Chapter 3

12. Segregation of duties is an example of an internal

1.The ethical principle of justice asserts that the benefits of control procedure.
the decision should be distributed fairly to those who
share the risks. ANS: T PTS: 1

ANS: T PTS: 1 13. Controls in a computer-based information system are

identical to controls in a manual system.
2. The ethical principle of informed consent suggests
that the decision should be implemented so as to ANS: F PTS: 1
minimize all of the risks and to avoid any
unnecessary risks. 14. Preventive controls are passive techniques designed
to reduce fraud.
ANS: F PTS: 1
ANS: T PTS: 1
3. Employees should be made aware of the firms
commitment to ethics. 15. Ethical issues and legal issues are essentially the
same.
ANS: T PTS: 1
ANS: F PTS: 1
4. Business ethics is the analysis of the nature and social
impact of computer technology, and the 16. Internal control systems are recommended but not
corresponding formulation and justification of required of firms subject to the Foreign Corrupt
policies for the ethical use of such technology. Practices Act.

ANS: F PTS: 1 ANS: F PTS: 1

5. Para computer ethics is the exposure to stories and 17. Operations fraud is the misuse or theft of the firms
reports found in the popular media regarding the computer resources.
good or bad ramifications of computer technology.
ANS: T PTS: 1
ANS: F PTS: 1
18. The Foreign Corrupt Practices Act requires only that
6. Source code is an example of intellectual property. a firm keep good records.

ANS: T PTS: 1 ANS: F PTS: 1

7. Copyright laws and computer industry standards have 19. A key modifying assumption in internal control is
been developed jointly and rarely conflict. that the internal control system is the responsibility of
management.
ANS: F PTS: 1
ANS: T PTS: 1
8. Business bankruptcy cases always involve fraudulent
behavior. 20. Database management fraud includes altering,
updating, and deleting an organizations data.
ANS: F PTS: 1
ANS: F PTS: 1
9. Defalcation is another word for financial fraud.
21. While the Sarbanes-Oxley Act prohibits auditors
ANS: T PTS: 1 from providing non-accounting services to their audit
clients, they are not prohibited from performing such
10. The trend toward distributed data processing services for non-audit clients or privately held
increases the exposure to fraud from remote companies.
locations.
ANS: T PTS: 1
ANS: T PTS: 1
22. The Sarbanes-Oxley Act requires the audit committee
11. The external auditor is responsible for establishing to hire and oversee the external auditors.
and maintaining the internal control system.
ANS: T PTS: 1
ANS: F PTS: 1
 23. Section 404 requires that corporate management
(including the CEO) certify their organizations
internal controls on a quarterly and annual basis. ANS: C PTS: 1

ANS: F PTS: 1 5. For an action to be called fraudulent, all of the

following conditions are required except
24. Section 302 requires the management of public a. poor judgment
companies to assess and formally report on the b. false representation
effectiveness of their organizations internal controls. c. intent to deceive
d. injury or loss
ANS: F PTS: 1

25. The objective of SAS 99 is to seamlessly blend the ANS: A PTS: 1

auditors consideration of fraud into all phases of the
audit process. 6. One characteristic of employee fraud is that the fraud
a. is perpetrated at a level to which internal controls
ANS: T PTS: 1 do not apply
b. involves misstating financial statements
MULTIPLE CHOICE c. involves the direct conversion of cash or other
assets to the employees personal benefit
1. Which ethical principle states that the benefit from a d. involves misappropriating assets in a series of
decision must outweigh the risks, and that there is no complex transactions involving third parties
alternative decision that provides the same or greater
benefit with less risk?
a. minimize risk ANS: C PTS: 1
b. justice
c. informed consent 7. Forces which may permit fraud to occur do not
d. proportionality include
a. a gambling addiction
b. lack of segregation of duties
ANS: D PTS: 1 c. centralized decision making environment
d. questionable integrity of employees
2. Individuals who acquire some level of skill and
knowledge in the field of computer ethics are
involved in which level of computer ethics? ANS: C PTS: 1
a. para computer ethics
b. pop computer ethics 8. Which of the following best describes lapping?
c. theoretical computer ethics a. applying cash receipts to a different customers
d. practical computer ethics account in an attempt to conceal previous thefts
of funds
b. inflating bank balances by transferring money
ANS: A PTS: 1 among different bank accounts
c. expensing an asset that has been stolen
3. All of the following are issues of computer security d. creating a false transaction
except
a. releasing incorrect data to authorized individuals
b. permitting computer operators unlimited access to ANS: A PTS: 1
the computer room
c. permitting access to data by unauthorized 9. Operations fraud includes
individuals a. altering program logic to cause the application to
d. providing correct data to unauthorized individuals process data incorrectly
b. misusing the firms computer resources
c. destroying or corrupting a programs logic using a
ANS: B PTS: 1 computer virus
d. creating illegal programs that can access data files
4. Which characteristic is not associated with software to alter, delete, or insert values
as intellectual property?
a. uniqueness of the product
b. possibility of exact replication ANS: B PTS: 1
c. automated monitoring to detect intruders
d. ease of dissemination
10. Who is responsible for establishing and maintaining
the internal control system? ANS: A PTS: 1
a. the internal auditor
b. the accountant 16. A physical inventory count is an example of a
c. management a. preventive control
d. the external auditor b. detective control
c. corrective control
d. feedforward control
ANS: C PTS: 1

11. The concept of reasonable assurance suggests that ANS: B PTS: 1

a. the cost of an internal control should be less than
the benefit it provides 17. The bank reconciliation uncovered a transposition
b. a well-designed system of internal controls will error in the books. This is an example of a
detect all fraudulent activity a. preventive control
c. the objectives achieved by an internal control b. detective control
system vary depending on the data processing c. corrective control
method d. none of the above
d. the effectiveness of internal controls is a function
of the industry environment
ANS: B PTS: 1

ANS: A PTS: 1 18. In balancing the risks and benefits that are part of
every ethical decision, managers receive guidance
12. Which of the following is not a limitation of the from each of the following except
internal control system? a. justice
a. errors are made due to employee fatigue b. self interest
b. fraud occurs because of collusion between two c. risk minimization
employees d. proportionality
c. the industry is inherently risky
d. management instructs the bookkeeper to make
fraudulent journal entries ANS: B PTS: 1

19. Which of the following is not an element of the

ANS: C PTS: 1 internal control environment?
a. management philosophy and operating style
13. The most cost-effective type of internal control is b. organizational structure of the firm
a. preventive control c. well-designed documents and records
b. accounting control d. the functioning of the board of directors and the
c. detective control audit committee
d. corrective control

ANS: C PTS: 1
ANS: A PTS: 1
20. Which of the following suggests a weakness in the
14. Which of the following is a preventive control? internal control environment?
a. credit check before approving a sale on account a. the firm has an up-to-date organizational chart
b. bank reconciliation b. monthly reports comparing actual performance to
c. physical inventory count budget are distributed to managers
d. comparing the accounts receivable subsidiary c. performance evaluations are prepared every three
ledger to the control account years
d. the audit committee meets quarterly with the
external auditors
ANS: A PTS: 1

15. A well-designed purchase order is an example of a ANS: C PTS: 1

a. preventive control
b. detective control 21. Which of the following indicates a strong internal
c. corrective control control environment?
d. none of the above a. the internal audit group reports to the audit
committee of the board of directors
 b. there is no segregation of duties between c. segregation of functions
organization functions d. supervision
c. there are questions about the integrity of
management
d. adverse business conditions exist in the industry ANS: B PTS: 1

27. When duties cannot be segregated, the most

ANS: A PTS: 1 important internal control procedure is
a. supervision
22. According to SAS 78, an effective accounting system b. independent verification
performs all of the following except c. access controls
a. identifies and records all valid financial d. accounting records
transactions
b. records financial transactions in the appropriate
accounting period ANS: A PTS: 1
c. separates the duties of data entry and report
generation 28. An accounting system that maintains an adequate
d. records all financial transactions promptly audit trail is implementing which internal control
procedure?
a. access controls
ANS: C PTS: 1 b. segregation of functions
c. independent verification
23. Which of the following is the best reason to separate d. accounting records
duties in a manual system?
a. to avoid collusion between the programmer and
the computer operator ANS: D PTS: 1
b. to ensure that supervision is not required
c. to prevent the record keeper from authorizing 29. Employee fraud involves three steps. Of the
transactions following, which is not involved?
d. to enable the firm to function more efficiently a. concealing the crime to avoid detection
b. stealing something of value
c. misstating financial statements
ANS: C PTS: 1 d. converting the asset to a usable form

24. Segregation of duties in the computer-based

information system includes ANS: C PTS: 1
a. separating the programmer from the computer
operator 30. Which of the following is not an example of
b. preventing management override independent verification?
c. separating the inventory process from the billing a. comparing fixed assets on hand to the accounting
process records
d. performing independent verifications by the b. performing a bank reconciliation
computer operator c. comparing the accounts payable subsidiary ledger
to the control account
d. permitting authorized users only to access the
ANS: A PTS: 1 accounting system

25. Which of the following is not an internal control

procedure? ANS: D PTS: 1
a. authorization
b. managements operating style 31. The importance to the accounting profession of the
c. independent verification Foreign Corrupt Practices Act of 1977 is that
d. accounting records a. bribery will be eliminated
b. management will not override the companys
internal controls
ANS: B PTS: 1 c. firms are required to have an effective internal
control system
26. The decision to extend credit beyond the normal d. firms will not be exposed to lawsuits
credit limit is an example of
a. independent verification
b. authorization ANS: C PTS: 1
32. The board of directors consists entirely of personal 37. All of the following are conditions for fraud except
friends of the chief executive officer. This indicates a a. false representation
weakness in b. injury or loss
a. the accounting system c. intent
b. the control environment d. material reliance
c. control procedures
d. this is not a weakness
ANS: D PTS: 1

ANS: B PTS: 1 38. The four principal types of fraud include all of the
following except
33. Computer fraud can take on many forms, including a. bribery
each of the following except b. gratuities
a. theft or illegal use of computer-readable c. conflict of interest
information d. economic extortion
b. theft, misuse, or misappropriation of computer
equipment
c. theft, misuse, or misappropriation of assets by ANS: B PTS: 1
altering computer-readable records and files
d. theft, misuse, or misappropriation of printer 39. The characteristics of useful information include
supplies a. summarization, relevance, timeliness, accuracy,
and completeness
b. relevance, summarization, accuracy, timelessness,
ANS: D PTS: 1 and completeness
c. timeliness, relevance, summarization, accuracy,
34. When certain customers made cash payments to and conciseness
reduce their accounts receivable, the bookkeeper d. disaggregation, relevance, timeliness, accuracy,
embezzled the cash and wrote off the accounts as and completeness
uncollectible. Which control procedure would most
likely prevent this irregularity?
a. segregation of duties ANS: A PTS: 1
b. accounting records
c. accounting system 40. Internal control system have limitations. These
d. access controls include
a. possibility of honest error
b. circumvention
ANS: A PTS: 1 c. management override
d. stability of systems
35. The office manager forgot to record in the accounting
records the daily bank deposit. Which control
procedure would most likely prevent or detect this ANS: D PTS: 1
error?
a. segregation of duties 41. Management can expect various benefits to follow
b. independent verification from implementing a system of strong internal
c. accounting records control. Which of the following benefits is least
d. supervision likely to occur?
a. reduced cost of an external audit.
b. prevents employee collusion to commit fraud.
ANS: B PTS: 1 c. availability of reliable data for decision-making
purposes.
36. Business ethics involves d. some assurance of compliance with the Foreign
a. how managers decide on what is right in Corrupt Practices Act of 1977.
conducting business e. some assurance that important documents and
b. how managers achieve what they decide is right records are protected.
for the business
c. both a and b
d. none of the above ANS: B PTS: 1

42. Which of the following situations is not a segregation

ANS: C PTS: 1 of duties violation?
 a. The treasurer has the authority to sign checks but
gives the signature block to the assistant treasurer ANS: T PTS: 1
to run the check-signing machine.
b. The warehouse clerk, who has the custodial 7. The cash receipts journal is a special journal.
responsibility over inventory in the warehouse,
selects the vendor and authorizes purchases when ANS: T PTS: 1
inventories are low.
c. The sales manager has the responsibility to 8. In the revenue cycle, the internal control limit
approve credit and the authority to write off access applies to physical assets only.
accounts.
d. The department time clerk is given the ANS: F PTS: 1
undistributed payroll checks to mail to absent
employees. 9. In real-time processing systems, routine credit
e. The accounting clerk who shares the record authorizations are automated.
keeping responsibility for the accounts receivable
subsidiary ledger performs the monthly ANS: T PTS: 1
reconciliation of the subsidiary ledger and the
control account. 10. In a computerized accounting system, segregation of
functions refers to inventory control, accounts
receivable, billing, and general ledger tasks.
ANS: B PTS: 1
ANS: F PTS: 1
43. Which of the following is not an issue to be
addressed in a business code of ethics required by the 11. A written customer purchase order is required to
SEC? trigger the sales order system.
a. Conflicts of interest
b. Full and Fair Disclosures ANS: F PTS: 1
c. Legal Compliance
d. Internal Reporting of Code Violations 12. Inventory control has physical custody of inventory.
e. All of the above are issues to be addressed
ANS: F PTS: 1

ANS: E PTS: 1 13. The principal source document in the sales order
system is the sales order.
Chapter4
ANS: T PTS: 1
1.The packing slip is also known as the shipping notice.
14. Sales orders should be prenumbered documents.
ANS: F PTS: 1
ANS: T PTS: 1
2. The bill of lading is a legal contract between the
buyer and the seller. 15. Integrated accounting systems automatically transfer
data between modules.
ANS: F PTS: 1
ANS: T PTS: 1
3. Another name for the stock release form is the
picking ticket. 16. If a customer submits a written purchase order, there
is no need to prepare a sales order.
ANS: T PTS: 1
ANS: F PTS: 1
4. Warehouse stock records are the formal accounting
records for inventory. 17. Sales return involves receiving, sales, credit, and
billing departments, but not accounts receivable.
ANS: F PTS: 1
ANS: F PTS: 1
5. The purpose of the invoice is to bill the customer.
18. A remittance advice is a form of turn-around
ANS: T PTS: 1 document.

6. In most large organizations, the journal voucher file ANS: T PTS: 1

has replaced the formal general journal.
 19. A bill of lading is a request for payment for shipping
charges. ANS: A PTS: 1

ANS: F PTS: 1 6. The purpose of the sales invoice is to

a. record reduction of inventory
20. In point of sale systems, authorization takes the form b. transfer goods from seller to shipper
of validation of credit card charges. c. bill the customer
d. select items from inventory for shipment
ANS: T PTS: 1

MULTIPLE CHOICE ANS: C PTS: 1

1. The revenue cycle consists of 7. The customer open order file is used to
a. one subsystemorder entry a. respond to customer queries
b. two subsystemssales order processing and cash b. fill the customer order
receipts c. ship the customer order
c. two subsystemsorder entry and inventory control d. authorize customer credit
d. three subsystemssales order processing, credit
authorization, and cash receipts
ANS: A PTS: 1

ANS: B PTS: 1 8. The stock release copy of the sales order is not used
to
2. The reconciliation that occurs in the shipping a. locate and pick the items from the warehouse
department is intended to ensure that shelves
a. credit has been approved b. record any out-of-stock items
b. the customer is billed for the exact quantity c. authorize the warehouse clerk to release custody
shipped of the inventory to shipping
c. the goods shipped match the goods ordered d. record the reduction of inventory
d. inventory records are reduced for the goods
shipped
ANS: D PTS: 1

ANS: C PTS: 1 9. The shipping notice

a. is mailed to the customer
3. The adjustment to accounting records to reflect the b. is a formal contract between the seller and the
decrease in inventory due to a sale occurs in the shipping company
a. warehouse c. is always prepared by the shipping clerk
b. shipping department d. informs the billing department of the quantities
c. billing department shipped
d. inventory control department

ANS: D PTS: 1
ANS: D PTS: 1
10. The billing department is not responsible for
4. Which document triggers the revenue cycle? a. updating the inventory subsidiary records
a. the sales order b. recording the sale in the sales journal
b. the customer purchase order c. notifying accounts receivable of the sale
c. the sales invoice d. sending the invoice to the customer
d. the journal voucher

ANS: A PTS: 1
ANS: B PTS: 1
11. Customers should be billed for backorders when
5. Copies of the sales order can be used for all of the a. the customer purchase order is received
following except b. the backordered goods are shipped
a. purchase order c. the original goods are shipped
b. credit authorization d. customers are not billed for backorders because a
c. shipping notice backorder is a lost sale
d. packing slip
 ANS: B PTS: 1 accounts receivable subsidiary ledger

12. Usually specific authorization is required for all of

the following except ANS: C PTS: 1
a. sales on account which exceed the credit limit
b. sales of goods at the list price 17. Which department is least likely to be involved in the
c. a cash refund for goods returned without a receipt revenue cycle?
d. write off of an uncollectible account receivable a. credit
b. accounts payable
c. billing
ANS: B PTS: 1 d. shipping

13. Which of following functions should be segregated?

a. opening the mail and making the journal entry to ANS: B PTS: 1
record cash receipts
b. authorizing credit and determining reorder 18. Which document is included with a shipment sent to
quantities a customer?
c. maintaining the subsidiary ledgers and handling a. sales invoice
customer queries b. stock release form
d. providing information on inventory levels and c. packing slip
reconciling the bank statement d. shipping notice

ANS: A PTS: 1 ANS: C PTS: 1

14. Which situation indicates a weak internal control 19. Good internal controls in the revenue cycle should
structure? ensure all of the following except
a. the mailroom clerk authorizes credit memos a. all sales are profitable
b. the record keeping clerk maintains both accounts b. all sales are recorded
receivable and accounts payable subsidiary c. credit is authorized
ledgers d. inventory to be shipped is not stolen
c. the warehouse clerk obtains a signature before
releasing goods for shipment
d. the accounts receivable clerk prepares customer ANS: A PTS: 1
statements every month
20. Which control does not help to ensure that accurate
records are kept of customer accounts and inventory?
ANS: A PTS: 1 a. reconcile accounts receivable control to accounts
receivable subsidiary
15. The most effective internal control procedure to b. authorize credit
prevent or detect the creation of fictitious credit c. segregate custody of inventory from record
memoranda for sales returns is to keeping
a. supervise the accounts receivable department d. segregate record keeping duties of general ledger
b. limit access to credit memoranda from accounts receivable
c. prenumber and sequence check all credit
memoranda
d. require management approval for all credit ANS: B PTS: 1
memoranda
21. Internal controls for handling sales returns and
allowances do not include
ANS: D PTS: 1 a. computing bad debt expense using the percentage
of credit sales
16. The accounts receivable clerk destroys all invoices b. verifying that the goods have been returned
for sales made to members of her family and does not c. authorizing the credit memo by management
record the sale in the accounts receivable subsidiary d. using the original sales invoice to prepare the
ledger. Which procedure will not detect this fraud? sales returns slip
a. prenumber and sequence check all invoices
b. reconcile the accounts receivable control to the
accounts receivable subsidiary ledger ANS: A PTS: 1
c. prepare monthly customer statements
d. reconcile total sales on account to the debits in the
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 ANS: D PTS: 1
a. a batch total of sales invoices to be prepared
compared to the actual number of sales invoices 28. A cash prelist is
prepared a. a document that records sales returns and
b. sequentially numbered sales invoices allowances
c. visual verification that all sales invoices were b. a document returned by customers with their
prepared payments
d. none of the above will detect this error c. the source of information used to prepare monthly
statements
d. none of the above
ANS: A PTS: 1

23. Which department prepares the bill of lading? ANS: D PTS: 1

a. sales
b. warehouse 29. An advantage of real-time processing of sales is
c. shipping a. the cash cycle is lengthened
d. credit b. current inventory information is available
c. hard copy documents provide a permanent record
of the transaction
ANS: C PTS: 1 d. data entry errors are corrected at the end of each
batch
24. A remittance advice is
a. used to increase (debit) an account receivable by
the cash received ANS: B PTS: 1
b. is a turn-around document
c. is retained by the customer to show proof of 30. Commercial accounting systems have fully integrated
payment modules. The word integrated means that
d. none of the above a. segregation of duties is not possible
b. transfer of information among modules occurs
automatically
ANS: B PTS: 1 c. batch processing is not an option
d. separate entries are made in the general ledger
25. A weekly reconciliation of cash receipts would accounts and the subsidiary ledgers
include comparing
a. the cash prelist with bank deposit slips
b. the cash prelist with remittance advices ANS: B PTS: 1
c. bank deposit slips with remittance advices
d. journal vouchers from accounts receivable and 31. The data processing method that can shorten the cash
general ledger cycle is
a. batch, sequential file processing
b. batch, direct access file processing
ANS: A PTS: 1 c. real-time file processing
d. none of the above
26. At which point is supervision most critical in the cash
receipts system?
a. accounts receivable ANS: C PTS: 1
b. general ledger
c. mail room 32. Which of the following is not a risk exposure in a
d. cash receipts microcomputer accounting system?
a. reliance on paper documentation is increased
b. functions that are segregated in a manual
ANS: C PTS: 1 environment may be combined in a
microcomputer accounting system
27. EDI trading partner agreements specify all of the c. backup procedures require human intervention
following except d. data are easily accessible
a. selling price
b. quantities to be sold
c. payment terms ANS: A PTS: 1
d. person to authorize transactions
33. Which journal is not used in the revenue cycle? 39. Which document is NOT prepared by the sales
a. cash receipts journal department?
b. sales journal a. packing slip
c. purchases journal b. shipping notice
d. general journal c. bill of lading
d. stock release

ANS: C PTS: 1
ANS: C PTS: 1
34. Periodically, the general ledger department receives
all of the following except
40. Which type of control is considered a compensating
a. total increases to accounts receivable
control?
b. total of all sales backorders
a. segregation of duties
c. total of all sales
d. total decreases in inventory b. access control
c. supervision
d. accounting records
ANS: B PTS: 1

35. The credit department ANS: C PTS: 1

a. prepares credit memos when goods are returned
b. approves credits to accounts receivable when
payments are received Chapter 5
c. authorizes the granting of credit to customers
d. none of the above 1.Purchasing decisions are authorized by inventory control.

ANS: T PTS: 1
ANS: C PTS: 1
2. The blind copy of the purchase order that goes to the
36. Adjustments to accounts receivable for payments receiving department contains no item descriptions.
received from customers is based upon
a. the customers check ANS: F PTS: 1
b. the cash prelist
c. the remittance advice that accompanies payment 3. Firms that wish to improve control over cash
d. a memo prepared in the mailroom disbursements use a voucher system.

ANS: T PTS: 1
ANS: C PTS: 1
4. In a voucher system, the sum of all unpaid vouchers
37. The revenue cycle utilizes all of the following files in the voucher register equals the firms total voucher
except payable balance.
a. credit memo file
b. sales history file ANS: T PTS: 1
c. shipping report file
d. cost data reference file 5. The accounts payable department reconciles the
accounts payable subsidiary ledger to the control
account.
ANS: D PTS: 1
ANS: F PTS: 1
38. All of the following are advantages of real-time
processing of sales except 6. The use of inventory reorder points suggests the need
a. The cash cycle is shortened to obtain specific authorization.
b. Paper work is reduced
c. Incorrect data entry is difficult to detect ANS: F PTS: 1
d. Up-to-date information can provide a competitive
advantage in the marketplace 7. Proper segregation of duties requires that the
responsibility approving a payment be separated from
posting to the cash disbursements journal.
ANS: C PTS: 1
ANS: T PTS: 1
 8. A major risk exposure in the expenditure cycle is that
accounts payable may be overstated at the end of the ANS: T PTS: 1
accounting year.
20. Supervision in receiving is intended to reduce the
ANS: F PTS: 1 theft of assets.

9. When a trading partner agreement is in place, the ANS: T PTS: 1

traditional three way match may be eliminated.
MULTIPLE CHOICE
ANS: T PTS: 1
1. The purpose of the purchase requisition is to
10. Authorization of purchases in a merchandising firm a. order goods from vendors
occurs in the inventory control department. b. record receipt of goods from vendors
c. authorize the purchasing department to order
ANS: T PTS: 1 goods
d. bill for goods delivered
11. A three way match involves a purchase order, a
purchase requisition, and an invoice.
ANS: C PTS: 1
ANS: F PTS: 1
2. The purpose of the receiving report is to
12. Authorization for a cash disbursement occurs in the a. order goods from vendors
cash disbursement department upon receipt of the b. record receipt of goods from vendors
suppliers invoice. c. authorize the purchasing department to order
goods
ANS: F PTS: 1 d. bill for goods delivered

13. An automated cash disbursements system can yield

better cash management since payments are made on ANS: B PTS: 1
time.
3. All of the following departments have a copy of the
ANS: T PTS: 1 purchase order except
a. the purchasing department
14. Permitting warehouse staff to maintain the only b. the receiving department
inventory records violates separation of duties. c. accounts payable
d. general ledger
ANS: T PTS: 1

15. A purchasing system that employs electronic data ANS: D PTS: 1

interchange does not use a purchase order.
4. The purpose of the purchase order is to
ANS: F PTS: 1 a. order goods from vendors
b. record receipt of goods from vendors
16. Inventory control should be located in the warehouse. c. authorize the purchasing department to order
goods
ANS: F PTS: 1 d. approve payment for goods received

17. Inspection of shipments in the receiving department

would be improved if the documentation showed the ANS: A PTS: 1
value of the inventory.
5. The open purchase order file in the purchasing
ANS: F PTS: 1 department is used to determine
a. the quality of items a vendor ships
18. One reason for authorizing purchases is to enable b. the best vendor for a specific item
efficient inventory management. c. the orders that have not been received
d. the quantity of items received
ANS: T PTS: 1

19. If accounts payable receives an invoice directly from ANS: C PTS: 1

the supplier it needs to be reconciled with the
purchase order and receiving report. 6. The purchase order
 a. is the source document to make an entry into the ANS: A PTS: 1
accounting records
b. indicates item description, quantity, and price 12. In a merchandising firm, authorization for the
c. is prepared by the inventory control department payment of inventory is the responsibility of
d. is approved by the end-user department a. inventory control
b. purchasing
c. accounts payable
ANS: B PTS: 1 d. cash disbursements

7. The reason that a blind copy of the purchase order is

sent to receiving is to ANS: C PTS: 1
a. inform receiving when a shipment is due
b. force a count of the items delivered 13. In a merchandising firm, authorization for the
c. inform receiving of the type, quantity, and price purchase of inventory is the responsibility of
of items to be delivered a. inventory control
d. require that the goods delivered are inspected b. purchasing
c. accounts payable
d. cash disbursements
ANS: B PTS: 1

8. The receiving report is used to ANS: A PTS: 1

a. accompany physical inventories to the storeroom
or warehouse 14. When purchasing inventory, which document usually
b. advise the purchasing department of the dollar triggers the recording of a liability?
value of the goods delivered a. purchase requisition
c. advise general ledger of the accounting entry to b. purchase order
be made c. receiving report
d. advise the vendor that the goods arrived safely d. suppliers invoice

ANS: A PTS: 1 ANS: D PTS: 1

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 departments process
d. recognize the purchase order as closed
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 PTS: 1
ANS: D PTS: 1
16. Usually the open voucher payable file is organized by
10. The financial value of a purchase is determined by a. vendor
reviewing the b. payment due date
a. packing slip c. purchase order number
b. purchase requisition d. transaction date
c. receiving report
d. suppliers invoice
ANS: B PTS: 1

ANS: D PTS: 1 17. Which of the following statements is not correct?

a. the voucher system is used to improve control
11. Which document is least important in determining the over cash disbursements
financial value of a purchase? b. the sum of the paid vouchers represents the
a. purchase requisition voucher payable liability of the firm
b. purchase order c. the voucher system permits the firm to
c. receiving report consolidate payments of several invoices on one
d. suppliers invoice voucher
d. many firms replace accounts payable with a
voucher payable system
 b. purchasing
c. accounts payable
ANS: B PTS: 1 d. cash disbursements

18. In the expenditure cycle, general ledger does not

a. post the journal voucher from the accounts ANS: C PTS: 1
payable department
b. post the account summary from inventory control 24. Of the following duties, it is most important to
c. post the journal voucher from the purchasing separate
department a. warehouse from stores
d. reconcile the inventory control account with the b. warehouse from inventory control
inventory subsidiary summary c. accounts payable and accounts receivable
d. purchasing and accounts receivable

ANS: C PTS: 1
ANS: B PTS: 1
19. The documents in a voucher packet include all of the
following except 25. In a firm with proper segregation of duties, adequate
a. a check supervision is most critical in
b. a purchase order a. purchasing
c. a receiving report b. receiving
d. a suppliers invoice c. accounts payable
d. general ledger

ANS: A PTS: 1
ANS: B PTS: 1
20. To maintain a good credit rating and to optimize cash
management, cash disbursements should arrive at the 26. The receiving department is not responsible to
vendors place of business a. inspect shipments received
a. as soon as possible b. count items received from vendors
b. on the due date c. order goods from vendors
c. on the discount date d. safeguard goods until they are transferred to the
d. by the end of the month warehouse

ANS: C PTS: 1 ANS: C PTS: 1

21. The cash disbursement clerk performs all of the 27. The major risk exposures associated with the
following tasks except receiving department include all of the following
a. reviews the supporting documents for except
completeness and accuracy a. goods are accepted without a physical count
b. prepares checks b. there is no inspection for goods damaged in
c. signs checks shipment
d. marks the supporting documents paid c. inventories are not secured on the receiving dock
d. the audit trail is destroyed

ANS: C PTS: 1
ANS: D PTS: 1
22. When a cash disbursement in payment of an accounts
payable is recorded 28. When searching for unrecorded liabilities at the end
a. the liability account is increased of an accounting period, the accountant would search
b. the income statement is changed all of the files except
c. the cash account is unchanged a. the purchase requisition file
d. the liability account is decreased b. the cash receipts file
c. the purchase order file
d. the receiving report file
ANS: D PTS: 1

23. Authorization for payment of an accounts payable ANS: B PTS: 1

liability is the responsibility of
a. inventory control
29. In regards to the accounts payable department, which
statement is not true? 34. Goods received are inspected and counted to
a. the purchase requisition shows that the a. determine that the goods are in good condition
transaction was authorized b. determine the quantity of goods received
b. the purchase order proves that the purchase was c. preclude payment for goods not received or
required received in poor condition
c. the receiving report provides evidence of the d. all of the above
physical receipt of the goods
d. the suppliers invoice indicates the financial value
of the transaction ANS: D PTS: 1

35. If a company uses a standard cost system, inventory

ANS: B PTS: 1 records can be updated from the
a. vendor invoice
30. In a computerized system that uses an economic b. purchase order
order quantity (EOQ) model and the perpetual c. receiving report
inventory method, who determines when to reorder d. purchase requisition
inventory?
a. the inventory control clerk
b. the purchasing department ANS: C PTS: 1
c. the vendor
d. the computer system 36. If a company uses an actual cost system, inventory
records can first be updated from the
a. vendor invoice
ANS: D PTS: 1 b. purchase order
c. receiving report
31. Firms can expect that proper use of a valid vendor d. purchase requisition
file will result in all of the following benefits except
a. purchasing agents will be discouraged from
improperly ordering inventory from related ANS: A PTS: 1
parties
b. purchases from fictitious vendors will be detected 37. Copies of a purchase order are sent to all of the
c. the most competitive price will be obtained following except
d. the risk of purchasing agents receiving kickbacks a. inventory control
and bribes will be reduced b. receiving
c. general ledger
d. accounts payable
ANS: C PTS: 1

32. In a real-time processing system with a high number ANS: C PTS: 1

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
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 PTS: 1
ANS: C PTS: 1
39. A supplier invoice
33. The document which will close the open purchase a. is included with the goods
requisition file is the b. shows what was ordered even if all was not
a. purchase order shipped
b. vendor invoice c. is sent by vendor to accounts payable
c. receiving report d. none of the above
d. none of the above

ANS: C PTS: 1
ANS: C PTS: 1
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 PTS: 1