discounts
d. authorizes the storekeeper to release materials to ANS: B
work centers
14. Firms hold safety stock to compensate for
ANS: C
a. mathematical weaknesses of the Economic Order
10. The internal control significance of the excess Quantity model
materials requisition is that it
b. variations in lead time or daily demand
a. indicates the amount of material released to work
centers c. fluctuations in carrying costs
b. identifies materials used in production that d. uncertainty in the estimation of ordering costs
exceed the standard amount allowed
ANS: B
c. indicates the standard quantities required for
production 15. What is the economic order quantity if the
annual demand is 10,000 units, set up cost of placing
d. documents the return to raw materials inventory each order is $3 and the holding cost per unit per
of unused production materials year is $2?
ANS: B a. 174
c. prepares a materials requisition for each 16. If the daily demand is 40 units and the lead time
production batch is 12 days, the reorder point is
18. Which of the following is not a category of a. calculation and analysis of direct material and
critical success factors in most manufacturing direct labor variances
companies?
b. retention of excess materials by work centers
a. product quality
c. physical count of inventory items on hand
b. customer service
d. limited access to raw material and finished goods
c. revenue generation inventories
19. Computer integrated manufacturing groups all of a. using Computer Numerical Controlled machines
the following technologies except which stand alone within a traditional setting
b. zero defects 33. Firms are adopting Activity Based Costing (ABC)
because
c. reduced setup time and small lot sizes
a. it facilitates the analysis of variances
d. reliable vendors
b. it more accurately allocates costs to products
ANS: A
c. it recognizes the importance of direct labor as a
29. The cost of poor quality includes all of the component of total manufacturing cost
following except
d. the financial nature of the reports permits
a. cost of rework comparisons to be made among different types of
products
a. a description of the single activity driver used for 39. Manufacturing flexibility incorporates four
overhead application characteristics. These include all of the following
except
b. the dollar value of the direct material usage
variance a. high product quality
ANS: D
1. The coding scheme most appropriate for a chart d. missing documents can be identified
of accounts is
ANS: C
a. sequential code
6. Entries into the General Ledger System (GLS) can
b. block code be made using information from
3. The most important advantage of sequential b. contains a record for control accounts
coding is that c.is an output of the Financial Reporting System
a. missing or unrecorded documents can be (FRS)
identified d. supplies information for management decision
b. the code itself lacks informational content making
d. deletions affect the sequence 8. What type of data is found in the general ledger
master file?
ANS: A
a. a chronological record of all transactions
4. When a firm wants its coding system to convey
meaning without reference to any other document, b. the balance of each account in the chart of
it would choose accounts
ANS: A ANS: B
10. Which steps in the Financial Accounting Process 14. Risk exposures in the General Ledger and
are in the correct sequence? Financial Reporting Systems include all of the
following except
a. record the transaction, post to the ledger, prepare
the adjusted trial balance, enter adjusting entries, a. loss of the audit trail
prepare financial statements
b. unauthorized access to the general ledger
b. record the transaction, prepare the unadjusted
trial balance, record adjusting journal entries, record c. loss of physical assets
closing entries, prepare financial statements d. general ledger account out of balance with the
c. record the transaction, post to the ledger, record subsidiary account
adjusting entries, prepare the unadjusted trial ANS: C
balance, prepare financial statements
15. Which situation indicates an internal control risk
d. record the transaction, post to the ledger, prepare in the General Ledger/Financial Reporting Systems
the adjusted trial balance, prepare financial (GL/FRS)?
statements, record closing entries
a. the employee who maintains the cash journal
ANS: D computes depreciation expense
11. Which statement is not correct? b. the cash receipts journal voucher is approved by
a. the post-closing trial balance reports the ending the Treasurer
balance of each account in the general ledger c. the cash receipts journal vouchers are
b. one purpose of preparing the unadjusted trial prenumbered and stored in a locked safe
balance is to ensure that debits equal credits d. the employee who maintains the cash receipts
c. financial statements are prepared based on the journal records transactions in the accounts
unadjusted trial balance receivable subsidiary ledger
a. provides the ability to answer inquiries 21. Which statement is not true?
b. ensures the accuracy of the application software a. authority refers to an individual’s obligation to
achieve desired results
c. fulfills governmental regulations
b. if an employee is given the responsibility for a
d. offers a means for preventing, detecting, and task, that employee should be given authority to
correcting errors make decisions within the limits of that task
ANS: B c. the level of detail provided to an employee is a
18. Which best describes a batch process General function of the employee’s position with the firm
Ledger System (GLS) d. all of the above are true
a. paper documents are eliminated ANS: A
b. the general ledger master file is updated each 22. Which statement is not true? The manager’s
night span of control
c. there is a time lag between transaction processing a. is narrow for routine and repetitive tasks
and posting to the general ledger
b. is related to the number of layers of management
d. no direct access or querying of the General Ledger
is possible c. affects the amount of detail provided to a
manager
ANS: C
d. can affect employee morale and motivation
19. An advantage of a batch General Ledger System
(GLS) is that ANS: A
d. errors and out-of-balance conditions are identified d. deciding on the degree of diversification among
at the end of the month the firm’s products
ANS: C ANS: B
25. The level of management that makes tactical d. all of the above
planning decisions is
ANS: D
a. top management
30. All of the following are elements of problem
b. middle management structure except
ANS: B c. procedures
b. have a shorter time frame 33. Which statement is not true? Responsibility
accounting
c. are unstructured
a. involves both a top-down and bottom-up flow of
d. have a high degree of certainty information
ANS: C b. acknowledges that some economic events cannot
29. Which of the following management principles be traced to any manager
affects the management reporting system? c. creates a budget
a. formalization of tasks d. compares actual performance with budget
b. authorization ANS: B
34. What mechanism is used to convey to managers a. emphasis on both the short and long run.
the standards by which their performance will be
measured? b. review of the attributes and behavior of the
organization’s competition.
a. the responsibility report
c. analysis of external economic factors.
b. the scheduled report
d. analysis of consumer demand.
c. the budget
ANS: A
d. all of the above
39. Which of the following performance measures
ANS: C can not result in dysfunctional behavior?
a. Sorting records that are coded alphabetically a. authority to make decisions affecting the major
tends to be more difficult for users than sorting determinants of profit, including the power to
numeric sequences. choose its markets and sources of supply.
b. Mnemonic coding requires the user to memorize b. authority to make decisions affecting the major
codes. determinants of profit, including the power to
choose its markets and sources of supply, and
c. Sequential codes carry no information content significant control over the amount of invested
beyond their order in the sequence. capital.
d. Mnemonic codes are limited in their ability to c. authority to make decisions over the most
represent items within a class. significant costs of operations, including the power
ANS: B to choose the sources of supply.
37. Which file has as its primary purpose to present d. authority to provide specialized support to other
comparative financial reports on a historic basis? units within the organization.
a. journal voucher history file e. responsibility for combining the raw materials,
direct labor, and other factors of production into a
b. budget master file final product.
c. responsibility file ANS: A
d. general ledger history file
ANS: D