Universidad De Manila

Accounting Information System Dr. LRC dela Cruz

Midterm Examination

Instruction: Encircle your answer.

1. Statement 1 - Information is a business resource.

Statement 2 - IT outsourcing is location-independent computing
Statement 3 - Transaction processing systems convert non-financial transactions into financial transactions.
Statement 4 - Information lacking reliability may still have value.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

2. Statement 1 - A balance sheet prepared in conformity with GAAP is an example of discretionary reporting.
Statement 2 - The Management Reporting System provides the internal financial information needed to manage
a business.
Statement 3 - Most of the inputs to the General Ledger System come from the Financial Reporting System
Statement 4 - When preparing discretionary reports, organizations can choose what information to report and
how to present it.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

3. Statement 1 - Retrieval is the task of permanently removing obsolete or redundant records from the database.
Statement 2 - Systems development represents 80 to 90 percent of the total cost of a computer system.
Statement 3 – The database administrator is responsible for the security and integrity of the database.
Statement 4 - Custom software is completely finished, tested, and ready for implementation.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

4. Statement 1 - The internal auditor represents the interests of third-party outsiders.

Statement 2 - Information Technology (IT) audits can be performed by both internal and external auditors.
Statement 3 - Custom software is the most affordable systems development option.
Statement 4 - A database is a collection of interconnected computers and communications devices that allows
users to communicate, access data and applications, and share information and resources.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

5. Statement 1 - Systems maintenance consumes the majority of a system’s total costs.

Statement 2 - Cloud computing is a practice in which the organization sells its IT resources to a third-party
outsourcing vendor then leases back IT services from the vendor for a contract period.
Statement 3 - A potential benefit of cloud computing is that the client firm does not need to know where its data
are bring processed.
Statement 4 - One of the greatest disadvantages of database systems is that all data is always available to all users
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

6. Statement 1 - Under SOX legislation public accounting firms are no longer allowed to provide consulting
services to audit clients.
Statement 2 - One member of a company’s audit committee must be an independent CPA.
Statement 3 - Processing more transactions at a lower unit cost makes batch processing more efficient than real-
time systems.
Statement 4 - The process of acquiring raw materials is part of the conversion cycle.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false
 7. Statement 1 - Directing work-in-process through its various stages of manufacturing is part of the conversion
cycle.
Statement 2 - The portion of the monthly bill from a credit card company is an example of a turn-around
document.
Statement 3 - The general journal is used to record recurring transactions that are similar in nature.
Statement 4 - Document flowcharts are used to represent systems at different levels of detail.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

8. Statement 1 - Data flow diagrams represent the physical system.

Statement 2 - System flowcharts are often used to depict processes that are handled in batches.
Statement 3 – Program flowcharts depict the type of media being used (paper, magnetic tape, or disks) and
terminals.
Statement 4 - System flowcharts represent the input sources, programs, and output products of a computer
system.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

9. Statement 1 - Program flowcharts are used to describe the logic represented in system flowcharts.
Statement 2 - Batch processing systems can store data on direct access storage devices
Statement 3 - Selecting a specific record from a master file containing millions of records requires a direct access
file environment.
Statement 4 - The box symbol represents a temporary file.
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false

10. Statement 1 - Auditors may prepare program flowcharts to verify the correctness of program logic.
Statement 2 - A control account is a general ledger account which is supported by a subsidiary ledger.
Statement 3 - The most significant characteristic of direct access files is access speed.
Statement 4 - Real time processing is used for routine transactions in large numbers
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false

11. Statement 1 - Batch processing is best used when timely information is needed because this method processes
data efficiently.
Statement 2 - An inverted triangle with the letter “N” represents a file in “name” order
Statement 3 - Real-time processing in systems that handle large volumes of transactions each day can create
operational inefficiencies.
Statement 4 - Operational inefficiencies occur because accounts unique to many concurrent transactions need to
be updated in real time.
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false

12. Statement 1 - Operational inefficiencies occur because accounts common to many concurrent transactions need
to be updated in real time.
Statement 2 - Batch processing of non-critical accounts improves operational efficiency
Statement 3 - Batch processing of accounts common to many concurrent transactions reduces operational
efficiency
Statement 4 - The block code is the coding scheme most appropriate for a chart of accounts
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false
13. Statement 1 - Sequential codes may be used to represent complex items or events involving two or more pieces
of related data.
Statement 2 - Block codes restrict each class to a pre-specified range.
Statement 3 - For a given field size, a system that uses alphabetic codes can represent far more situations than a
system with that uses numeric codes.
Statement 4 - Mnemonic codes are appropriate for items in either an ascending or descending sequence, such as
the numbering of checks or source documents.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

14. Statement 1 - The flat-file approach is most often associated with so-called legacy systems.
Statement 2 - In a flat-file system, files are easily shared by users.
Statement 3 - The ethical principle of justice asserts that the benefits of the decision should be distributed fairly
to those who share the risks.
Statement 4 -- The ethical principle of informed consent suggests that the decision should be implemented so as
to minimize all of the risks and to avoid any unnecessary risks.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

15. Statement 1 - Employees should be made aware of the firm’s commitment to ethics.
Statement 2 - Business ethics is the analysis of the nature and social impact of computer technology, and the
corresponding formulation and justification of policies for the ethical use of such technology.
Statement 3 - Para computer ethics is the exposure to stories and reports found in the popular media regarding the
good or bad ramifications of computer technology
Statement 4 - Computer programs are intellectual property.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

16. Statement 1 - Copyright laws and computer industry standards have been developed jointly and rarely conflict.
Statement 2 - Business bankruptcy cases always involve fraudulent behavior
Statement 3 - Defalcation is another word for financial fraud.
Statement 4 - According to the Association of Certified Fraud Examiners (ACFE) study, most frauds are
committed by employees in management positions
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

17. Statement 1 - The external auditor is responsible for establishing and maintaining the internal control system.
Statement 2 - Segregation of duties is an example of an internal control procedure.
Statement 3 - Of the three fraud factors (situational pressure, ethics, and opportunity), situational pressure is the
factor that actually facilitates the act.
Statement 4 - Preventive controls are passive techniques designed to reduce fraud.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

18. Statement 1 - Ethical issues and legal issues are essentially the same.
Statement 2 - Internal control systems are recommended but not required of firms subject to the Sarbanes-Oxley
Act.
Statement 3 - Collusion among employees in the commission of a fraud is difficult to prevent but easy to detect.
Statement 4 - The Sarbanes-Oxley Act requires only that a firm keep good records.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false
19. Statement 1 - A key modifying assumption in internal control is that the internal control system is the
responsibility of management.
Statement 2 - Database management fraud includes altering, updating, and deleting an organization’s data.
Statement 3 - While the Sarbanes-Oxley Act prohibits auditors from providing non-accounting services to their
audit clients, they are not prohibited from performing such services for non-audit clients or privately held
companies.
Statement 4 - The Sarbanes-Oxley Act requires the audit committee to hire and oversee the external auditors.
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false

20. Statement 1 - Section 404 requires that corporate management (including the CEO) certify their organization’s
internal controls on a quarterly and annual basis.
Statement 2 - Section 302 requires the management of public companies to assess and formally report on the
effectiveness of their organization’s internal controls.
Statement 3 - The objective of SAS 99 is to seamlessly blend the auditor’s consideration of fraud into all phases
of the audit process.
Statement 4 - The fraud triangle represents a geographic area in Southeast Asia where international fraud is
prevalent.
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false

21. Statement 1 - Situational pressure includes personal or job related stresses that could coerce an individual to act
dishonestly.
Statement 2 - Opportunity involves direct access to assets and/or access to information that controls assets.
Statement 3 - Cash larceny involves stealing cash from an organization before it is recorded on the organization’s
books and records.
Statement 4 - Skimming involves stealing cash from an organization after it is recorded on the organization’s
books and records
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

22. Statement 1 - A check digit is a method of detecting data coding errors.

Statement 2 - Input controls are intended to detect errors in transaction data after processing.
Statement 3 - A run-to-run control is an example of an output control.
Statement 4 - Shredding computer printouts is an example of an output control.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

23. Statement 1 - In a computerized environment, all input controls are implemented after data is input.
Statement 2 - Spooling is a form of processing control.
Statement 3 - An input control that tests time card records to verify than no employee has worked more 50 hours
in a pay period is an example of a range test.
Statement 4 - Systems that use sequential master files employ a backup technique called destructive update
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false

24. Statement 1 - The packing slip is also known as the shipping notice.
Statement 2 - The bill of lading is a legal contract between the buyer and the seller.
Statement 3 - Another name for the stock release form is the picking ticket.
Statement 4 - Warehouse stock records are the formal accounting records for inventory.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false
25. Statement 1 - The purpose of the invoice is to bill the customer.
Statement 2 - In most large organizations, the journal voucher file has replaced the formal general journal.
Statement 3 - The cash receipts journal is a special journal.
Statement 4 - In the revenue cycle, the internal control “limit access” applies to physical assets only.
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false

26. Statement 1 - In real-time processing systems, routine credit authorizations are automated.
Statement 2 - In a computerized accounting system, segregation of functions refers to inventory control, accounts
receivable, billing, and general ledger tasks.
Statement 3 - A written customer purchase order is required to trigger the sales order system.
Statement 4 - Inventory control has physical custody of inventory.
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false

27. Statement 1- The principal source document in the sales order system is the sales order.
Statement 2 - Sales orders should be prenumbered documents.
Statement 3 - Integrated accounting systems automatically transfer data between modules
Statement 4 - If a customer submits a written purchase order, there is no need to prepare a sales order.
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false

28. Statement 1 - Sales return involves receiving, sales, credit, and billing departments, but not accounts receivable.
Statement 2 - A remittance advice is a form of turn-around document
Statement 3 - A bill of lading is a request for payment for shipping charges.
Statement 4 - In point of sale systems, authorization takes the form of validation of credit card charges.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

29. Statement 1 - The warehouse is responsible for updating the inventory subsidiary ledger.
Statement 2 - In a manual system, the billing department is responsible for recording the sale in the sales journal.
Statement 3 - The stock release document is prepared by the shipping department to provide evidence that the
goods have been released to the customer.
Statement 4 - The accounts receivable clerk is responsible for updating the AR Control accounts to reflect each
customer sale.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

30. Statement 1 - When customer payments are received, the mailroom clerk sends the checks to the cash receipts
clerk and the remittance advices to the AR clerk.
Statement 2 - Physical controls are imbedded in computer systems to control access to data
Statement 3 - Process controls are controls over the logic of the application.
Statement 4 - In a basic technology revenue cycle system, a robust password control policy should be
implemented.
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false

31. Statement 1 - In an integrated cash receipts system, the cash receipts clerk reconciles the checks and the
remittance advices and prepares deposit slips.
Statement 2 - Multilevel security employs programmed techniques that permit simultaneous access to a central
system by many users with different access privileges but allows them to obtaining information for which they
lack authorization.
Statement 3 - The POS environment places both cash and inventory at risk.
Statement 4 - In merchandising firms, purchasing decisions are authorized by inventory control
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false
32. Statement 1 -The blind copy of the purchase order that goes to the receiving department contains no item
descriptions.
Statement 2 - Firms that wish to improve control over cash disbursements use a voucher system.
Statement 3 - In a voucher system, the sum of all unpaid vouchers in the voucher register equals the firm’s total
voucher payable balance.
Statement 4 - The accounts payable department reconciles the accounts payable subsidiary ledger to the control
account.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

33. Statement 1 - The use of inventory reorder points suggests the need to obtain proper authorization.
Statement 2 - Proper segregation of duties requires that the responsibility approving a payment be separated from
posting to the cash disbursements journal
Statement 3 - A major risk exposure in the expenditure cycle is that accounts payable may be overstated at the
end of the accounting year.
Statement 4 - When a trading partner agreement is in place, the traditional three way match may be eliminated.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

34. Statement 1 - Authorization of purchases in a merchandising firm occurs in the inventory control department.
Statement 2 - A three way match involves a purchase order, a purchase requisition, and an invoice.
Statement 3 - Authorization for a cash disbursement occurs in the cash disbursement department upon receipt of
the supplier’s invoice.
Statement 4 - An automated cash disbursements system can yield better cash management since payments are
made on time.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

35. Statement 1 - Permitting warehouse staff to maintain the only inventory records violates separation of duties.
Statement 2 - A purchasing system that employs electronic data interchange does not use a purchase order.
Statement 3 - Inventory control should be located in the warehouse.
Statement 4 - Inspection of shipments in the receiving department would be improved if the documentation
showed the value of the inventory.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

36. Statement 1 - One reason for authorizing purchases is to enable efficient inventory management.
Statement 2 - If accounts payable receives an invoice directly from the supplier it needs to be reconciled with the
purchase order and receiving report.
Statement 3 - Supervision in receiving is intended to reduce the theft of assets.
Statement 4 - The general ledger function receives the AP account summary from cash disbursements.
a. Only one statement is true c. All statements are true
b. Only one statement is false d. All statements are false

37. Statement 1 - The warehouse is responsible for updating the inventory subsidiary ledger.
Statement 2 - The receiving report is prepared by the vendor to provide evidence that the purchase order was
received.
Statement 3 - The accounts payable clerk is responsible for updating the AP Control accounts to reflect each
vendor liability.
Statement 4 - When goods are received, the receiving clerk sends copies of the receiving report to the inventory
control clerk and the AP clerk.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false
38. Statement 1 - The check digit control will provide control over accessing the wrong accounts.
Statement 2 - The level of departmental activity is higher with an integrated purchases processing system than it
is with a basic technology system.
Statement 3 - Time cards are used by cost accounting to allocate direct labor charges to work in process.
Statement 4 - The personnel department authorizes changes in employee pay rates.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

39. Statement 1 - Most small organizations integrate payroll processing with the human resource management
(HRM) system.
Statement 2 - To improve internal control, paychecks should be distributed by the employee's supervisor.
Statement 3 – Employee paychecks should be drawn against a special checking account.
Statement 4 - Because a time clock is used, no supervision is required when employees enter and leave the work
place.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

40. Statement 1 - Inventory control performs the formal record keeping function for fixed assets.
Statement 2 - The depreciation schedule shows when assets are fully depreciated.
Statement 3 - Authorization to dispose of fixed assets should be issued by the user of the asset.
Statement 4 - Work-in-process records are updated by payroll personnel.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

41. Statement 1 - Ideally, payroll checks are written on a special bank account used only for payroll.
Statement 2 - The supervisor is the best person to determine the existence of a “phantom employee” and should
distribute paychecks.
Statement 3 - Payroll processing can be automated easily because accounting for payroll is very simple.
Statement 4 - Timekeeping is part of the personnel function.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

42. Statement 1 - Fixed asset accounting systems include cost allocation and matching procedures that are not part of
routine expenditure systems.
Statement 2 - Asset maintenance involves only the recording of depreciation charges. Physical improvements are
always expensed.
Statement 3 - Fixed Asset Systems must keep track of the physical location of each asset to promote
accountability.
Statement 4 - Time cards capture the total time an individual worker spends on each production job.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

43. Statement 1 - Accounting conventions and IRS rules sometime specify the depreciation parameters to be used.
Statement 2 - The fixed asset disposal report authorizes the user department to dispose of a fixed asset.
Statement 3 - Work centers provide the personnel action form, which triggers the payroll process.
Statement 4 - The payroll department is responsible for both updating the employee records and writing
paychecks.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false

44. Statement 1 - The paymaster distributes paychecks to work center supervisors.

Statement 2 - Inventory control authorizes fixed asset purchases with a purchase requisition.
Statement 3 - When fixed assets are received, the receiving clerk sends copies of the receiving report to the
inventory control clerk and the AP clerk.
a. Only one statement is true c. All statements are true
b. All statements are false d. Two statements are false
45. 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

46. 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

47. 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

48. 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

49. Which of the following is popular among businesses with employees in the field who travel between clients and
companies with foreign-based employees?
a. Biometric time clocks
b. Magnetic swipe ID cards
c. Mobile remote devices
d. Proximity cards
c.

50. Which of the following is NOT an input control to reduce the risks of data entry errors and payroll fraud for a
company with a mobile or distributed work force?
a. Limit tests that detect excessive hours
b. Check digits that detect transcription errors in employee identification
c. Biometric scanners, swipe cards, and PINS
d. Multilevel security that achieves segregation of duties
d.

e.

The End!