Chapter 13 - Test Bank Romney AIS Chapter 13 - Test Bank Romney AIS

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Chapter 13 - Test Bank Romney AIS
Accounting Information System (California State University Northridge)
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Accounting Information Systems, 14e (Romney/Steinbart)

Chapter 13 The Expenditure Cycle: Purchasing to Cash Disbursements
1 Discuss the basic business activities and related information processing operations in the
expenditure cycle, explain the general threats to those activities, and describe the controls that
can mitigate those threats.
1) To accomplish the objectives set forth in the expenditure cycle, a number of key management
decisions must be addressed. Which of the decisions below is not ordinarily found as part of the
expenditure cycle?
A) How can cash payments to vendors be managed to maximize cash flow?
B) What is the optimal level of inventory and supplies to carry on hand?
C) Where should inventories and supplies be held?
D) What are the optimal prices for each product or service?
Answer: D
Concept: Expenditure cycle information system
Objective: Learning Objective 1
Difficulty: Easy
AACSB: Analytical Thinking
2) What types of decision-making and strategic information should the AIS provide in the
expenditure cycle?
Answer: The AIS should provide decision making information to: Determine when and how
much additional inventory to order. Select the appropriate vendors from whom to order. Verify
the accuracy of vendor invoices. Decide whether purchase discounts should be taken. Monitor
cash flow needs to pay outstanding obligations. AIS should also provide the following strategic
and performance evaluation information on: Efficiency and effectiveness of the purchasing
department. Analysis of vendor performance such as on-time delivery, quality, etc. Time taken to
move goods from the receiving dock into production. Percentage of purchase discounts taken.
Difficulty: Moderate
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3) Requiring all packing slips be reconciled to purchase orders before accepting a delivery of
inventory would be most likely to prevent which of the following situations?
A) A supplier delivers more inventory than ordered at the end of the year and sends an invoice
for the total quantity delivered.
B) An employee mails a fake invoice to the company, which is then paid.
C) The inventory records are incorrectly updated when a receiving department employee enters
the wrong product number on the receiving report.
D) Receiving department employees steal inventory and then claim the inventory was received
and delivered to the warehouse.
Answer: A
AACSB: Reflective Thinking
4) One of the basic activities in the expenditure cycle is the receiving and storage of goods,
supplies, and services. What is the counterpart of this activity in the revenue cycle?
A) sales order entry process
B) shipping function
C) cash collection activity
D) cash payments activity
Answer: B
5) There is a symmetrical interdependence between a firm's expenditure cycle and its suppliers'
A) production cycle.
B) revenue cycle.
C) expenditure cycle.
D) general ledger and reporting system.
Answer: B
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6) The Gwallter Reece Chihuahua Sweater Co. (GRCCo) was established in 2013. It recently
signed a large contract with PetCo pet stores. GRCCo will be required to track and forecast
sweater sales. The technology that is used for communication between GRCCo and PetCo is
A) electronic data interchange.
B) vendor-managed inventory.
C) sales force automation.
D) optical character recognition.
Answer: A
7) Explain what is meant by the expenditure cycle as a "mirror image" of the revenue cycle.
Answer: The expenditure cycle has been called a "mirror image" of the revenue cycle because
the activities of the expenditure cycle are the opposite, or "reflection" of several activities found
in the revenue cycle. For example, the order goods activity generates a purchase order, which
serves as customer input to the sales order entry process. The receive goods activity handles the
goods sent via the supplier's shipping function. The pay for goods activity generates the
payments that are processed by the supplier's cash collection activity. This mirror image also
means that major technological improvements in the expenditure cycle may bring about
complementary improvements in suppliers' revenue cycle as well.
Difficulty: Challenging
8) Which of the following is not an activity performed in the expenditure cycle?

A) ordering
B) receiving
C) cash disbursement
D) shipping
Answer: D
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9) The first major business activity in the expenditure cycle is

A) ordering inventory, supplies, or services.
B) a customer sale.
C) shipping goods to customers.
D) receiving goods from vendors.
Answer: A
10) Which of the following threats is not specific to the purchase requisition process of the
expenditure cycle?
A) stockouts
B) purchasing from unauthorized vendors
C) requisitioning goods not needed
D) All of the above are threats in the purchase requisition process.
Answer: B
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11) Identify ten threats and applicable control procedures in the expenditure cycle.
Answer: Answers can include the following information:
1: Stock-outs — Controls: Inventory control system; accurate perpetual inventory; and vendor
performance analysis is needed to prevent this problem
2: Requesting goods not needed — Controls: Review and approval by supervisors; use of pre-
numbered requisition forms; and restricted access to blank purchase orders
3: Purchasing goods at inflated prices — Controls: Competitive bidding and proper supervision;
approved purchase orders; and price list consultations are needed to prevent this problem
4: Purchasing goods of inferior quality — Controls: Use experienced buyers who know good
vendors; review purchase orders; and incorporate approved vendor list into formal procedures
5: Purchasing from unauthorized vendors — Control: Pre-numbered purchase orders should be
approved; restrict access to approved vendor list and have procedures in place for any change to
the list
6: Kickbacks paid to buyers to influence their decisions — Controls: Clear conflict of interest
policy prohibiting the acceptance of any gift from vendors; disclosure of financial interest policy
for purchasing agents; and vendor audits
7: Receiving unordered goods — Controls: Receiving department must reject any goods for
which there is no approved purchase order
8: Errors in counting goods received — Controls: Use "blind" P.O. copies to force receiving
personnel to actually count goods; provide incentives for counting goods
9: Theft of inventory — Controls: Secure inventory storage locations; make transfers of
inventory with proper approval and documentation; do periodic physical count and reconciliation
with recorded amounts
10: Errors in vendor invoices — Controls: Invoice accuracy should be verified and compared to
P.O.s and receiving report data
11: Paying for goods not received — Controls: Voucher package and original invoice should be
necessary for payments
12: Failure to take available purchase discounts — Controls: File approved invoices by due date;
track invoices by due date; use a cash budget to plan for cash needs
13: Paying same invoice twice — Controls: Invoices should be approved only with a full
voucher package and paid ones should be canceled so they cannot be used again; do not pay
invoices marked "Duplicate" or "Copy"
14: Recording and posting errors for purchases and payments — Controls: Data entry controls,
and periodic reconciliation of subsidiary ledger with general ledger control account
15: Misappropriation of cash by paying fictitious vendors and alteration of checks — Controls:
Restrict access to cash, blank checks, and check signing machine; use check protection, pre-
numbered checks, and imprinted amounts on checks to cut down on forgery and fraud; use petty
cash fund for small expenditures only; have proper segregation of duties and independent bank
reconciliation function
16: Theft associated with EFT use — Controls: Access controls to the system; encryption of
transmissions; time-stamp and number transmissions; control group should monitor all EFT
activity
17: Loss of data — Controls: Use file labels, back up of all data files regularly; and, use access
controls
18: Poor performance — Controls: Preparation and review of performance reports
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12) How can using RFID tags or bar codes on goods or products provide significant benefit in
the expenditure cycle?
Answer: RFID tags and bar codes can significantly improve the process of receiving goods from
suppliers for several reasons. First, they can easily be scanned electronically. Electronically
capturing the unique number of a product not only provides identification and quantity data
about the product; it can also provide specific production information such as date and time of
manufacture, production run information, etc. Electronically encoding such information into an
integrated AIS provides up-to-the-minute inventory counts, as well as counts of units sold, and
returns for use in a perpetual inventory system. Also, both vendor and customers can read tags
and bar codes, and certain formats are universal in nature. This allows goods to be sold virtually
anywhere in the world, allowing for easier global marketing efforts to be made by businesses. It
also eliminates the need for human data entry and reduces the risk of stockouts.
13) Which of the following controls can minimize the threat of stockouts and excess inventory?
A) The use of positive pay.
B) Do not inform receiving employees about quantity ordered.
C) The use of ERS.
D) Perpetual inventory system.
Answer: D
Concept: Revenue cycle information system
14) Which of the following controls can minimize the threat of check alteration?
C) The use of ERS.
Answer: A
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15) Which of the following controls can minimize the threat of mistakes in counting incoming
inventory?
C) The use of ERS.
Answer: B
16) Which of the following controls can minimize the threat of errors in supplier invoices?
C) The use of ERS.
Answer: C
2 Explain the process and key decisions involved in ordering goods and services, identify the
threats to those activities, and describe the controls that can mitigate those threats.
1) The Gwallter Reece Chihuahua Sweater Co. (GRCCo) was established in 2013. It recently
signed a large contract with PetCo pet stores. GRCCo will be required to track and forecast
sweater sales by linking in to PetCo's sales database. GRCCo will then be responsible for
shipping products to PetCo as needed. The relationship between GRCCo and PetCo is an
example of
A) sales force automation.
B) electronic data interchange.
C) optical character recognition.
D) vendor-managed inventory.
Answer: D
Concept: Ordering goods and services
Difficulty: Easy
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2) The traditional approach to inventory management to ensure sufficient quantity on hand to

maintain production is known as
A) safety stock.
B) just-in-time production.
C) economic order quantity.
D) optimal inventory quantity.
Answer: C
Difficulty: Easy
3) Economic Order Quantity (EOQ) includes several variables that must be taken into
consideration when calculating the optimal order size. One variable, the costs associated with
holding inventory, is referred to as
A) ordering costs.
B) carrying costs.
C) the reorder point.
D) stockout costs.
Answer: B
Difficulty: Easy
4) The ________ specifies the point at which inventory is needed.

A) company inventory policies
B) reorder point
C) economic order quantity
D) stockout point
Answer: B
Concept: Operational audits of an AIS
Difficulty: Easy
5) Which electronic files are either read or updated when goods are ordered from a vendor?
A) inventory, vendors, and accounts payable
B) vendors and accounts payable
C) inventory, vendors, and open purchase orders
D) open purchase orders and accounts payable
Answer: C
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6) What is a key feature of materials requirements planning (MRP)?

A) minimize or entirely eliminate carrying and stockout costs
B) reduce required inventory levels by scheduling production rather than estimating needs
C) determine the optimal reorder point
D) determine the optimal order size
Answer: B
Difficulty: Easy
7) Materials requirements planning (MRP)

A) reduces the uncertainty about when materials are needed, thereby reducing the need to carry
large levels of inventory.
B) is able to compute exactly the cost of purchasing by taking into account all costs associated
with inventory carrying.
C) requires vendors to deliver inventory to the production site exactly when needed and in the
correct quantities.
D) None of the above is correct.
Answer: A
8) ________ attempts to minimize or eliminate carrying and stockout costs.

A) Just-in-time inventory
B) Materials requirements planning
C) Economic order quantity
D) Evaluated receipt settlement
Answer: A
9) Just-In-Time (JIT) inventory is best characterized by

A) frequent deliveries of large quantities to be held at the work centers.
B) frequent deliveries of smaller quantities of items to the work centers.
C) less frequent deliveries of large quantities of goods to central receiving.
D) infrequent bulk deliveries of items directly to work centers.
Answer: B
Difficulty: Easy
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10) What is the key difference between the MRP and JIT inventory management approaches?
A) Only JIT reduces costs and improves efficiency.
B) MRP is especially useful for products such as fashion apparel.
C) JIT is more effectively used with products that have predictable patterns of demand.
D) MRP schedules production to meet estimated sales needs; JIT schedules production to meet
customer demands.
Answer: D
11) When would an MRP inventory approach be preferred to a JIT inventory approach?
A) when a product has a short life cycle
B) when demand for inventory is fairly predictable
C) when demand for inventory is very unpredictable
D) MRP is always a preferred method over JIT.
Answer: B
12) Which of the following is least likely to be a major criterion in vendor selection?
A) prices of goods
B) credit rating of the vendor
C) quality of goods
D) ability to deliver on time
Answer: B
Difficulty: Easy
13) Once a vendor is selected for a product, the vendor's identity is recorded in the
A) purchase requisition transaction file.
B) purchase requisition master file.
C) inventory transaction file.
D) inventory master file.
Answer: D
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14) Duc An Incorporated provides free coffee to employees. Starbucks delivers coffee packages,
sugar, creamer, and filters each week. Every month, Starbucks sends Duc An an invoice. This
arrangement is best described as a
A) set purchase order.
B) fixed purchase order.
C) blanket purchase order.
D) standard purchase order.
Answer: C
Difficulty: Easy
15) A major cost in the purchasing function is the number of purchase orders processed. One
technique that may reduce purchasing-related expenses is to have suppliers compete with each
other to meet demand at the lowest price. The name of this technique is
A) an EDI auction.
B) a trading exchange.
C) a reverse auction.
D) a supplier consortium.
Answer: C
16) Ngai Nhung is the sales manager at Hung Technologies. At lunch with the company CEO,
Ngai proudly announced that he had negotiated a(n) ________ with a client that represented the
customer's long-term commitment to buy components from Hung.
A) purchase order
B) evaluated receipt settlement
C) voucher
D) blanket purchase order
Answer: D
Difficulty: Easy
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Ngai proudly announced that he had received a ________ from a client. The client had just
requested a large quantity of components from Hung.
A) blanket purchase order
B) voucher
C) purchase order
D) purchase requisition
Answer: C
Difficulty: Easy
18) Define and describe the EOQ approach to inventory management.

Answer: EOQ (economic order quantity) is the traditional inventory control method to maintain
sufficient inventory levels so production can continue without interruption. EOQ should take into
account a situation where inventory use is greater than expected. EOQ calculates the optimal
order size to minimize the sum of ordering, carrying, and stockout costs. Ordering costs — all
expenses associated with processing purchasing transactions. Carrying costs — costs associated
with holding inventory. Stockout costs — costs from inventory shortages, such as lost sales or
production costs.
19) Discuss the differences between EOQ, MRP, and JIT.

Answer: Economic Order Quantity (EOQ) is the traditional approach to managing inventory.
EOQ is used to find the optimal order size. Ordering costs, carrying costs, and stockout costs are
considered in finding the EOQ. The MRP (Materials Requirements Planning) inventory method
seeks to reduce inventory levels by scheduling production, based on estimated sales, rather than
by estimating needs (which EOQ does). A just-in-time inventory system (or JIT) attempts to
minimize, if not totally eliminate, both carrying and stockout costs through the frequent delivery
of small amounts of materials, parts, and supplies when they are needed. JIT does not attempt to
estimate needs or schedule production based on estimated sales, as it is based on customer
demand at a given time. A JIT system almost eliminates finished goods inventory.
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20) a) What is the major cost driver in the purchasing function? b) Describe how information
technology can be used to control this cost driver.
Answer:
a) The major cost driver in the purchasing function is the number of purchase orders processed.
b) The number of purchase orders can be reduced or streamlined by: Electronic data interchange
(EDI) for transmitting purchase orders to vendors. Use procurement cards for small dollar and
small quantity purchases of non-inventory items. Reduce clerical costs by using the Internet to
perform certain purchasing functions. Use vendor-managed inventory programs to reduce
purchasing and inventory costs. Implement reverse auctions and pre-award audits.
21) Under what conditions is MRP more suitable than JIT and vice versa?
Answer: MRP systems schedule production based on estimated sales, and JIT systems schedule
production based on customer demand. The choice between these two systems is based on the
types of products a company sells. For example, products that have predictable patterns of
demand and a long life cycle are more suitable for MRP systems. In this case, sales can be
forecast with greater accuracy. Conversely, if the product has an unpredictable pattern of demand
and a shorter life cycle, then a JIT system is more suitable. JIT is able to adapt better to
continuously changing production levels.
22) Identify the department below that should not be able to submit a purchase requisition.
A) Marketing
B) Production
C) Inventory Control
D) None of the above
Answer: D
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23) Once a purchase request is approved, what is the next step?

A) The system creates a purchase order.
B) The accounts payable department approves the purchase request, creating a purchase order.
C) The inventory master file is accessed to find the preferred supplier(s).
D) The department that created the purchase request may buy the requested item(s).
Answer: C
24) The traditional approach to inventory management generally involves

A) high stockout costs.
B) minimizing item cost.
C) receiving goods or services just prior to the time they are needed.
D) maintaining inventory levels so that production can continue even if inventory use is greater
than expected.
Answer: D
25) Under the EOQ inventory approach, carrying costs are usually ignored for low-cost/low-
usage items.
Answer: TRUE
Difficulty: Easy
26) The EOQ approach to managing inventory has been gaining popularity in recent years.
Answer: FALSE
Difficulty: Easy
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27) Although there are some similarities between JIT and MRP, identify one major difference
below.
A) production scheduling
B) reducing the opportunity for inventory theft
C) reducing inventory carrying costs
D) requires more analysis than EOQ
Answer: A
28) Ideally, inventory purchases occur in response to ________ in a JIT inventory system.
A) customer demand
B) optimal demand
C) forecast demand
D) supplier demand
Answer: A
29) A JIT inventory system would be especially useful for a company that manufactures
A) toys associated with new movie releases.
B) toothpaste.
C) alarm clocks.
D) motor oil.
Answer: A
30) Which of the following factors is not of key importance when selecting inventory suppliers?
A) product price
B) vendor corporate structure
C) product quality
D) vendor delivery dependability
Answer: B
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31) MacDougalKids is a mid-sized manufacturer of organic baby food. MacDougalKids uses the
EOQ inventory management approach. Which of the following factors would likely be least
important when selecting inventory suppliers?
A) product price
B) product quality
C) vendor delivery dependability
D) All would be equally important.
Answer: C
32) MacDougalKids is a mid-sized manufacturer of organic baby food. MacDougalKids uses a

JIT inventory management approach. Which of the following factors would likely be least
important when selecting inventory suppliers?
A) product price
B) product quality
C) vendor delivery dependability
D) All would be equally important
Answer: A
33) What is the best control to mitigate the threat of paying prices that are too high for goods
ordered?
A) Require the receiving department to verify the existence of a valid purchase order.
B) Use only approved suppliers and solicit competitive bids.
C) Only pay invoices that are supported by the original voucher package.
D) Use bar-code technology to eliminate data entry errors.
Answer: B
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34) The management at Barks-a-Million is considering a new inventory control system. The
current system is inadequate because it frequently causes stockouts that interrupt production and
lead to excess stock of other materials — resulting in markdowns and high carrying costs. The
new system will focus on ensuring that these costs are minimized. The new inventory control
system will likely employ
A) a reorder point.
B) a just-in-time inventory system.
C) the economic order quantity.
D) materials requirements planning.
Answer: C
new system will focus on ensuring that orders are placed with sufficient lead time to prevent
stockouts by using
A) a just-in-time inventory system.
B) the economic order quantity.
C) materials requirements planning.
D) a reorder point.
Answer: D
new system, which will focus on forecasting demand for their products, will likely employ
B) the economic order quantity.
D) a reorder point.
Answer: C
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new system will focus on reducing or completely eliminating carrying costs, most likely
employing
B) a reorder point.
D) the economic order quantity.
Answer: A
38) Which of the controls below would be least effective at preventing a company from ordering
goods at a price higher than market?
A) Only place orders with vendors on an approved vendor list.
B) Variance analysis of actual expenses to budgeted expenses
C) For high-dollar goods, solicit competitive bids from possible vendors.
D) Frequent review of, and update to, vendor price lists stored in the AIS
Answer: B
39) Identify possible problems associated with receiving goods and appropriate actions in
response to the problems.
Answer: When a shipment of goods arrives, the quantity of goods received may not be the same
as the quantity ordered; the goods may have been damaged in shipment and therefore are not
suitable for use; and, goods may be received that are inferior in quality and fail an inspection.
Whenever any of these problems occur, the purchasing department should deal with the vendor
and issue a debit memo to record an adjustment to the order. The vendor should then issue a
credit memo in acknowledgment of the problem and the pending adjustment.
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40) Identify one way to improve the accuracy of inventory records that use a perpetual inventory
approach
A) use of an ERP system
B) require the accounting department to calculate cost of goods sold periodically
C) use IT to eliminate the need for manual data entry
D) use of an MRP inventory system
Answer: C
41) Why would a firm perform ABC cost analysis?

A) to identify the best inventory supplier
B) to reconcile accounts payable
C) to prioritize physical inventory counts
D) to verify production quality
Answer: C
Difficulty: Difficult
42) It is important to physically count inventory, at least periodically, even in a perpetual

inventory system.
Answer: TRUE
Difficulty: Easy
43) What is the main reason a list of potential alternative suppliers be maintained?
A) in case the primary supplier is out of stock
B) so the firm can sample different suppliers
C) in case the primary supplier is more expensive
D) to segregate purchasing suppliers
Answer: A
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44) Identify the most accurate statement below.

A) Several purchase requisitions are often created to fill one purchase order.
B) Several purchase orders are often created to fill one purchase requisition.
C) Every purchase requisition should lead to the creation of one purchase order.
D) Every purchase order should lead to the creation of one purchase requisition.
Answer: B
45) Identify the item below that is the biggest purchasing function cost driver.
A) the number of purchase requisitions processed
B) the number of suppliers used
C) the number of purchase orders processed
D) the quantity of items ordered
Answer: C
46) A reverse auction would likely be best suited to the purchase of

A) central processing units (CPUs).
B) soybeans.
C) designer clothing.
D) automobiles.
Answer: B
47) One way a firm could reduce the risk of problems with supplier dependability is to
A) purchase inventory from only U.S.-based suppliers.
B) use an ERP system for purchases.
C) require suppliers to be ISO 9000 certified.
D) automate the purchasing function.
Answer: C
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48) An important control that can be used to reduce the risk of employee kickbacks is
A) surveillance cameras.
B) job rotation.
C) off-site restrooms.
D) use of ID badges.
Answer: B
49) Restricting access to the approved supplier list can

A) help reduce the risk of fraudulent disbursements.
B) cause purchase order approval delays.
C) eliminate the risk of duplicate payment.
D) improve the efficiency of the expenditure cycle.
Answer: A
50) In a supplier audit, what are some of the red flags that could indicate potential supplier's
problems?
Answer: (1) A large percentage of the supplier's gross sales was to the company conducting the
supplier audit. (2) The supplier's pricing methods differ from standard industry practice. (3) The
supplier does not own the equipment it rents but is itself renting that equipment from a third
party. (4) Entertainment expenses are high in terms of a percentage of the supplier's gross sales.
(5) The supplier submits altered or fictitious third-party invoices. (6) The supplier's address on its
invoices is fictitious.
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3 Explain the process and key decisions involved in receiving goods and services, identify the
threats to those activities, and describe the controls that can mitigate those threats.
1) Which of the following is generally not shown on a receiving report?

A) price of the items
B) quantity of the items
C) purchase order number
D) counted and inspected by
Answer: A
Concept: Receiving goods and services
Difficulty: Easy
2) A receiving clerk notes that a delivery of 10 units has been received, but the purchase order
specified 12 units. A debit memo will need to be prepared to adjust for the difference between
the quantity ordered and received. Who should prepare this document?
A) the receiving clerk
B) the controller
C) the vendor
D) the purchasing department manager
Answer: D
3) Identify in which of the following scenarios a company could adjust the balance due the
vendor by issuing a debit memo.
A) quantity different from that ordered
B) damage to the goods
C) goods that fail inspection for quality
D) All of the above are possible scenarios.
Answer: D
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4) What is one of the best ways to improve the overall efficiency and effectiveness of the receipt
and storage of ordered items?
A) requiring all suppliers to have the carrier verify quantities and item numbers before shipment
B) requiring all suppliers to include RFID tags on their items
C) requiring all suppliers to use EDI to expedite the receiving department function
D) requiring all delivery trucks to have satellite data terminals to expedite the receiving
department function
Answer: B
Ngai complained that a recent shipment from a vendor had been unsatisfactory and was returned.
As a result, Hung's purchasing manager needed to send a ________ to the supplier.
A) debit memo
B) purchase order
C) blanket purchase order
D) receiving report
Answer: A
Difficulty: Easy
6) Comparing quantities on a vendor invoice to quantities on the receiving report would not
prevent or detect which of the following situations?
A) receiving and accepting inventory not ordered
B) theft of inventory by receiving department employees
C) update of wrong inventory items due to data entry error
D) order for an excessive quantity of inventory
Answer: A
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7) What is the best way to prevent the acceptance of goods that were never ordered?
A) Order only from approved vendors.
B) Enforce an appropriate conflict of interest policy in place.
C) Match the packing slip to a purchase order before accepting delivery.
D) Require specific authorization from the purchasing manager before accepting any goods.
Answer: C
Difficulty: Easy
8) Which of the following is not a common control for ensuring inventory is secure and
inventory counts are accurate?
A) control of physical access to the inventory storage areas
B) transfers of inventory with proper documentation
C) sending "blind" copies of purchase orders to inventory control for data entry
D) making physical counts of inventory at least once per year
Answer: C
9) Which of the following would be the best control to prevent receiving department employees
from stealing inventory and claiming the ordered quantity wasn't received from the vendor?
A) Reconcile quantity on packing slip to physical count when accepting delivery.
B) Restrict physical access to the receiving area.
C) Require all deliveries be made at the receiving area.
D) Require dual signatures on the move ticket when receiving delivers the inventory to the
warehouse.
Answer: A
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10) Usually the supplier will give the buyer permission to correct the invoice for any
discrepancies in quantity. In the case of damaged or poor-quality goods, a document called a(n)
________ is prepared after the supplier agrees to take back the goods or to grant a price
reduction.
A) credit memo
B) debit memo
C) adjustment memo
D) return memo
Answer: B
4 Explain the process and key decisions involved in approving supplier invoices for goods and
services, identify the threats to those activities, and describe the controls that can mitigate those
threats.
1) Vendor invoices are approved by the ________, which reports to the ________.
A) purchasing department; controller
B) accounts payable department; treasurer
C) purchasing department; treasurer
D) accounts payable department; controller
Answer: D
Concept: Approving supplier invoices
2) The disbursement voucher and supporting documents are sent to the ________ for payment
prior to the due date.
A) cashier
B) treasurer
C) controller
D) accounts payable department
Answer: A
Difficulty: Easy
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3) A(n) ________ system posts an approved invoice to the vendor account and stores it in an
open invoice file until payment is made by check.
A) nonvoucher
B) voucher
C) cycle
D) evaluated receipt settlement
Answer: A
Difficulty: Easy
4) A disbursement voucher contains

A) a list of outstanding invoices.
B) the net payment amount after deducting applicable discounts and allowances.
C) the general ledger accounts to be debited.
D) All of the above are correct.
Answer: D
Difficulty: Easy
5) One objective of accounts payable is to authorize payment only for goods or services actually
ordered and received. The best way to process supplier invoices is to use
A) electronic funds transfer for small, occasional purchases from suppliers.
B) a nonvoucher system.
C) EDI for all small, occasional purchases from suppliers.
D) a disbursement voucher system.
Answer: D
6) What is not an advantage of using disbursement vouchers?

A) Disbursement vouchers reduce the number of checks written.
B) Disbursement vouchers can be prenumbered which simplifies the tracking of all payables.
C) Disbursement vouchers facilitate separating the time of invoice approval from the time of
invoice payment.
D) There are no disadvantages to using disbursement vouchers.
Answer: D
Difficulty: Easy
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7) Which of the following is not an advantage of a voucher system?

A) Several invoices may be included on one voucher, reducing the number of checks.
B) Disbursement vouchers may be pre-numbered and tracked through the system.
C) The time of voucher approval and payment can be kept separate.
D) It is a less expensive and easier system to administer than other systems.
Answer: D
8) A voucher package should include

A) a purchase requisition, vendor invoice, and receiving report.
B) a purchase order, vendor invoice, and receiving report.
C) a purchase requisition, purchase order, and receiving report.
D) a bill of lading and vendor invoice.
Answer: B
9) When purchasing miscellaneous supplies, companies can reduce costs, improve efficiency,
and combat employee fraud by
A) using procurement cards.
B) implementing a JIT inventory system.
C) requiring employees to personally purchase items then reimbursing employees at the end of
each month.
D) paying amounts out of petty cash.
Answer: A
Difficulty: Easy
10) If available, a 1% discount for payment within 10 days instead of 30 days represents an
approximate savings of ________% annually.
A) 1
B) 12
C) 18
D) 36
Answer: C
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11) To minimize the number of checks that need to be written to pay vendor invoices, a company
should use
A) a voucher system.
B) a just-in-time inventory system.
C) a nonvoucher system.
D) an evaluated receipt settlement system.
Answer: A
12) Evaluated receipt settlement increases efficiency by

A) eliminating the need for receiving reports.
B) eliminating the need for vendor invoices.
C) eliminating the need for purchase orders.
D) eliminating the need to prepare and mail checks.
Answer: B
Difficulty: Easy
13) Procurement cards differ from corporate credit cards in which of the following ways?
A) Credit limits can be set for procurement cards, but not corporate credit cards.
B) Credit cards can be used to make purchases without an explicit sign off by supervisors, but
procurement cards require a sign off.
C) Procurement cards can only be used with approved vendors, but credit cards can be used
anywhere.
D) Procurement card invoices are sent separately for each card, whereas corporate credit cards
are consolidated into a single invoice.
Answer: C
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14) How can information technology be used to improve the vendor invoice approval process?
Answer: EDI eliminates the need to enter invoice data and the matching of payment documents
— all of this can be done using computers and network technologies. Technology can eliminate
the need for vendor invoices by approving payment upon receipt of the goods. Imaging systems
can eliminate paper flow, and universal languages such as XML can provide a paperless means
of receiving and storing vendor invoices. Use of procurement cards, credit cards, and electronic
expense forms can improve the efficiency of non-inventory purchases. ERS, which is
invoiceless, is a means to replace the traditional three-matching process (vendor invoice,
receiving report and purchase order) with a two-way match of the purchase order and receiving
report.
15) Which of the following would probably be the least effective control to mitigate the risk of
paying a phony invoice payable for inventory purchases that were never made?
A) Only pay from original invoices.
B) Require three-way match for all inventory purchase invoices.
C) Cancel all invoices and supporting documentation when paid.
D) Establish strict access and authorization controls for the approved vendor master file.
Answer: A
16) Which of the following controls would be the least effective in preventing paying the same
invoice twice?
A) Only pay from original invoices.
B) Cancel each document in the voucher package once the check is prepared and mailed.
C) Only pay vendor invoices that have been matched and reconciled to a purchase order and a
receiving report.
D) Allow only the accounts payable department to authorize payment for vendor invoices and
allow only the cash disbursements department to cut and mail checks to vendors.
Answer: D
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17) Evaluated receipt settlement approves payment of vendor invoices after reconciling the
purchase order and the
A) receiving report.
B) vendor invoice.
C) sales invoice.
D) disbursement voucher.
Answer: A
Difficulty: Easy
18) What control would best mitigate the threat of paying an invoice twice?
A) never authorizing payment of a photocopy of an invoice
B) double-checking mathematical accuracy of invoices
C) approval of purchase orders
D) maintaining adequate perpetual inventory records
Answer: A
Difficulty: Easy
19) Which control would best prevent payments made to fictitious vendors?
A) Allow payments only to approved vendors.
B) Restrict access to any payment or approval documents.
C) Have an independent bank reconciliation.
D) Make sure all documents are in order before approving payments.
Answer: A
5 Explain the process and key decisions involved in making cash disbursements to suppliers,
identify the threats to those activities, and describe the controls that can mitigate those threats.
1) In the expenditure cycle, Financial Electronic Data Interchange (FEDI) increases efficiency by
A) eliminating the need for receiving reports.
B) eliminating the need for vendor invoices.
C) eliminating the need for purchase orders.
D) eliminating the need to prepare and mail checks.
Answer: D
Concept: Cash disbursements
Difficulty: Easy
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2) EFT payments are generally performed by

A) the treasurer.
B) a cashier.
C) an accounts payable clerk.
D) a credit manager.
Answer: B
3) If duties are properly segregated, the authorization function is performed by ________, the
recording function is performed by ________, and cash handling is performed by the ________.
A) accounts payable; purchasing; cashier
B) purchasing; accounts payable; cashier
C) purchasing; cashier; accounts payable
D) purchasing; accounts payable; treasurer
Answer: B
4) In the expenditure cycle, good control dictates that expenditures should be paid by check. This
may not be feasible when minor purchases are made. To facilitate quick payment for minor
purchases, a(n) ________ should be set up and maintained using ________.
A) special bank account; disbursement vouchers
B) imprest fund; vouchers
C) cash box; small denomination bills
D) petty cash fund; procurement cards
Answer: B
Difficulty: Easy
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5) A surprise count of an imprest petty cash fund should find the total of ________ equal to the
amount authorized for the fund.
A) cash and credit memos
B) cash and vouchers
C) cash
D) cash and checks
Answer: B
Difficulty: Easy
6) What control should be put in place that assigns responsibility for EFT payments made to
vendors?
A) Encrypt all EFT transmissions.
B) Time stamp all EFT transactions.
C) Establish a control group to monitor EFT transactions for validity and accuracy.
D) Number all EFT transactions.
Answer: C
7) Anong Mali is the purchasing manager at Wattana Technologies. She has responsibility for
reviewing and authorizing purchase orders. She also reviews receiving reports, approves or
corrects them, and authorizes the cashier to pay vendor invoices. Which of the following would
correct control weaknesses related to these activities?
A) Controls are adequate under the current system.
B) Vendor invoices should be reviewed by accounts receivable and then cancelled when paid.
C) Vendor invoices should be reviewed by the purchasing manager to ensure that they are
correct.
D) Accounts payable should reconcile purchase orders, receiving reports, and invoices.
Answer: D
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8) Anong Mali is the purchasing manager at Wattana Technologies. She has responsibility for
reviewing and authorizing purchase orders. Receiving reports are prepared by shipping and
receiving based on the relevant purchase order(s). Purchase orders, receiving reports, and vendor
invoices are reconciled by accounts payable, which authorizes payment. Which of the following
would correct control weaknesses related to these activities?
B) Accounts payable should authorize purchase orders.
C) Receiving reports should be reviewed and corrected by the purchasing manager.
D) Vendor invoices should be reviewed by the purchasing manager to ensure that they are
correct.
Answer: A
9) The receiving clerk at Wattana Technologies examines incoming shipments and reconciles
their contents with the relevant purchase orders. A receiving report is then sent to accounts
receivable and the vendor's invoice is approved for payment. Which of the following would
correct control weaknesses related to these activities?
A) Accounts payable should reconcile the purchase order and the receiving report.
B) The invoice should be approved for payment by the shipping clerk after the purchase order
and receiving report are reconciled.
C) Invoices, purchase orders, and receiving reports should be reconciled by the receiving clerk.
D) Controls are adequate under the current system.
Answer: A
10) The receiving clerk at Wattana Technologies examines incoming shipments and checks their
purchase order numbers. A receiving report is then sent to accounts payable, where it is
reconciled with the relevant purchase orders and invoices and payment is authorized. Which of
the following would correct control weaknesses related to the clerk's activities?
B) Vendor invoices should be approved for payment by the purchasing manager.
C) Purchase orders and receiving reports should be reconciled by the purchasing manager.
D) Vendor invoices should be approved for payment by the shipping clerk after the purchase
order and receiving report are reconciled.
Answer: A
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11) In the expenditure cycle, the majority of payments made are by check. What are some
control issues related to payment of vendors by check?
Answer: Key control problems in the area of payment by check can give rise to fraudulent
activity. Fraudulent disbursements made by check to fictitious suppliers are one of the most
common types of fraud. Control over checks can be strengthened in a number of ways. First, all
checks should be sequentially pre-numbered and kept under lock and key until use. The internal
auditor should randomly audit the supply of unused checks and verify that none are missing. Use
of the voucher system will also provide control over paying a "phantom" supplier, since several
supporting documents must be present in the voucher packet in order to have a check issued. The
cashier and/or treasurer should be the only parties authorized to sign checks. Two signatures
should be required on all checks in excess of a predetermined dollar amount to provide
independent review of large expenditures. Also, signed checks should not be returned to
accounts payable, but should be mailed by the cashier or treasurer. When a check is issued, all
documents in the voucher package should be cancelled so that the voucher cannot be resubmitted
for payment. To provide another independent review of checking account activity, someone not
connected with either accounts payable or the treasurer's office should reconcile all bank
accounts. To help circumvent check alteration and forgery, check protection machines should be
used to write the dollar amount of the check as well as the date. The paper the check is printed on
should have some special watermark or identifying mark that is readable at a certain angle as
well.
12) Describe the function of an imprest fund.

Answer: An imprest fund has two characteristics: it is set at a fixed amount, such as $100, and it
requires vouchers for every disbursement. At all times, the sum of cash plus vouchers should
equal the preset fund balance. When the fund balance gets low, the vouchers are presented to
accounts payable for replenishment. After accounts payable authorizes this transaction, the
cashier then writes a check to restore the petty cash fund to its designated level. As with the
supporting documents used for regular purchases, the vouchers used to support replenishment of
the petty cash fund should be canceled at the time the fund is restored to its preset level.
13) The operation of an imprest petty cash fund technically violates the principle of segregation
of duties.
Answer: TRUE
34

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Chapter 13 - Test Bank Romney AIS

Accounting Information System (California State University Northridge)

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Accounting Information Systems, 14e (Romney/Steinbart)

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8) Which of the following is not an activity performed in the expenditure cycle?

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9) The first major business activity in the expenditure cycle is

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Concept: Expenditure cycle information system

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2) The traditional approach to inventory management to ensure sufficient quantity on hand to

4) The ________ specifies the point at which inventory is needed.

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6) What is a key feature of materials requirements planning (MRP)?

7) Materials requirements planning (MRP)

8) ________ attempts to minimize or eliminate carrying and stockout costs.

9) Just-In-Time (JIT) inventory is best characterized by

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18) Define and describe the EOQ approach to inventory management.

19) Discuss the differences between EOQ, MRP, and JIT.

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23) Once a purchase request is approved, what is the next step?

24) The traditional approach to inventory management generally involves

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32) MacDougalKids is a mid-sized manufacturer of organic baby food. MacDougalKids uses a

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41) Why would a firm perform ABC cost analysis?

42) It is important to physically count inventory, at least periodically, even in a perpetual

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44) Identify the most accurate statement below.

46) A reverse auction would likely be best suited to the purchase of

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49) Restricting access to the approved supplier list can

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1) Which of the following is generally not shown on a receiving report?

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4) A disbursement voucher contains

6) What is not an advantage of using disbursement vouchers?

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7) Which of the following is not an advantage of a voucher system?

8) A voucher package should include

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12) Evaluated receipt settlement increases efficiency by

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2) EFT payments are generally performed by

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