Chapter 4—The Revenue Cycle

TRUE/FALSE

1. The packing slip is also known as the shipping notice.

ANS: F PTS: 1

2. The bill of lading is a legal contract between the buyer and the seller.

ANS: F PTS: 1

3. Another name for the stock release form is the picking ticket.

ANS: T PTS: 1

4. Warehouse stock records are the formal accounting records for inventory.

ANS: F PTS: 1

5. The purpose of the invoice is to bill the customer.

ANS: T PTS: 1

6. In most large organizations, the journal voucher file has replaced the formal general journal.

ANS: T PTS: 1

7. The cash receipts journal is a special journal.

ANS: T PTS: 1

8. In the revenue cycle, the internal control “limit access” applies to physical assets only.

ANS: F PTS: 1

9. In real-time processing systems, routine credit authorizations are automated.

ANS: T PTS: 1

10. In a computerized accounting system, segregation of functions refers to inventory control,

accounts receivable, billing, and general ledger tasks.
 ANS: F PTS: 1

11. A written customer purchase order is required to trigger the sales order system.

ANS: F PTS: 1

12. Inventory control has physical custody of inventory.

ANS: F PTS: 1
13. The principal source document in the sales order system is the sales order.

ANS: T PTS: 1

14. Sales orders should be prenumbered documents.

ANS: T PTS: 1

15. Integrated accounting systems automatically transfer data between modules.

ANS: T PTS: 1

16. If a customer submits a written purchase order, there is no need to prepare a sales order.

ANS: F PTS: 1

17. Sales return involves receiving, sales, credit, and billing departments, but not accounts receivable.

ANS: F PTS: 1

18. A remittance advice is a form of turn-around document.

ANS: T PTS: 1

19. A bill of lading is a request for payment for shipping charges.

ANS: F PTS: 1

20. In point of sale systems, authorization takes the form of validation of credit card charges.

ANS: T PTS: 1
MULTIPLE CHOICE

1. The revenue cycle consists of

a. one subsystem–order entry
b. two subsystems–sales order processing and cash receipts
c. two subsystems–order entry and inventory control
d. three subsystems–sales order processing, credit authorization, and cash receipts

ANS: B PTS: 1

2. The reconciliation that occurs in the shipping department is intended to ensure that
a. credit has been approved
b. the customer is billed for the exact quantity shipped
c. the goods shipped match the goods ordered
d. inventory records are reduced for the goods shipped

ANS: C PTS: 1

3. The adjustment to accounting records to reflect the decrease in inventory due to a sale occurs in the

a. warehouse
b. shipping department
 c. billing department
d. inventory control department

ANS: D PTS: 1

4. Which document triggers the revenue cycle?

a. the sales order
b. the customer purchase order
c. the sales invoice
d. the journal voucher

ANS: B PTS: 1

5. Copies of the sales order can be used for all of the following except

a. purchase order
b. credit authorization
c. shipping notice
d. packing slip

ANS: A PTS: 1

6. The purpose of the sales invoice is to

a. record reduction of inventory
b. transfer goods from seller to shipper
c. bill the customer
d. select items from inventory for shipment

ANS: C PTS: 1

7. The customer open order file is used to

a. respond to customer queries
b. fill the customer order
c. ship the customer order
d. authorize customer credit

ANS: A PTS: 1

8. The stock release copy of the sales order is not used to

a. locate and pick the items from the warehouse shelves
b. record any out-of-stock items

c. authorize the warehouse clerk to release custody of the inventory to shipping

d. record the reduction of inventory
 ANS: D PTS: 1

9. The shipping notice

a. is mailed to the customer
b. is a formal contract between the seller and the shipping company
c. is always prepared by the shipping clerk
d. informs the billing department of the quantities shipped

ANS: D PTS: 1

10. The billing department is not responsible for

a. updating the inventory subsidiary records

b. recording the sale in the sales journal
 c. notifying accounts receivable of the sale
d. sending the invoice to the customer

ANS: A PTS: 1

11. Customers should be billed for backorders when

a. the customer purchase order is received
b. the backordered goods are shipped
c. the original goods are shipped
d. customers are not billed for backorders because a backorder is a lost sale

ANS: B PTS: 1

12. Usually specific authorization is required for all of the following except
a. sales on account which exceed the credit limit
b. sales of goods at the list price
c. a cash refund for goods returned without a receipt
d. write off of an uncollectible account receivable

ANS: B PTS: 1

13. Which of following functions should be segregated?

a. opening the mail and making the journal entry to record cash receipts
b. authorizing credit and determining reorder quantities
c. maintaining the subsidiary ledgers and handling customer queries
d. providing information on inventory levels and reconciling the bank statement

ANS: A PTS: 1

14. Which situation indicates a weak internal control structure?

a. the mailroom clerk authorizes credit memos

b. the record keeping clerk maintains both accounts receivable and accounts
payable subsidiary ledgers
c. the warehouse clerk obtains a signature before releasing goods for shipment
d. the accounts receivable clerk prepares customer statements every month

ANS: A PTS: 1

15. The most effective internal control procedure to prevent or detect the creation of fictitious
credit memoranda for sales returns is to

a. supervise the accounts receivable department

b. limit access to credit memoranda
c. prenumber and sequence check all credit memoranda
 d. require management approval for all credit memoranda

ANS: D PTS: 1

16. The accounts receivable clerk destroys all invoices for sales made to members of her family and
does not record the sale in the accounts receivable subsidiary ledger. Which procedure will not detect
this fraud?

a. prenumber and sequence check all invoices

b. reconcile the accounts receivable control to the accounts receivable subsidiary ledger
c. prepare monthly customer statements
d. reconcile total sales on account to the debits in the accounts receivable subsidiary ledger

ANS: C PTS: 1
17. Which department is least likely to be involved in the revenue cycle?
a. credit
b. accounts payable
c. billing
d. shipping

ANS: B PTS: 1

18. Which document is included with a shipment sent to a customer?

a. sales invoice
b. stock release form
c. packing slip
d. shipping notice

ANS: C PTS: 1

19. Good internal controls in the revenue cycle should ensure all of the following except

a. all sales are profitable

b. all sales are recorded
c. credit is authorized
d. inventory to be shipped is not stolen

ANS: A PTS: 1

20. Which control does not help to ensure that accurate records are kept of customer accounts
and inventory?
a. reconcile accounts receivable control to accounts receivable subsidiary
b. authorize credit
c. segregate custody of inventory from record keeping
d. segregate record keeping duties of general ledger from accounts receivable

ANS: B PTS: 1

21. Internal controls for handling sales returns and allowances do not include

a. computing bad debt expense using the percentage of credit sales

b. verifying that the goods have been returned
c. authorizing the credit memo by management
d. using the original sales invoice to prepare the sales returns slip

ANS: A PTS: 1

22. The printer ran out of preprinted sales invoice forms and several sales invoices were not printed.
The best internal control to detect this error is
 a. a batch total of sales invoices to be prepared compared to the actual number of
sales invoices prepared

b. sequentially numbered sales invoices

c. visual verification that all sales invoices were prepared
d. none of the above will detect this error

ANS: A PTS: 1

23. Which department prepares the bill of lading?

a. sales
b. warehouse

c. shipping
 d. credit

ANS: C PTS: 1

24. A remittance advice is

a. used to increase (debit) an account receivable by the cash received

b. is a turn-around document
c. is retained by the customer to show proof of payment
d. none of the above

ANS: B PTS: 1

25. A weekly reconciliation of cash receipts would include comparing

a. the cash prelist with bank deposit slips
b. the cash prelist with remittance advices
c. bank deposit slips with remittance advices
d. journal vouchers from accounts receivable and general ledger

ANS: A PTS: 1

26. At which point is supervision most critical in the cash receipts system?
a. accounts receivable
b. general ledger
c. mail room
d. cash receipts

ANS: C PTS: 1

27. EDI trading partner agreements specify all of the following except

a. selling price
b. quantities to be sold
c. payment terms
d. person to authorize transactions

ANS: D PTS: 1

28. A cash prelist is

a. a document that records sales returns and allowances

b. a document returned by customers with their payments
c. the source of information used to prepare monthly statements
d. none of the above
 ANS: D PTS: 1

29. An advantage of real-time processing of sales is

a. the cash cycle is lengthened

b. current inventory information is available

c. hard copy documents provide a permanent record of the transaction
d. data entry errors are corrected at the end of each batch

ANS: B PTS: 1

30. Commercial accounting systems have fully integrated modules. The word “integrated” means that
a. segregation of duties is not possible
b. transfer of information among modules occurs automatically
c. batch processing is not an option
 d. separate entries are made in the general ledger accounts and the subsidiary ledgers

ANS: B PTS: 1

31. The data processing method that can shorten the cash cycle is

a. batch, sequential file processing

b. batch, direct access file processing
c. real-time file processing
d. none of the above

ANS: C PTS: 1

32. Which of the following is not a risk exposure in a microcomputer accounting system?
a. reliance on paper documentation is increased

b. functions that are segregated in a manual environment may be combined in

a microcomputer accounting system

c. backup procedures require human intervention

d. data are easily accessible

ANS: A PTS: 1

33. Which journal is not used in the revenue cycle?

a. cash receipts journal
b. sales journal
c. purchases journal
d. general journal

ANS: C PTS: 1

34. Periodically, the general ledger department receives all of the following except
a. total increases to accounts receivable
b. total of all sales backorders
c. total of all sales
d. total decreases in inventory

ANS: B PTS: 1

35. The credit department

a. prepares credit memos when goods are returned
b. approves credits to accounts receivable when payments are received
c. authorizes the granting of credit to customers
d. none of the above
 ANS: C PTS: 1

36. Adjustments to accounts receivable for payments received from customers is based upon

a. the customer’s check

b. the cash prelist
c. the remittance advice that accompanies payment
d. a memo prepared in the mailroom

ANS: C PTS: 1

37. The revenue cycle utilizes all of the following files except

a. credit memo file

b. sales history file
 c. shipping report file
d. cost data reference file

ANS: D PTS: 1

38. All of the following are advantages of real-time processing of sales except
a. The cash cycle is shortened
b. Paper work is reduced
c. Incorrect data entry is difficult to detect
d. Up-to-date information can provide a competitive advantage in the marketplace

ANS: C PTS: 1

39. Which document is NOT prepared by the sales department?

a. packing slip

b. shipping notice

c. bill of lading

d. stock release

ANS: C PTS: 1

40. Which type of control is considered a compensating control?

a. segregation of duties

b. access control

c. supervision

d. accounting records

ANS: C PTS: 1

SHORT ANSWER

1. Distinguish between a packing slip, shipping notice, and a bill of lading.

ANS:
 The packing slip travels with the goods to the customer, and it describes the contents on the order.
Upon filling the order, the shipping department sends the shipping notice to the billing department to
notify them that the order has been filled and shipped. The shipping notice contains additional
information that the packing slip may not contain, such as shipment date, carrier and freight charges.
The bill of lading is a formal contract between the seller and the transportation carrier; it shows legal
ownership and responsibility for assets in transit.

PTS: 1

2. State two specific functions or jobs that should be segregated in the sales processing system.

ANS:

sales order processing and credit approval; inventory control (record keeping) from
warehouse (custody); and general ledger from accounts receivable subsidiary ledger

PTS: 1

3. State two specific functions or jobs that should be segregated in the cash receipts system.
ANS:

cash receipts (custody) from accounts receivable (record keeping); and general ledger from
accounts receivable subsidiary ledger

mail room (receiving cash) and accounts receivable subsidiary ledger

PTS: 1

4. List two points in the sales processing system when authorization is required.

ANS:

credit check, sales returns policy, preparation of cash

prelist PTS: 1

5. For the revenue cycle, state two specific independent verifications that should be performed.

ANS:

shipping verifies that the goods sent from the warehouse are correct in type and quantity;

billing reconciles the shipping notice with the sales order to ensure that customers are billed only
for the quantities shipped;

general ledger reconciles journal vouchers submitted by the billing department (sales
journal), inventory control (inventory subsidiary ledger), and cash receipts (cash receipts
journal) treasurer determines that all cash received got to the bank

PTS: 1

6. What task can the accounts receivable department engage in to verify that all checks sent
by the customers have been appropriately deposited and recorded?

ANS:

The company should periodically, perhaps monthly, send an account summary to each customer listing
invoices and amounts paid by check number and date. This form allows the customer to verify the
accuracy of the records. If any payments are not recorded, they will notify the company of the
discrepancy. These reports should not be handled by the accounts receivable clerk or the cashier.
 PTS: 1

7. What specific internal control procedure would prevent the sale of goods on account to a
fictitious customer?

ANS: credit
check

PTS: 1

8. The clerk who opens the mail routinely steals remittances. Describe a specific internal
control procedure that would prevent or detect this fraud.

ANS:

supervision (two people) when opening the mail;

customer complaints when monthly statements mailed

PTS: 1
 9. A customer payment of $247 was correctly posted in the general ledger but was recorded as $274 in
the customer’s account receivable. Describe a specific internal control procedure that would detect
this error.

ANS:

reconcile the accounts receivable control account to the accounts receivable subsidiary
ledger; compare control totals of cash received with total credits to A/R subsidiary ledger

PTS: 1

10. Goods are shipped to a customer, but the shipping department does not notify billing and the customer
never receives an invoice. Describe a specific internal control procedure that would detect this error.

ANS:

Billing department matches the stock release copy of the sales order (from shipping) to the invoice,
ledger, and file copies of the sales order (sent directly to billing), and then mails the invoice to the
customer. After a certain amount of time has passed, the billing department should investigate any
unmatched invoice, ledger, and file copies of the sales order.

PTS: 1

11. A clerk embezzles customer payments on account and covers up the theft by making an adjustment
to the accounts receivable ledger. Describe a specific internal control procedure that would prevent
this fraud.

ANS:

segregation of duties; do not let one person have custody of payments and the ability to make
adjustments to the records; all adjustments to accounts receivable records must be authorized

PTS: 1

12. A credit sale is made to a customer, even though the customer’s account is four months overdue.

Describe a specific internal control procedure that would prevent this from happening.

ANS:
 perform a credit check and require management approval for all sales to accounts that are

overdue PTS: 1

13. What specific internal control procedure would prevent a customer from being billed for all 50
items ordered although only 40 items were shipped?

ANS:

billing should reconcile the shipping report with the sales

order PTS: 1

14. What specific internal control procedure would prevent the shipping clerk from taking goods from
the storeroom and sending them to someone who had not placed an order?

ANS:

shipping clerk should not have access to the

storeroom PTS: 1
15. What specific internal control procedure would prevent an accounts receivable clerk from issuing a
fictitious credit memo to a customer (who is also a relative) for goods that were “supposedly”
returned from previous sales?

ANS:

credit memo should be authorized after verifying the return of goods based on evidence from
the person who received the goods

PTS: 1

16. What specific internal control procedure would prevent an increase in sales returns since
salesmen were placed on commission?

ANS:

customer credit should be verified by the credit department reduce commissions for sales

returns PTS: 1

17. What specific internal control procedure would detect the misplacement of a sales invoice
after preparation and not mailed to the customer? The invoice was never found.

ANS:

all documents should be

prenumbered PTS: 1

18. What function does the receiving department serve in the revenue cycle?

ANS:

The receiving department counts and inspects items which are returned by customers. The
receiving department prepares a return slip of which a copy goes to the warehouse for restocking,
and a copy goes to the sales order department so that a credit memo can be issued to the customer.

PTS: 1
19. What are the three rules that ensure that no single employee or department processes a transaction
in its entirety.

ANS:

The three rules that ensure segregation of functions are:

1. Transaction authorization should be separate from transaction processing

2. Asset custody should be separate from asset record keeping.

3. The organization structure should be such that the perpetration of a fraud requires
collusion between 2 or more individuals.

PTS: 1

20. What is automation and why is it used?

ANS:

Automation involves using technology to improve the efficiency and effectiveness of a task.
Automation of the revenue cycle is typically used to reduce overhead costs, make better credit
granting decisions, and better collect outstanding accounts receivable.
 PTS: 1

21. What is the objective of re-engineering?

ANS:

The objective of re-engineering is to greatly reduce costs by identifying and eliminating

non value-added tasks and also by streamlining necessary existing processes.

PTS: 1

22. What are the key segregation of duties related to computer programs that process accounting
transactions.

ANS:

Response: The tasks of design, maintenance, and operation of computer programs need to be
segregated. The programmers who write the original computer programs should not also be
responsible for making program changes. Both of these functions must also be separate from the
daily task of operating the system.

PTS: 1

23. How is EDI more than technology? What unique control problems may it pose?

ANS:

EDI represents a unique business arrangement between the buyer and seller in which they agree, in
advance, to the terms of their relationship on such items as selling price, quantities, delivery times,
payment terms and methods of handling disputes. The terms of agreement are binding. One problem
is ensuring that only valid transactions are processed. Another risk is that a non-trading partner will
masquerade as a trading partner and access the firm's processing systems.

PTS: 1

24. What makes point-of-sales systems different from revenue cycles of manufacturing firms?

ANS:
 In point-of-sale systems, the customer literally has possession of the items purchased, thus the
inventory is in hand. Typically, for manufacturing firms, the order is placed and the good is shipped to
the customer at some later time period. Thus, updating inventory at the time of sale is necessary in
point-of-sale systems since the inventory is changing hands, while it is not necessary in
manufacturing firms until the goods are actually shipped to the customer.

PTS: 1

25. Give three examples of Access Control in a Point-of-Sale (POS) system.

ANS:
 Lock on the cash drawer
 Internal cash register tape that can be accessed only by the manager

 Physical security over the inventory. The following are examples: Steel cables to secure expensive
leather coats to the clothing rack. Locked showcases to display jewelry and costly electronic
equipment. Magnetic tags attached to merchandise, which will sound an alarm when removed
from the store.
 Note to Instructor: Some physical security devices could also be classified as supervision

PTS: 1

26. Describe the key tasks in the sales order process

ANS:

Sales order procedures include the tasks involved in receiving and processing a customer order, filling
the order and shipping products to the customer, billing the customer at the

proper time, and correctly accounting for the

transaction. PTS: 1

27. What is the purpose(s) of the stock release document?

ANS:
The stock release document (also called the picking ticket) is sent to the warehouse to identify

the items of inventory that have been sold and must be located and picked from the warehouse
shelves. It also provides formal authorization for warehouse personnel to release the specified items.

PTS: 1

28. What is the role of the shipping notice?

ANS:

The shipping notice triggers the billing process. When the goods are shipped the shipping notice is
forwarded to the billing function as evidence that the customer’s order was filled and shipped. This
document conveys pertinent new facts such as the date of shipment, the items and quantities
actually shipped, the name of the carrier, and freight charges.

PTS: 1
 29. What is a bill of lading?

ANS:

The bill of lading, is a formal contract between the seller and the shipping company (carrier) to
transport the goods to the customer. This document establishes legal ownership and responsibility for
assets in transit.

PTS: 1

30. What is the purpose of the credit memo?

ANS:

This document is the authorization for the customer to receive credit for the merchandise returned. A
credit memo may be similar in appearance to a sales order. Some systems may actually use a copy of
the sales order marked credit memo.

PTS: 1

ESSAY
1. When Clipper Mail Order Co. receives telephone and fax orders, the billing department prepares an
invoice. The invoice is mailed immediately. A copy of the invoice serves as a shipping notice. The
shipping department removes inventory from the warehouse and prepares the shipment. When the
order is complete, the goods are shipped. The clerk checks the customer’s credit before recording
the sale in the general journal and the account receivable subsidiary ledger.

The receptionist opens the mail and lists all payments. The receptionist also handles all customer
complaints and prepares sales return forms for defective merchandise. The cashier records all cash
receipts in the general journal and makes the appropriate entry in the accounts receivable
subsidiary ledger. The cashier prepares the daily bank deposit.

Describe at least four internal control weaknesses at Clipper Mail Order Co.

ANS:

no sales order is prepared;

credit should be checked before shipping the

items; invoices are mailed before the goods are
shipped; shipping has access to the warehouse;

record keeping duties are not segregated (general ledger from subsidiary
ledger); only one person opens the mail;

sales return forms are not authorized by management;

custody and record keeping duties are not separated;

the cashier has custody of cash, makes journal entries, and maintains A/R ledger;

Cashier has custody of cash and handles customer complaints (e.g., about unrecorded

payments). PTS: 1

2. How may an employee embezzle funds by issuing an unauthorized sales credit memo if
the appropriate segregation of functions and authorization controls were not in place?

ANS:

An employee who has access to incoming payments, either cash or check, as well as the
authorization to issue credit memos may pocket the cash or check of a payment for goods received.
This employee could then issue a credit memo to this person’s account so that the customer does not
show a balance due.
 PTS: 1

3. For each of the following documents, describe its purpose, the functional area preparing it, and the
key data included: sales order, bill of lading, credit memo.

ANS:

A sales order is used to collect information needed to initiate the sales process. It can be a copy of the
customer’s purchase order prepared by the customer or a document prepared by a member of the
sales staff in response to mail, phone or personal contact with the customer. It contains information
about the customer, the type and quantity of merchandise being requested, price information,
shipping information, etc.

The bill of lading is prepared by the shipping clerk. It is a formal contract between the seller and the
carrier who will transport the goods to the customer. It contains information about the carrier, the
customer, descriptions of the package(s) being shipped, declared value of the goods, and information
on freight charges, including how much and who will pay.
 A credit memo is a document authorizing issuance of credit to a customer for returned goods. It is
prepared in the sales department after receipt of a return slip from receiving. It shows the
customer’s name, reason for the return, a list of items and prices, and the total amount of credit.
Many credit memos require additional authorization.

PTS: 1

4. What features of a reengineered cash receipts system contribute to improved control and
reduced costs? What complicates the process?

ANS:

A reengineered cash receipts system can include automated mail processing that opens envelopes and
separates checks and remittance advices in a manner that limits access of the mail room clerk to the
checks. Software can be used to read the amount of payment and compare to the amount due, verify
that the check has been signed, etc. “Good” transactions continue through processing, exceptions are
handled separately. Checks are sent to the cash receipts department for deposit, listings of transactions
are sent to accounts receivable, cash receipts, and general ledger departments.

This process is complicated when the organization receives many partial payments, single
payments covering multiple invoices, or encounters many clerical errors on the part of customers.

PTS: 1

5. What role does each of the following departments play in the sales order processing subsystem:
sales, credit, and shipping? Be complete.

ANS:

The sales department receives the order information from the customer, either by mail, phone, or in
person. Information is captured on a sales order form which includes customer name, account number,
name, number and description of items ordered, quantities and unit prices plus taxes, shipping info,
discounts, freight terms. This form is usually prepared in multiple copies that are used for credit
approval, packing, stock release, shipping, and billing.

The credit department provides transaction authorization by approving the customer for a credit
sale and returns and allowances.

The shipping department receives information from the sales department in the form of packing slip
and shipping notice. When the goods arrive from the warehouse, the documents are reconciled with
 the stock release papers. The goods are packed and labeled. The packing slip is included. The shipping
notice is sent to billing. A bill of lading is prepared to accompany the shipment.

PTS: 1

6. With regard to segregation of duties, rule one is that transaction authorization and
transaction processing should be separated. What does this require in the revenue cycle?

ANS:

Within the revenue cycle, the credit department is separate from the rest of the process. Hence, the
authorization of the transaction (granting of credit) is independent. If other people, e.g., sales staff,
were able to authorize credit sales, there would be the temptation to approve sales to any
customer, even those known to not be credit worthy.

PTS: 1
7. With regard to segregation of duties, rule two is that asset custody and record keeping should be
separated. What does this require in the revenue cycle?

ANS:

In the revenue cycle, the warehouse has custody of physical assets while accounting (especially general
ledger and inventory control) maintains the records. Also, in the cash receipts subsystem, cash receipts has
custody of the asset (cash) while general ledger and accounts receivable keep the records.

PTS: 1

8. What role does each of the following departments play in the cash receipts subsystem: mail room,
cash receipts, accounts receivable, and general ledger? Be complete.

ANS:

The mail room receives the customer’s payment–usually a check accompanied by a document called a
remittance advice (which may be a copy of the invoice sent to the customer). Mail clerks separate the
two, prepare a cash prelist or remittance list which lists all the payments received and sends the checks
to the cashier and remittance advices to accounts receivable.

In cash receipts someone (e.g., cashier) restrictively endorses the checks and records the payments in
the cash receipts journal. A deposit slip is prepared which accompanies the checks to the bank.

The accounts receivable department posts from the remittance advices to the customer accounts in
the AR subsidiary ledger.

The general ledger department records cash receipts to the cash and AR control accounts based on
the list from the mailroom and the summary report of posting from A/R.

PTS: 1

9. For each of the following documents, describe its purpose, the functional area preparing it, and the
key data included: remittance advice, remittance list, deposit slip.

ANS:

A remittance advice is sent by the customer to accompany payment. However, it is often part of or a
copy of the invoice sent by the billing department after the goods were shipped.
 A remittance list is often called a cash prelist and is prepared by the mail room clerk to record all cash
received. It accompanies the checks to the cashier.

A deposit slip is prepared by the cashier to accompany the checks to the bank. This is usually a
preprinted bank form.

PTS: 1

10. How is independent verification carried out in a manual revenue

system? ANS:
 Independent verification occurs in several departments as part of the sales
order processing system. The shipping department verifies that the
goods released by the warehouse for shipment, as shown on the
stock release document, match the packing slip. Billing compares
the shipping notice with the invoice to be sure customers are billed
only for goods shipped. And general ledger reconciles the journal
vouchers prepared by billing, inventory control, cash receipts, and
accounts receivable. This reconciliation focuses on a match between
what was ordered, what was removed from the stockroom, what was
shipped, what was billed, cash received, and credit to the customer
account.

PTS: 1

Quiz 2—The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures

TRUE/FALSE

False 1. Time cards are used by cost accounting to allocate direct labor charges to work in process.

True 2. The personnel department authorizes changes in employee pay rates.

False 3. Most payroll systems for mid-size firms use real-time data processing.

False 4. To improve internal control, paychecks should be distributed by the employee's supervisor.

True 5. Employee paychecks should be drawn against a special checking account.

False 6. Because a time clock is used, no supervision is required when employees enter and leave the
work place.

False 7. Inventory control performs the formal record keeping function for fixed assets.

True 8. The depreciation schedule shows when assets are fully depreciated.

False 9. Authorization to dispose of fixed assets should be issued by the user of the asset.
False 10. Work-in-process records are updated by payroll personnel.

True 11. Ideally, payroll checks are written on a special bank account used only for payroll.
False 12. The supervisor is the best person to determine the existence of a “phantom employee” and should
distribute paychecks.

False 13. Payroll processing can be automated easily because accounting for payroll is very simple.

False 14. Timekeeping is part of the personnel function.

True 15. Fixed asset accounting systems include cost allocation and matching procedures that are not part
of routine expenditure systems.
False 16. Asset maintenance involves only the recording of depreciation charges. Physical improvements
are always expensed.

True 17. Fixed Asset Systems must keep track of the physical location of each asset to promote
accountability.
False 18. Time cards capture the total time an individual worker spends on each production job.
True 19. Accounting conventions and IRS rules sometime specify the depreciation parameters to be used.

False 20. The fixed asset disposal report authorizes the user department to dispose of a fixed asset.
MULTIPLE CHOICE

B 1. The document that captures the total amount of time that individual workers spend on each production job
is called a
a. time card
b. job ticket
c. personnel action form
d. labor distribution form

A 2. An important reconciliation in the payroll system is

a. general ledger compares the labor distribution summary from cost accounting to the
disbursement voucher from accounts payable
b. personnel compares the number of employees authorized to receive a paycheck to the
number of paychecks prepared
c. production compares the number of hours reported on job tickets to the number of hours
reported on time cards
d. payroll compares the labor distribution summary to the hours reported on time cards

C 3. Which internal control is not an important part of the payroll system?

a. Supervisors verify the accuracy of employee time cards.
b. Paychecks are distributed by an independent paymaster.
c. Accounts payable verifies the accuracy of the payroll register before transferring payroll
funds to the general checking accounting.
d. General ledger reconciles the labor distribution summary and the payroll disbursement
voucher.

C 4. Which transaction is not processed in the Fixed Asset System?

a. purchase of building
b. improvement of equipment
c. purchase of raw materials
d. sale of company van

B 5. Depreciation
a. is calculated by the department that uses the fixed asset
b. allocates the cost of the asset over its useful life
c. is recorded weekly
d. results in book value approximating fair market value

A 6. Depreciation records include all of the following information about fixed assets except
 a. the economic benefit of purchasing the asset
b. the cost of the asset
c. the depreciation method being used
d. the location of the asset

C 7. Which control is not a part of the Fixed Asset System?

a. formal analysis of the purchase request
b. review of the assumptions used in the capital budgeting model
c. development of an economic order quantity model
d. estimates of anticipated cost savings

D 8. Objectives of the Fixed Asset System do not include

a. authorizing the acquisition of fixed assets
b. recording depreciation expense
c. computing gain and/or loss on disposal of fixed assets
d. maintaining a record of the fair market value of all fixed assets

A 9. Which of the following is not a characteristic of the Fixed Asset System?

a. Acquisitions are routine transactions requiring general authorization.
b. Retirements are reported on an authorized disposal report form.
c. Acquisition cost is allocated over the expected life of the asset.
d. Transfer of fixed assets among departments is recorded in the fixed asset subsidiary ledger.

C 10. In the payroll subsystem, which function should distribute paychecks?

a. personnel
b. timekeeping
c. paymaster
d. payroll

D 11. Where does the responsibility lie for reconciling the labor distribution summary and the payroll
disbursement voucher?
a. cash disbursements
b. cost accounting
c. personnel
d. general ledger

B 12. Which of the following statements is not true?

a. Routine payroll processing begins with the submission of time cards.
b. Payroll clerks must verify the hours reported on the time cards.
c. Payroll reconciles personnel action forms with time cards and prepares paychecks.
d. Cash disbursements signs paychecks and forwards them to the paymaster for distribution.

D13. In a manufacturing firm, employees use time cards and job tickets. Which of the following statements is
not correct?
a. Job tickets are prepared by employees for each job worked on, so an employee may have
more that one job ticket on a given day.
b. An individual employee will have only one time card.
c. The time reported on job tickets should reconcile with the time reported on time cards.
d. Paychecks should be prepared from the job tickets.
C 14. Which department is responsible for approving changes in pay rates for employees?
a. payroll
b. treasurer
c. personnel
d. cash disbursements

B 15. Which of the following situations represents a serious control weakness?

a. Timekeeping is independent of the payroll department.
b. Paychecks are distributed by the employees immediate supervisor.
c. Time cards are reconciled with job tickets.
d. Personnel is responsible for updating employee records, including creation of records for
new hires.

A 16. Why would an organization require the paymaster to deliver all unclaimed paychecks to the internal audit
department?
a. to detect a “phantom employee” for whom a check was produced
b. to prevent an absent employee’s check from being lost
c. to avoid paying absent employees for payday
d. to prevent the paymaster from cashing unclaimed checks

C 17. Which of the following is not a reasonable control for fixed assets?
a. Proper authorization is required for acquisition and disposal of fixed assets.
b. Fixed asset records show the location of each asset.
c. Fully depreciated assets are immediately disposed of.
d. Depreciation policies are in writing.

C 18. Cost accounting updates work-in-process accounts from

a. time cards
b. the labor distribution summary
c. job tickets
d. personnel action forms

C 19. Payroll uses time card data to do all of the following except
a. prepare the payroll register
b. update employee payroll records
c. prepare the labor distribution summary
d. prepare paychecks

B 20. Payroll checks are typically drawn on

a. the regular checking account
b. a payroll imprest account
c. a wages payable account
d. petty cash

D 21. The personnel action form provides authorization control by

a. preventing paychecks for terminated employees
b. verifying pay rates for employees
c. informing payroll of new hires
d. all of the above
D 22. Accounting records that provide the audit trail for payroll include all of the following except
a. time cards
b. job tickets
c. payroll register
d. accounts payable register

C 23. Personnel actions forms are used to do all of the following except
a. activate new employees
b. terminate employees
c. record hours worked
d. change pay rates

B 24. The payroll department performs all of the following except

a. prepares the payroll register
b. distributes paychecks
c. updates employee payroll records
d. prepares paychecks

C 25. The document that records the total amount of time spent on a production job is the
a. time card
b. job ticket
c. labor distribution summary
d. personnel action form

C 26. A control technique that can reduce the risk of a terminated employee being paid is
a. a security camera viewing the time clock
b. the supervisor taking role during the shift
c. paychecks being distributed by an independent paymaster
d. reconciliation of time cards and job tickets

B 27. Accounts payable

a. signs paychecks
b. prepares the payroll voucher
c. reconciles time cards and employee records
d. distributes paychecks to employees

B 28. All of the following are processed by the Fixed Asset System except
a. sale of unneeded equipment
b. purchase of raw materials
c. repair of production equipment
d. purchase of a new plant

A29. The Fixed Asset System performs all of the following except
a. determines the need for new assets
b. maintains depreciation records
c. records retirement and disposal of assets
d. tracks the physical location of fixed assets
B 30. The payroll department performs all of the following except
a. prepares paychecks
b. transfers adequate funds to the payroll imprest account
c. updates employee payroll records
d. prepares the payroll register

C 31. Depreciation
a. assures that assets are reported at fair market value
b. is discretionary for many firms
c. allocates the cost of an asset over its useful life
d. is the responsibility of the department using the asset

C 32. The Fixed Asset System is similar to the expenditure cycle except
a. fixed asset transactions are non-routine and require special authorization and controls
b. fixed assets are capitalized, not expensed
c. both a and b
d. none of the above

D33. Asset maintenance involves

a. the recording of periodic depreciation
b. adjusting the asset records to reflect the cost of physical improvements
c. keeping track of the physical location of the assets
d. all of the above

C 34. The Fixed Asset Systems does all of the following except
a. records acquisition of assets
b. records improvements to assets
c. estimates the fair market value of assets in service
d. records the disposal of assets

D35. Asset disposal

a. occurs as soon as an asset is fully depreciated
b. requires no special authorization
c. automatically initiates the purchase of a replacement asset
d. must follow formal authorization procedures

Quiz 2—The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures

TRUE/FALSE

False 1. Time cards are used by cost accounting to allocate direct labor charges to work in process.

True 2. The personnel department authorizes changes in employee pay rates.

False 3. Most payroll systems for mid-size firms use real-time data processing.

False 4. To improve internal control, paychecks should be distributed by the employee's supervisor.

True 5. Employee paychecks should be drawn against a special checking account.

False 6. Because a time clock is used, no supervision is required when employees enter and leave the
work place.

False 7. Inventory control performs the formal record keeping function for fixed assets.

True 8. The depreciation schedule shows when assets are fully depreciated.

False 9. Authorization to dispose of fixed assets should be issued by the user of the asset.
False 10. Work-in-process records are updated by payroll personnel.

True 11. Ideally, payroll checks are written on a special bank account used only for payroll.
False 12. The supervisor is the best person to determine the existence of a “phantom employee” and should
distribute paychecks.

False 13. Payroll processing can be automated easily because accounting for payroll is very simple.

False 14. Timekeeping is part of the personnel function.

True 15. Fixed asset accounting systems include cost allocation and matching procedures that are not part
of routine expenditure systems.

False 16. Asset maintenance involves only the recording of depreciation charges. Physical improvements
are always expensed.

True 17. Fixed Asset Systems must keep track of the physical location of each asset to promote
accountability.
False 18. Time cards capture the total time an individual worker spends on each production job.
True 19. Accounting conventions and IRS rules sometime specify the depreciation parameters to be used.

False 20. The fixed asset disposal report authorizes the user department to dispose of a fixed asset.
MULTIPLE CHOICE

B 1. The document that captures the total amount of time that individual workers spend on each production job
is called a
a. time card
b. job ticket
c. personnel action form
d. labor distribution form

A 2. An important reconciliation in the payroll system is

a. general ledger compares the labor distribution summary from cost accounting to the
disbursement voucher from accounts payable
 b. personnel compares the number of employees authorized to receive a paycheck to the
number of paychecks prepared
c. production compares the number of hours reported on job tickets to the number of hours
reported on time cards
d. payroll compares the labor distribution summary to the hours reported on time cards

C 3. Which internal control is not an important part of the payroll system?

a. Supervisors verify the accuracy of employee time cards.
b. Paychecks are distributed by an independent paymaster.
c. Accounts payable verifies the accuracy of the payroll register before transferring payroll
funds to the general checking accounting.
d. General ledger reconciles the labor distribution summary and the payroll disbursement
voucher.

C 4. Which transaction is not processed in the Fixed Asset System?

a. purchase of building
b. improvement of equipment
c. purchase of raw materials
d. sale of company van

B 5. Depreciation
a. is calculated by the department that uses the fixed asset
b. allocates the cost of the asset over its useful life
c. is recorded weekly
d. results in book value approximating fair market value

A 6. Depreciation records include all of the following information about fixed assets except
a. the economic benefit of purchasing the asset
b. the cost of the asset
c. the depreciation method being used
d. the location of the asset

C 7. Which control is not a part of the Fixed Asset System?

a. formal analysis of the purchase request
b. review of the assumptions used in the capital budgeting model
c. development of an economic order quantity model
d. estimates of anticipated cost savings

D 8. Objectives of the Fixed Asset System do not include

a. authorizing the acquisition of fixed assets
b. recording depreciation expense
c. computing gain and/or loss on disposal of fixed assets
d. maintaining a record of the fair market value of all fixed assets

A 9. Which of the following is not a characteristic of the Fixed Asset System?

a. Acquisitions are routine transactions requiring general authorization.
b. Retirements are reported on an authorized disposal report form.
c. Acquisition cost is allocated over the expected life of the asset.
d. Transfer of fixed assets among departments is recorded in the fixed asset subsidiary ledger.
C 10. In the payroll subsystem, which function should distribute paychecks?
a. personnel
b. timekeeping
c. paymaster
d. payroll

D 11. Where does the responsibility lie for reconciling the labor distribution summary and the payroll
disbursement voucher?
a. cash disbursements
b. cost accounting
c. personnel
d. general ledger

B 12. Which of the following statements is not true?

a. Routine payroll processing begins with the submission of time cards.
b. Payroll clerks must verify the hours reported on the time cards.
c. Payroll reconciles personnel action forms with time cards and prepares paychecks.
d. Cash disbursements signs paychecks and forwards them to the paymaster for distribution.

D13. In a manufacturing firm, employees use time cards and job tickets. Which of the following statements is
not correct?
a. Job tickets are prepared by employees for each job worked on, so an employee may have
more that one job ticket on a given day.
b. An individual employee will have only one time card.
c. The time reported on job tickets should reconcile with the time reported on time cards.
d. Paychecks should be prepared from the job tickets.

C 14. Which department is responsible for approving changes in pay rates for employees?
a. payroll
b. treasurer
c. personnel
d. cash disbursements

B 15. Which of the following situations represents a serious control weakness?

a. Timekeeping is independent of the payroll department.
b. Paychecks are distributed by the employees immediate supervisor.
c. Time cards are reconciled with job tickets.
d. Personnel is responsible for updating employee records, including creation of records for
new hires.

A 16. Why would an organization require the paymaster to deliver all unclaimed paychecks to the internal audit
department?
a. to detect a “phantom employee” for whom a check was produced
b. to prevent an absent employee’s check from being lost
c. to avoid paying absent employees for payday
d. to prevent the paymaster from cashing unclaimed checks

C 17. Which of the following is not a reasonable control for fixed assets?
 a. Proper authorization is required for acquisition and disposal of fixed assets.
b. Fixed asset records show the location of each asset.
c. Fully depreciated assets are immediately disposed of.
d. Depreciation policies are in writing.

C 18. Cost accounting updates work-in-process accounts from

a. time cards
b. the labor distribution summary
c. job tickets
d. personnel action forms

C 19. Payroll uses time card data to do all of the following except
a. prepare the payroll register
b. update employee payroll records
c. prepare the labor distribution summary
d. prepare paychecks

B 20. Payroll checks are typically drawn on

a. the regular checking account
b. a payroll imprest account
c. a wages payable account
d. petty cash

D 21. The personnel action form provides authorization control by

a. preventing paychecks for terminated employees
b. verifying pay rates for employees
c. informing payroll of new hires
d. all of the above

D 22. Accounting records that provide the audit trail for payroll include all of the following except
a. time cards
b. job tickets
c. payroll register
d. accounts payable register

C 23. Personnel actions forms are used to do all of the following except
a. activate new employees
b. terminate employees
c. record hours worked
d. change pay rates

B 24. The payroll department performs all of the following except

a. prepares the payroll register
b. distributes paychecks
c. updates employee payroll records
d. prepares paychecks

C 25. The document that records the total amount of time spent on a production job is the
a. time card
 b. job ticket
c. labor distribution summary
d. personnel action form

C 26. A control technique that can reduce the risk of a terminated employee being paid is
a. a security camera viewing the time clock
b. the supervisor taking role during the shift
c. paychecks being distributed by an independent paymaster
d. reconciliation of time cards and job tickets

B 27. Accounts payable

a. signs paychecks
b. prepares the payroll voucher
c. reconciles time cards and employee records
d. distributes paychecks to employees

B 28. All of the following are processed by the Fixed Asset System except
a. sale of unneeded equipment
b. purchase of raw materials
c. repair of production equipment
d. purchase of a new plant

A29. The Fixed Asset System performs all of the following except
a. determines the need for new assets
b. maintains depreciation records
c. records retirement and disposal of assets
d. tracks the physical location of fixed assets

B 30. The payroll department performs all of the following except

a. prepares paychecks
b. transfers adequate funds to the payroll imprest account
c. updates employee payroll records
d. prepares the payroll register

C 31. Depreciation
a. assures that assets are reported at fair market value
b. is discretionary for many firms
c. allocates the cost of an asset over its useful life
d. is the responsibility of the department using the asset

C 32. The Fixed Asset System is similar to the expenditure cycle except
a. fixed asset transactions are non-routine and require special authorization and controls
b. fixed assets are capitalized, not expensed
c. both a and b
d. none of the above

D33. Asset maintenance involves

a. the recording of periodic depreciation
b. adjusting the asset records to reflect the cost of physical improvements
 c. keeping track of the physical location of the assets
d. all of the above

C 34. The Fixed Asset Systems does all of the following except
a. records acquisition of assets
b. records improvements to assets
c. estimates the fair market value of assets in service
d. records the disposal of assets

D35. Asset disposal

a. occurs as soon as an asset is fully depreciated
b. requires no special authorization
c. automatically initiates the purchase of a replacement asset
d. must follow formal authorization procedures

TRUE/FALSE

1. Purchasing decisions are authorized by inventory control.

ANS: T

2. The blind copy of the purchase order that goes to the receiving department contains no item descriptions.

ANS: F

3. Firms that wish to improve control over cash disbursements use a voucher system.

ANS: T

4. In a voucher system, the sum of all unpaid vouchers in the voucher register equals the firm’s total voucher
payable balance.

ANS: T

5. The accounts payable department reconciles the accounts payable subsidiary ledger to the control
account.

ANS: F

6. The use of inventory reorder points suggests the need to obtain specific authorization.

ANS: F

7. Proper segregation of duties requires that the responsibility approving a payment be separated from
posting to the cash disbursements journal.

ANS: T
 8. A major risk exposure in the expenditure cycle is that accounts payable may be overstated at the end of
the accounting year.

ANS: F

9. When a trading partner agreement is in place, the traditional three way match may be eliminated.

ANS: T

10. Authorization of purchases in a merchandising firm occurs in the inventory control department.

ANS: T

11. A three way match involves a purchase order, a purchase requisition, and an invoice.

ANS: F

12. Authorization for a cash disbursement occurs in the cash disbursement department upon receipt of the
supplier’s invoice.

ANS: F

13. An automated cash disbursements system can yield better cash management since payments are made on
time.

ANS: T

14. Permitting warehouse staff to maintain the only inventory records violates separation of duties.

ANS: T

15. A purchasing system that employs electronic data interchange does not use a purchase order.

ANS: F

16. Inventory control should be located in the warehouse.

ANS: F

17. Inspection of shipments in the receiving department would be improved if the documentation showed the
value of the inventory.

ANS: F

18. One reason for authorizing purchases is to enable efficient inventory management.

ANS: T

19. If accounts payable receives an invoice directly from the supplier it needs to be reconciled with the
purchase order and receiving report.
 ANS: T

20. Supervision in receiving is intended to reduce the theft of assets.

ANS: T

MULTIPLE CHOICE

1. The purpose of the purchase requisition is to

a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. bill for goods delivered
ANS: C

2. The purpose of the receiving report is to

a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. bill for goods delivered
ANS: B

3. All of the following departments have a copy of the purchase order except
a. the purchasing department
b. the receiving department
c. accounts payable
d. general ledger
ANS: D

4. The purpose of the purchase order is to

a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. approve payment for goods received
ANS: A

5. The open purchase order file in the purchasing department is used to determine
a. the quality of items a vendor ships
b. the best vendor for a specific item
c. the orders that have not been received
d. the quantity of items received
ANS: C

6. The purchase order

 a. is the source document to make an entry into the accounting records
b. indicates item description, quantity, and price
c. is prepared by the inventory control department
d. is approved by the end-user department
ANS: B

7. The reason that a blind copy of the purchase order is sent to receiving is to
a. inform receiving when a shipment is due
b. force a count of the items delivered
c. inform receiving of the type, quantity, and price of items to be delivered
d. require that the goods delivered are inspected
ANS: B

8. The receiving report is used to

a. accompany physical inventories to the storeroom or warehouse
b. advise the purchasing department of the dollar value of the goods delivered
c. advise general ledger of the accounting entry to be made
d. advise the vendor that the goods arrived safely
ANS: A

9. When a copy of the receiving report arrives in the purchasing department, it is used to
a. adjust perpetual inventory records
b. record the physical transfer of inventory from receiving to the warehouse
c. analyze the receiving department’s process
d. recognize the purchase order as closed
ANS: D

10. The financial value of a purchase is determined by reviewing the

a. packing slip
b. purchase requisition
c. receiving report
d. supplier’s invoice
ANS: D

11. Which document is least important in determining the financial value of a purchase?
a. purchase requisition
b. purchase order
c. receiving report
d. supplier’s invoice
ANS: A

12. In a merchandising firm, authorization for the payment of inventory is the responsibility of
a. inventory control
b. purchasing
c. accounts payable
d. cash disbursements
 ANS: C

13. In a merchandising firm, authorization for the purchase of inventory is the responsibility of
a. inventory control
b. purchasing
c. accounts payable
d. cash disbursements
ANS: A

14. When purchasing inventory, which document usually triggers the recording of a liability?
a. purchase requisition
b. purchase order
c. receiving report
d. supplier’s invoice
ANS: D

15. Because of time delays between receiving inventory and making the journal entry
a. liabilities are usually understated
b. liabilities are usually overstated
c. liabilities are usually correctly stated
d. none of the above
ANS: A

16. Usually the open voucher payable file is organized by

a. vendor
b. payment due date
c. purchase order number
d. transaction date
ANS: B

17. Which of the following statements is not correct?

a. the voucher system is used to improve control over cash disbursements
b. the sum of the paid vouchers represents the voucher payable liability of the firm
c. the voucher system permits the firm to consolidate payments of several invoices on one
voucher
d. many firms replace accounts payable with a voucher payable system
ANS: B

18. In the expenditure cycle, general ledger does not

a. post the journal voucher from the accounts payable department
b. post the account summary from inventory control
c. post the journal voucher from the purchasing department
d. reconcile the inventory control account with the inventory subsidiary summary
ANS: C

19. The documents in a voucher packet include all of the following except
a. a check
 b. a purchase order
c. a receiving report
d. a supplier’s invoice
ANS: A

20. To maintain a good credit rating and to optimize cash management, cash disbursements should arrive at
the vendor’s place of business
a. as soon as possible
b. on the due date
c. on the discount date
d. by the end of the month
ANS: C

21. The cash disbursement clerk performs all of the following tasks except
a. reviews the supporting documents for completeness and accuracy
b. prepares checks
c. signs checks
d. marks the supporting documents paid
ANS: C

22. When a cash disbursement in payment of an accounts payable is recorded

a. the liability account is increased
b. the income statement is changed
c. the cash account is unchanged
d. the liability account is decreased

23. Authorization for payment of an accounts payable liability is the responsibility of

a. inventory control
b. purchasing
c. accounts payable
d. cash disbursements
ANS: C

24. Of the following duties, it is most important to separate

a. warehouse from stores
b. warehouse from inventory control
c. accounts payable and accounts receivable
d. purchasing and accounts receivable
ANS: B

25. In a firm with proper segregation of duties, adequate supervision is most critical in
a. purchasing
b. receiving
c. accounts payable
d. general ledger
ANS: B
26. The receiving department is not responsible to
a. inspect shipments received
b. count items received from vendors
c. order goods from vendors
d. safeguard goods until they are transferred to the warehouse
ANS: C

27. The major risk exposures associated with the receiving department include all of the following except
a. goods are accepted without a physical count
b. there is no inspection for goods damaged in shipment
c. inventories are not secured on the receiving dock
d. the audit trail is destroyed
ANS: D

28. When searching for unrecorded liabilities at the end of an accounting period, the accountant would search
all of the files except
a. the purchase requisition file
b. the cash receipts file
c. the purchase order file
d. the receiving report file
ANS: B

29. In regards to the accounts payable department, which statement is not true?
a. the purchase requisition shows that the transaction was authorized
b. the purchase order proves that the purchase was required
c. the receiving report provides evidence of the physical receipt of the goods
d. the supplier’s invoice indicates the financial value of the transaction
ANS: B

30. In a computerized system that uses an economic order quantity (EOQ) model and the perpetual inventory
method, who determines when to reorder inventory?
a. the inventory control clerk
b. the purchasing department
c. the vendor
d. the computer system
ANS: D

31. Firms can expect that proper use of a valid vendor file will result in all of the following benefits except
a. purchasing agents will be discouraged from improperly ordering inventory from related
parties
b. purchases from fictitious vendors will be detected
c. the most competitive price will be obtained
d. the risk of purchasing agents receiving kickbacks and bribes will be reduced
ANS: C

32. In a real-time processing system with a high number of transactions, the best and most practical control
over cash disbursements is to have
 a. all checks manually signed by the treasurer
b. all checks signed by check-signing equipment
c. checks over a certain dollar amount manually signed by the treasurer
d. checks over a certain dollar amount manually signed by the cash disbursements clerk
ANS: C

33. The document which will close the open purchase requisition file is the
a. purchase order
b. vendor invoice
c. receiving report
d. none of the above
ANS: C

34. Goods received are inspected and counted to

a. determine that the goods are in good condition
b. determine the quantity of goods received
c. preclude payment for goods not received or received in poor condition
d. all of the above
ANS: D

35. If a company uses a standard cost system, inventory records can be updated from the
a. vendor invoice
b. purchase order
c. receiving report
d. purchase requisition
ANS: C

36. If a company uses an actual cost system, inventory records can first be updated from the
a. vendor invoice
b. purchase order
c. receiving report
d. purchase requisition
ANS: A

37. Copies of a purchase order are sent to all of the following except
a. inventory control
b. receiving
c. general ledger
d. accounts payable
ANS: C

38. The receiving report

a. is used to update the actual cost inventory ledger
 b. accompanies the goods to the storeroom
c. is sent to general ledger
d. is returned to the vendor to acknowledge receipt of the goods
ANS: B

39. A supplier invoice

a. is included with the goods
b. shows what was ordered even if all was not shipped
c. is sent by vendor to accounts payable
d. none of the above
ANS: C

40. The cash disbursement function is

a. part of accounts payable
b. an independent accounting function
c. a treasury function
d. part of the general ledger department
ANS: C
1. The purpose of the purchase requisition is to
a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. bill for goods delivered

2. All of the following departments have a copy of the purchase order except
a. the purchasing department
b. the receiving department
c. accounts payable
d. general ledger

3. The purpose of the purchase order is to

a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. approve payment for goods received

4. The open purchase order file in the purchasing department is used to determine
a. the quality of items a vendor ships
b. the best vendor for a specific item
c. the orders that have not been received
d. the quantity of items received

5. The purchase order

a. is the source document to make an entry into the accounting records
b. indicates item description, quantity, and price
c. is prepared by the inventory control department
d. is approved by the end-user department

6. The reason that a blind copy of the purchase order is sent to receiving is to
a. inform receiving when a shipment is due
b. force a count of the items delivered
c. inform receiving of the type, quantity, and price of items to be delivered
d. require that the goods delivered are inspected

7. The receiving report is used to

a. accompany physical inventories to the storeroom or warehouse
b. advise the purchasing department of the dollar value of the goods delivered
c. advise general ledger of the accounting entry to be made
d. advise the vendor that the goods arrived safely

8. When a copy of the receiving report arrives in the purchasing department, it is used to
a. adjust perpetual inventory records
b. record the physical transfer of inventory from receiving to the warehouse
c. analyze the receiving department's process
d. recognize the purchase order as closed

9. The financial value of a purchase is determined by reviewing the

a. packing slip
b. purchase requisition
 c. receiving report
d. supplier's invoice

10. Which document is least important in determining the financial value of a purchase?
a. purchase requisition
b. purchase order
c. receiving report
d. supplier's invoice

11. In a merchandising firm, authorization for the payment of inventory is the responsibility of
a. inventory control
b. purchasing
c. accounts payable
d. cash disbursements

12. In a merchandising firm, authorization for the purchase of inventory is the responsibility of
a. inventory control
b. purchasing
c. accounts payable
d. cash disbursements

13. When purchasing inventory, which document usually triggers the recording of a liability?
a. purchase requisition
b. purchase order
c. receiving report
d. supplier's invoice

14. Because of time delays between receiving inventory and making the journal entry
a. liabilities are usually understated
b. liabilities are usually overstated
c. liabilities are usually correctly stated
d. none of the above

15. usually the open voucher payable file is organized by

a. vendor
b. payment due date
c. purchase order number
d. transaction date

16. Which of the following statements is not correct?

a. the voucher system is used to improve control over cash disbursements
b. the sum of the paid vouchers represents the voucher payable liability of the firm
c. the voucher system permits the firm to consolidate payments of several invoices on one voucher
d. many firms replace accounts payable with a voucher payable system

17. In the expenditure cycle, general ledger does not

a. post the journal voucher from the accounts payable department
b. post the account summary from inventory control
c. post the journal voucher from the purchasing department
d. reconcile the inventory control account with the inventory subsidiary summary
18. The documents in a voucher packet include all of the following except
a. a check
b. a purchase order
c. a receiving report
d. a supplier's invoice

19. To maintain a good credit rating and to optimize cash management, cash disbursements should arrive
at the vendor's place of business
a. as soon as possible
b. on the due date
c. on the discount date
d. by the end of the month

20. The cash disbursement clerk performs all of the following tasks except
a. reviews the supporting documents for completeness and accuracy
b. prepares checks
c. signs checks
d. marks the supporting documents paid

21. When a cash disbursement in payment of an accounts payable is recorded

a. the liability account is increased
b. the income statement is changed
c. the cash account is unchanged
d. the liability account is decreased

22. Authorization for payment of an accounts payable liability is the responsibility of

a. inventory control
b. purchasing
c. accounts payable
d. cash disbursements

23. Of the following duties, it is most important to separate

a. warehouse from stores
b. warehouse from inventory control
c. accounts payable and accounts receivable
d. purchasing and accounts receivable

24. n a firm with proper segregation of duties, adequate supervision is most critical in
a. purchasing
b. receiving
c. accounts payable
d. general ledger

25. The receiving department is not responsible to

a. inspect shipments received
b. count items received from vendors
c. order goods from vendors
d. safeguard goods until they are transferred to the warehouse

26. When searching for unrecorded liabilities at the end of an accounting period, the accountant would
search all of the files except
 a. the purchase requisition file
b. the cash receipts file
c. the purchase order file
d. the receiving report file

27. The major risk exposures associated with the receiving department include all of the following except
a. goods are accepted without a physical count
b. there is no inspection for goods damaged in shipment
c. inventories are not secured on the receiving dock
d. the audit trail is destroyed

28. In regards to the accounts payable department, which statement is not true?
a. the purchase requisition shows that the transaction was authorized
b. the purchase order proves that the purchase was required
c. the receiving report provides evidence of the physical receipt of the goods
d. the supplier's invoice indicates the financial value of the transaction

29. In a computerized system that uses an economic order quantity (EOQ) model and the perpetual
inventory method, who determines when to reorder inventory?
a. the inventory control clerk
b. the purchasing department
c. the vendor
d. the computer system

30. Firms can expect that proper use of a valid vendor file will result in all of the following benefits
except
a. purchasing agents will be discouraged from improperly ordering inventory from related parties
b. purchases from fictitious vendors will be detected
c. the most competitive price will be obtained
d. the risk of purchasing agents receiving kickbacks and bribes will be reduced

31. In a real-time processing system with a high number of transactions, the best and most practical
control over cash disbursements is to have
a. all checks manually signed by the treasurer
b. all checks signed by check-signing equipment
c. checks over a certain dollar amount manually signed by the treasurer
d. checks over a certain dollar amount manually signed by the cash disbursements clerk

32. The document which will close the open purchase requisition file is the
a. purchase order
b. vendor invoice
c. receiving report
d. none of the above

33. Goods received are inspected and counted to

a. determine that the goods are in good condition
 b. determine the quantity of goods received
c. preclude payment for goods not received or received in poor condition
d. all of the above

34. If a company uses a standard cost system, inventory records can be updated from the
a. vendor invoice
b. purchase order
c. receiving report
d. purchase requisition

35. If a company uses an actual cost system, inventory records can first be updated from the
a. vendor invoice
b. purchase order
c. receiving report
d. purchase requisition

36. Copies of a purchase order are sent to all of the following except
a. inventory control
b. receiving
c. general ledger
d. accounts payable

37. The receiving report

a. is used to update the actual cost inventory ledger
b. accompanies the goods to the storeroom
c. is sent to general ledger
d. is returned to the vendor to acknowledge receipt of the goods

38. A supplier invoice

a. is included with the goods
b. shows what was ordered even if all was not shipped
c. is sent by vendor to accounts payable
d. none of the above

39. The cash disbursement function is

a. part of accounts payable
b. an independent accounting function
c. a treasury function
d. part of the general ledger department