College of Saint Lawrence, Inc

Balagtas, Bulacan
ACCOUNTING INFORMATION SYSTEM

PRELIMINARY EXAMINATION

DIRECTION: This test consist of 100 items-multiple choice

questions with four answer choices. Read each question and
answer choice carefully and choose the ONE best answer. Try
to answer all questions. In general, if you have some
knowledge about a question, it is better to try to answer it.
Policy of RIGHT MINUS WRONG will be followed.
Integrity is doing the right thing, even when no one is watching.
C.S. Lewis

1. Which of the following commonly initiates the data input process?

A. a business activity
B. automatic batch processing
C. an accounting department source document
D. a trial balance query

2. Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis
area. Antia uses computer technology to provide superior customer service. The
store's database system was designed to make detailed information about each
Japanese fan easily accessible to her customers. Accordingly, the fan price and
condition are provided for each fan, along with many pictures of each fan. In
Antia's database, the Japanese fans (as a whole) represent a(n)

A. entity.
B. attribute.
C. field.
D. record.

3. Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis
area. Antia uses computer technology to provide superior customer service. The
store's database system was designed to make detailed information about
each Japanese fan easily accessible to her customers. Accordingly, the fan
price and condition are provided for each fan, along with many pictures of
each fan. In Antia's database, the data about each Japanese fan represents
a(n)

A. entity.
B. attribute.
C. field.
D. record.

4. Identify the statement below that is false with regards to effective coding
practices.

A. Codes should allow for growth.

B. Codes should be consistent with intended use.
C. Codes should be customized for each division of an organization.
D. Codes should be as simple as possible.

[AUTHOR NAME] 1
5. When the sum of all entries in the subsidiary ledger equals the balance in the
corresponding general ledger account, it is assumed that

A. the recording processes were accurate.

B. all source documents were recorded.
C. adjusting entries are not required.
D. no errors exist in the subsidiary ledger.

6. Accountants play many roles relating to the accounting information system,

including all of the following except

A. system users
B. system designers
C. system auditors
D. system converters

7. The objectives of an information system include each of the following except

A. support for the stewardship responsibilities of management

B. furthering the financial interests of shareholders
C. support for management decision making
D. support for the firm’s day-to-day operations

8. All of the following are external end users except

A. Cost accountants
B. Creditors
C. Stockholders
D. Tax authorities

9. Which of the following statements regarding special journals is not true?

A. The balances in a special journal must always reconcile to the general

ledger.
B. Special journals are used to record large numbers of repetitive
transactions.
C. Special journals are periodically summarized and posted to the general
ledger.
D. Special journals provide a specialized format for recording similar
transactions.

10. Which of the following is not usually a consideration when designing a coding
system?

A. government coding regulations

B. standardization
C. future expansion needs
D. ease of reporting

11. Identify the statement below that is not true with regards to the accounts
receivable subsidiary ledger.

A. Every credit sale is entered individually into the subsidiary ledger.

B. Debits and credits in the subsidiary ledger must always equal.
C. The subsidiary ledgers play an important role in maintaining the accuracy
of the data stored in the AIS.
D. The total of the subsidiary ledgers must equal the control account.

[AUTHOR NAME] 2
12. A purchase requisition is a common source document used to facilitate which
business activity?

A. customer sale
B. receipt of goods
C. inventory purchase
D. purchase request

13. An internal audit department’s independence is compromised when the

department reports to:
A. the company controller
B. the audit committee of the board of directors
C. Both a. and b.
D. Neither a. nor b.

14. Attestation services are performed by

A. external auditors
B. internal accountants
C. internal auditors
D. third-party accountants

15. Forces which may permit fraud to occur do not include

A. a gambling addiction
B. lack of segregation of duties
C. centralized decision making environment
D. questionable integrity of employees

16. Which of the following best describes lapping?

A. applying cash receipts to a different customer’s account in an attempt

to conceal previous thefts of funds
B. inflating bank balances by transferring money among different bank
accounts
C. expensing an asset that has been stolen
D. creating a false transaction

17. All of the following are issues of computer security except

A. releasing incorrect data to authorized individuals

B. permitting computer operators unlimited access to the computer room
C. permitting access to data by unauthorized individuals
D. providing correct data to unauthorized individuals

18. Obtaining financing from outside investors is part of which cycle?

A. the revenue cycle

B. the financing cycle
C. the production cycle
D. the payroll cycle

19. Information is ________ when two knowledgeable people independently

produce the same information.
A. verifiable
B. relevant
C. reliable
D. complete

[AUTHOR NAME] 3
20. The AIS must include controls to ensure
A. afety and availability of data.
B. marketing initiatives match corporate goals.
C. information produced from data is accurate.
D. both safety and availability of data and information produced from data
is accurate

21. The transaction cycle approach yields efficiency when processing of a large
number of transactions because
A. a large number of transactions within a given cycle can be categorized
into a relatively small number of distinct types.
B. transaction cycles are easier to computerize.
C. the transaction cycle approach represents the natural order of business.
D. transaction cycles are easy to understand.

22. The primary objective of accounting is to

A. implement strong internal controls.

B. provide useful information to decision makers.
C. prepare financial statements.
D. ensure the profitability of an organization.

23. In which transaction cycle would information for inventory purchases be most
likely to pass between internal and external accounting information systems?

A. the revenue cycle

B. the expenditure cycle
C. the human resources / payroll cycle
D. the financing cycle

24. Which step below is not considered to be part of the data processing cycle?

A. data input
B. feedback from external sources
C. data storage
D. data processing

25. Paquito works in the accounting department of a multinational manufacturing

company. His job includes updating accounts receivable based on sales orders
and remittance advices. His responsibilities are part of the company's

A. revenue cycle.
B. expenditure cycle.
C. financing cycle.
D. production cycle.

26. Identify the four parts of the transaction processing cycle.

A. data input, data storage, data processing, information output

B. data input, data recall, data processing, information output
C. data input, data recall, data transmission, information output
D. data input, data recall, data transmission, data storage

27. An accounting information system (AIS) processes ________ to provide users with
________.

A. data; information
B. data; transactions
C. information; data

[AUTHOR NAME] 4
 D. data; benefits

28. When a customer improperly obtains cash or property from a company, or

avoids liability through deception, it is termed:

A. Check fraud.
B. Customer fraud.
C. Credit card fraud.
D. Refund fraud.

29. In order to have the segregation of duties recommended by COSO, it would be

necessary for a small organization to hire two additional individuals. At this time,
there is not enough work for the one office employee to stay busy. The reason for
not hiring the additional people would have to do with:

A. Human error.
B. Cost versus benefit.
C. Collusion.
D. Authorization.

30. The existence of verifiable information about the accuracy of accounting

records is called a(n):

A. Audit trail.
B. Internal control.
C. Risk assessment.
D. Supporting documentation.

31. This type of control is designed to avoid errors, fraud, or events not authorized by
management.

A. Prevention
B. Judicial
C. Detection
D. Correction

32. The authors presented their “picture” of internal control as a series of umbrellas
which represent different types of controls. Which of the following is not one of
those types of controls?

A. Prevention
B. Investigation
C. Detection
D. Correction

33. When a person, using a computer system, pretends to be someone else, it is

termed:

A. DoS Attack.
B. Hacking.
C. Spoofing.
D. Phishing.

34. Which of the following is not one of the three critical actions that a company
can undertake to assist with fraud prevention and fraud detection?

A. Maintain and enforce a cost of ethics.

B. Maintain an accounting information system.
C. Maintain a system of accounting internal controls.

[AUTHOR NAME] 5
 D. Maintain a system of information technology controls.

35. Magna Naccaw, a sales employee, stole merchandise from her employer and
Cassab Watt, the accounting clerk, covered it up by altering the inventory
records. This is an example of

A. Inventory theft.
B. Financial journal fraud.
C. Skimming.
D. Collusion.

36. Management fraud may involve:

A. Overstating expenses.
B. Understating assets.
C. Overstating revenues.
D. Overstating liabilities.

37. The falsification of accounting reports is referred to as

A. Defalcation.
B. Internal Theft.
C. Misappropriation of Assets.
D. Earnings Management.

38. Which ethical principle states that the benefit from a decision must outweigh the
risks, and that there is no alternative decision that provides the same or greater
benefit with less risk?

A. minimize risk
B. justice
C. informed consent
D. proportionality

39. All of the following are issues of computer security except

A. releasing incorrect data to authorized individuals

B. permitting computer operators unlimited access to the computer room
C. permitting access to data by unauthorized individuals
D. providing correct data to unauthorized individuals

40. For an action to be called fraudulent, all of the following conditions are required
except
A. poor judgment
B. false representation
C. intent to deceive
D. injury or loss

41. One characteristic of employee fraud is that the fraud

A. is perpetrated at a level to which internal controls do not apply

B. involves misstating financial statements
C. involves the direct conversion of cash or other assets to the employee’s
personal benefit
D. involves misappropriating assets in a series of complex transactions
involving third parties

42. The value of information can best be determined by

A. its usefulness to decision makers.

[AUTHOR NAME] 6
 B. its relevance to decision makers.
C. the benefits associated with obtaining the information minus the cost of
producing it.
D. the extent to which it optimizes the value chain.

43. Identify the piece of information below that is typically needed to acquire a
building.
A. job descriptions
B. vendor performance
C. market coverage
D. capacity needs

44. Many modern accounting software packages offer separate transaction cycle
modules. What is the reason for this?

A. Every organization does not need to implement all of the available

transaction cycle modules.
B. Most businesses do not need the revenue cycle module as part of their
AIS.
C. The nature of a given transaction cycle is the same irrespective of the
type of organization.
D. A properly designed AIS does not use the concept of separate business
transaction cycles to process transactions

45. Which of the following is not one of the three basic types of data about a
specific sales transaction that should be captured by an Accounting Information
System?

A. name of the employee who completed the sale

B. daily sales quota
C. product sold
D. Date

46. The ________ is not a transaction cycle.

A. general ledger and reporting cycle

B. expenditure cycle
C. revenue cycle
D. human resources cycle

47. Which of the following statements below shows the contrast between data and
information?
A. Data is the output of an AIS.
B. Information is the primary output of an AIS.
C. Data is more useful in decision making than information.
D. Data and information are the same

48. Information is best described as

A. raw facts about transactions.

B. data that has been organized and processed so that it is meaningful to
the user.
C. Facts that are useful when processed in a timely manner.
D. the same thing as data

49. Accounting information plays major roles in managerial decision making by

A. identifying situations requiring management action.

B. reducing uncertainty.
C. providing a basis for choosing among alternative actions.

[AUTHOR NAME] 7
 D. All of these

50. Identify the primary reason that it is important for a firm to identify the AIS
improvements likely to yield the greatest return.

A. because business strategy directly influences AIS, but not information

technology
B. because most organizations have limited resources
C. because a firm never wants to waste time addressing issues that are not
urgent
D. because it is expensive to improve accounting information systems

51. Which of the following is not an example of how an AIS adds value to an
organization?

A. All employees at a hospital can access and update patient records from
any computer terminal in the hospital.
B. A customer service representative can find a customer's account data,
purchase history, payment history, and salesperson's name while on the
phone with the customer, to resolve issues quickly.
C. Suppliers are able to access sales data directly from the point-of-sale
system of a retailer and deliver inventory automatically when needed.
D. Client tax files are encrypted and made available on the CPA firm's
network to any employee with an access code.

52. Which of the following is not an example of a common activity in an AIS?

A. buy and pay for goods and services

B. sell goods and services and collect cash
C. summarize and report results to interested parties
D. record sales calls for marketing purposes

57. Information that is free from error or bias and accurately represents the events or
activities of the organization is

A. relevant.
B. reliable.
C. verifiable.
D. Timely

58. A good example of how an AIS is used to share knowledge within an

organization is

A. the use of a corporate database to help staff identify the relevant

experts who can help with a particular client.
B. the use of tablets to access a network for messaging worldwide.
C. the monitoring of production equipment to watch for defects.
D. the use of point-of-sale data to determine hot-selling item

59. Which of the following is not one of the components of an AIS?

A. internal controls and security measures

B. people
C. procedures and instructions
D. hardware

60. The ongoing review and evaluation of a system of internal control is referred to a

A. Risk assessment.
B. Monitoring.

[AUTHOR NAME] 8
 C. Segregating.
D. Communication

61. Factors that limit the effectiveness of internal controls include all of the following
except

A. Flawed judgment applied in decision making.

B. Human error.
C. Controls can be circumvented or ignored.
D. All of the above are factors that limit the effectiveness of internal
controls.

62. If an accounting supervisor were allowed to hire employees, approve the hours
worked, prepare the paychecks, and deliver the paychecks, which of the
categories of control activities would be violated?

A. Adequate records
B. Segregation of duties
C. Authorization of transactions
D. Independent checks

63. Which of the following is not an example of employee fraud?

A. Skimming
B. Larceny
C. Kickbacks
D. Earnings management

64. Which control activity is intended to serve as a method to confirm the accuracy
or completeness of data in the accounting system?

A. Authorization
B. Segregation of duties
C. Security of assets
D. Independent checks and reconciliations

65. COSO describes five components of internal control. Which of the following
terms is best described as “policies and procedures that help ensure
management directives are carried out and management objectives are
achieved”?
A. Risk assessment
B. Information and communication
C. Control activities
D. Control environment

66. A company’s cash custody function should be separated from the related cash
recordkeeping function in order to:

A. Physically safeguard the cash.

B. Establish accountability for the cash.
C. Prevent the payment of cash disbursements from cash receipts.
D. Minimize opportunities for misappropriations of cash.

67. Proper segregation of functional responsibilities calls for separation of the

functions of:

A. Authorization, execution, and payment.

B. Authorization, recording, and custody.
C. Custody, execution, and reporting.
D. Authorization, payment, and recording.

[AUTHOR NAME] 9
68. The review of amounts charged to the company from a seller that is purchased
from is called a:

A. Vendor audit.
B. Seller review.
C. Collusion.
D. Customer review.

69. The most difficult type of misstatement to discover is fraud that is concealed by:
A. Over-recording the transactions.
B. Nonrecorded transactions.
C. Recording the transactions in subsidiary records.
D. Related parties.

70. Which of the following is not a common form of employee fraud?

A. Inventory theft
B. Expense account fraud
C. Payroll fraud
D. Refund fraud

71. There are many possible indirect benefits to management when management
fraud occurs. Which of the following in not an indirect benefit of management
fraud?

A. Delayed exercise of stock options.

B. Delayed cash flow problems.
C. Enhanced promotion opportunities.
D. Increased incentive-based compensation.

72. Which of the following is not a condition in the fraud triangle?

A. Rationalization
B. Incentive
C. Conversion
D. Opportunity

73. Documents that are sent to customers or suppliers and then sent back to the
company in the course of a business transaction are known as

A. turnaround documents.
B. source documents.
C. input documents.
D. transaction documents.

74. Which of the following is an example of source data automation?

A. a utility bill
B. POS (point-of-sale) scanners in retail stores
C. a bill of lading
D. a subsidiary ledger

75. Source documents generally help to improve accuracy in transaction processing

because
A. they specify which information to collect.
B. logically related data can be grouped in the same area of the
document.
C. they provide directions and steps for completing the form.
D. All of the above are correct.

[AUTHOR NAME] 10
76. Sasha Blouse has been the controller of Downtown Tires for 25 years. Ownership
of the firm recently changed hands and the new owners are conducting an
audit of the financial records. The audit has been unable to reproduce financial
reports that were prepared by Ms. Blouse. While there is no evidence of
wrongdoing, the auditors are concerned that the discrepancies might
contribute to poor decisions. Which of the following characteristics of useful
information is absent in the situation described above?

A. Relevant
B. Reliable
C. Complete
D. Verifiable

77. Who of the following would not be involved in the revenue cycle?

A. Accounts payable clerk

B. Customer
C. Cashier
D. Credit manager

78. Transaction cycles can be summarized on a high level as "give-get" transactions.

An example of "give-get" in the revenue cycle would be

A. give cash, get goods.

B. give goods, get cash.
C. give cash, get labor.
D. give cash, get cash.

79. The chance for fraud or ethical lapses will not be reduced if management:

A. Emphasizes ethical behavior.

B. Models ethical behavior.
C. Hires ethical employees.
D. Is unethical.

80. In addition to ethical practices, management has an obligation to maintain a

set of processes and procedures to assure accurate financial reporting and
protection of company assets. This obligation arises because:

A. Many groups have expectations of management.

B. Management has a stewardship obligation to investors.
C. Management has an obligation to provide accurate reports to non-
investors.
D. All of the above are reasons for the obligation.

81. Fraudsters typically try to justify their behavior by telling themselves that they
intend to repay the amount stolen or that they believe the organization owes
them the amount stolen. This justification is referred to as:

A. Opportunity.
B. Rationalization.
C. Incentive.
D. Concealment.

82. Changing the accounting records to hide the existence of a fraud is termed:

A. Theft.
B. Conversion.
C. Collusion.

[AUTHOR NAME] 11
 D. Concealment.

83. A set of documented guidelines for moral and ethical behavior within an
organization is termed a(n):

A. Accounting Information System.

B. Code of Ethics.
C. Internal Control.
D. Sarbannes-Oxley

84. If an organization’s IT systems are not properly controlled, they may become
exposed to the risks of:

A. Unauthorized access.
B. Erroneous processing.
C. Service interruption.
D. All of the above.

85. Management circumvention of systems or internal controls that are in place is

termed:

A. Management override.
B. Management collusion.
C. Management stewardship.
D. Management manipulations.

86. Which level of management is responsible for short-term planning and

coordination of activities necessary to accomplish organizational objectives?

A. operations management
B. middle management
C. top management
D. line management

87. Which level of management is responsible for controlling day-to-day operations?

A. top management
B. middle management
C. operations management
D. executive management

88. An example of a nonfinancial transaction is

A. sale of products
B. cash disbursement
C. log of customer calls
D. purchase of inventory

89. An example of a financial transaction is

A. the purchase of computer

B. a supplier’s price list
C. a delivery schedule
D. an employee benefit brochure

90. Which subsystem is not part of the accounting information system?

A. transaction processing system

B. expert system
C. general ledger/financial reporting system

[AUTHOR NAME] 12
 D. management reporting system

91. The major difference between the financial reporting system (FRS) and the
management reporting system (MRS) is the

A. FRS provides information to internal and external users; the MRS provides
information to internal users
B. FRS provides discretionary information; the MRS provides nondiscretionary
information
C. FRS reports are prepared using information provided by the general
ledger system; the MRS provides information to the general ledger system
D. FRS reports are prepared in flexible, nonstandard formats; the MRS reports
are prepared in standardized, formal formats

92. The purpose of the transaction processing system includes all of the following
except

A. converting economic events into financial transactions

B. recording financial transactions in the accounting records
C. distributing essential information to operations personnel to support their
daily operations
D. measuring and reporting the status of financial resources and the
changes in those resources

93. The primary input to the transaction processing system is

A. a financial transaction
B. an accounting record
C. an accounting report
D. a nonfinancial transaction

94. When designing the data collection activity, which type of data should be
avoided?
A. data that is relevant
B. data that is efficient
C. data that is redundant
D. data that is accurate

95. The most basic element of useful data in the database is the

A. record
B. key
C. file
D. attribute

96. In a database, a complete set of attributes for a single occurrence of an entity

class is called a

A. key
B. file
C. record
D. character

97. Database management tasks do not include

A. summarization
B. storage
C. retrieval
D. deletion

[AUTHOR NAME] 13
98. Which activity is not part of the finance function?

A. cash receipts
B. portfolio management
C. credit
D. general ledger

99. The term “accounting independence” refers to

A. data integrity
B. separation of duties, such as record keeping and custody of physical
resources
C. generation of accurate and timely information
D. business segmentation by function

100. In the distributed data processing approach

A. computer services are consolidated and managed as a shared

organization resource
B. the computer service function is a cost center
C. the end users are billed using a charge-back system
D. computer services are organized into small information processing units
under the control of end users

[AUTHOR NAME] 14