CHAPTER 1

1. Which of the following is NOT a financial

transaction?
a. purchase of products
b. cash receipts
c. update valid vendor file
d. sale of inventory

2. The following are subsystems of the Accounting

Information System, EXCEPT
a. Transaction Processing System.
b. Human Resources System.
c. General Ledger/Financial Reporting System.
d. Management Reporting System.

3. Which of the following is NOT a purpose of the

Transaction Processing System?
a. managing and reporting on the status of financial
investments
b. converting economic events into financial
transactions
c. distributing essential information to operations
personnel to support their daily operations
d. recording financial transactions in the accounting
records

4. The objectives of the data collection activity of

the general model for Accounting Information Systems
are to collect data that are
a. relevant and redundant.
b. efficient and objective.
c. efficient and redundant.
d. efficient and relevant.

5. Which of the following is NOT a characteristic of

effective information?
a. relevance
b. accuracy
c. summarization
d. precision

6. Which of the following is NOT a database management

task?
a. retrieval
b. storage
c. summarization
d. deletion

7. When viewed from the highest to most elemental

level, the data hierarchy is
a. attribute, record, file.
b. record, attribute, key.
c. file, record, attribute.
d. file, record, key.
e. key, record, file.

8. Which is NOT an accountant’s primary role in information

systems?
a. system user
b. system auditor
c. system designer
d. system programmer

9. Which of the following is NOT an objective of all

information systems?
a. support for the stewardship function of
management
b. support for management decision making
c. support for the day-to-day operations of the firm
d. all of the above are objectives

10. Which of the following best describes the activities

of the materials management function?
a. purchasing, receiving, and inventory control
b. receiving, sales, distribution, and purchasing
c. receiving, storage, purchasing, and accounts
payable
d. purchasing, receiving, and storage
e. purchasing, storage, and distribution

11. Which of the following best describes the activities

of the production function?
a. maintenance, inventory control, and production
planning
b. production planning, quality control, manufacturing,
and cost accounting
c. quality control, production planning, manufacturing,
and payroll
d. maintenance, production planning, storage, and
quality control
e. manufacturing, quality control, and maintenance
12. Which of the following best describes the activities
of the accounting function?
a. inventory control, accounts payable, fixed
assets, and payroll
b. fixed assets, accounts payable, cash disbursements,
and cost accounting
c. purchasing, cash receipts, accounts payable,
cash disbursements, and payroll
d. inventory control, cash receipts, accounts
payable, cash disbursements, and payroll
e. inventory control, cost accounting,
accounts payable, cash disbursements, and
payroll

13. Which statement best describes the issue of distributed

data processing (DDP)?
a. The centralized and DDP approaches are
mutually exclusive; an organization must
choose one approach or the other.
b. The philosophy and objective of the organization’s
management will determine the extent of
DDP in the firm.
c. In a minimum DDP arrangement, only data
input and output are distributed, leaving the
tasks of data control, data conversion, database
management, and data processing to be centrally
managed.
d. The greatest disadvantage of a totally distributed
environment is that the distributed information
processing unit locations are unable to
communicate and coordinate their activities.
e. Although hardware (such as computers,
database storage, and input/output terminals)
can be effectively distributed, the systems
development and maintenance tasks must
remain centralized for better control and
efficiency.

14. Which of the following is a disadvantage of distributed

data processing?
a. End-user involvement in systems operation is
decreased.
b. Disruptions due to mainframe failures are
increased.
c. The potential for hardware and software
incompatibility across the organization is
increased.
d. The time between project request and completion
is increased.
e. All of the above are disadvantages.

CHAPTER 2
1. Which statement is NOT true?
a. Business activities begin with the acquisition of
materials, property, and labor in exchange for
cash.
b. The conversion cycle includes the task of
determining raw materials requirements.
c. Manufacturing firms have a conversion cycle
but retail firms do not.
d. A payroll check is an example of a product
document of the payroll system.
e. A journal voucher is actually a special source
document.

2. A documentation tool that depicts the physical

flow of information relating to a particular transaction
through an organization is a
a. system flowchart.
b. program flowchart.
c. decision table.
d. work distribution analysis.
e. systems survey.

3. Sequential file processing will not permit

a. data to be edited on a separate computer
run.
b. the use of a database structure.
c. data to be edited in an offline mode.
d. batch processing to be initiated from a
terminal.
e. data to be edited on a real-time basis.

4. The production subsystem of the conversion cycle

includes all of the following EXCEPT
a. determining raw materials requirements.
b. make or buy decisions on component parts.
c. release of raw materials into production.
d. scheduling the goods to be produced.
5. Which of the following files is a temporary file?
a. transaction file
b. master file
c. reference file
d. none of the above

6. A documentation tool used to represent the logical

elements of a system is a(n)
a. programming flowchart.
b. entity relationship diagram.
c. system flowchart.
d. data flow diagram.

7. Which of the following is NOT an advantage of

real-time processing files over batch processing?
a. shorter transaction processing time
b. reduction of inventory stocks
c. improved customer service
d. all are advantages

8. Which statement is NOT correct?

a. Legacy systems may process financially significant
transactions.
b. Some legacy systems use database technology.
c. Mainframes are exclusive to legacy systems,
while modern systems use only the clientserver
model.
d. All the above are true.

9. Which statement is NOT correct?

a. Indexed random files are dispersed throughout
the storage device without regard for physical
proximity with related records.
b. Indexed random files use disk storage space
efficiently.
c. Indexed random files are efficient when
processing a large portion of a file at one
time.
d. Indexed random files are easy to maintain in
terms of adding records.

10. Which statement is NOT correct? The indexed

sequential access method
a. is used for very large files that need both direct
access and batch processing.
b. may use an overflow area for records.
c. provides an exact physical address for each
record.
d. is appropriate for files that require few insertions
or deletions.

11. Which statement is true about a hashing structure?

a. The same address could be calculated for two
records.
b. Storage space is used efficiently.
c. Records cannot be accessed rapidly.
d. A separate index is required.

12. In a hashing structure

a. two records can be stored at the same address.
b. pointers are used to indicate the location of all
records.
c. pointers are used to indicate location of a record
with the same address as another record.
d. all locations on the disk are used for record
storage.

13. An advantage of a physical address pointer is that

a. it points directly to the actual disk storage location.
b. it is easily recovered if it is inadvertently lost.
c. it remains unchanged when disks are reorganized.
d. all of the above are advantages of the physical
address pointer.

14. Which of the following is NOT true of a turnaround

document?
a. They may reduce the number of errors made
by external parties.
b. They are commonly used by utility companies
(gas, power, water).
c. They are documents used by internal parties only.
d. They are both input and output documents.

15. Which of the following is NOT a true statement?

a. Transactions are recorded on source documents
and are posted to journals.
b. Transactions are recorded in journals and are
posted to ledgers.
c. Infrequent transactions are recorded in the
general journal.
d. Frequent transactions are recorded in special
journals.
16. Which of the following is true of the relationship
between subsidiary ledgers and general ledger
accounts?
a. The two contain different and unrelated
data.
b. All general ledger accounts have subsidiaries.
c. The relationship between the two provides an
audit trail from the financial statements to the
source documents.
d. The total of subsidiary ledger accounts usually
exceeds the total in the related general ledger
account.

17. Real-time systems might be appropriate for all of

the following EXCEPT
a. airline reservations.
b. payroll.
c. point-of-sale transactions.
d. air traffic control systems.
e. all of these applications typically utilize realtime
processing.

18. is the system flowchart symbol for:

a. on-page connector.
b. off-page connector.
c. home base.
d. manual operation.
e. document.

19. A chart of accounts would best be coded using

a(n) ______________ coding scheme.
a. alphabetic
b. mnemonic
c. block
d. sequential

20. Which of the following statements is NOT true?

a. Sorting records that are coded alphabetically
tends to be more difficult for users than sorting
numeric sequences.
b. Mnemonic coding requires the user to memorize
codes.
c. Sequential codes carry no information content
beyond their order in the sequence.
d. Mnemonic codes are limited in their ability to
represent items within a class.
21. A coding scheme in the form of acronyms and
other combinations that convey meaning is a(n)
a. sequential code.
b. block code.
c. alphabetic code.
d. mnemonic code.

CHAPTER 3
1. Management can expect various benefits to follow
from implementing a system of strong internal
control. Which of the following benefits is least
likely to occur?
a. reduction of cost of an external audit
b. prevention of employee collusion to commit
fraud
c. availability of reliable data for decision-making
purposes
d. some assurance of compliance with the Foreign
Corrupt Practices Act of 1977
e. some assurance that important documents and
records are protected

2. Which of the following situations is NOT a segregation

of duties violation?
a. The treasurer has the authority to sign checks
but gives the signature block to the assistant
treasurer to run the check-signing machine.
b. The warehouse clerk, who has custodial
responsibility over inventory in the warehouse,
selects the vendor and authorizes purchases
when inventories are low.
c. The sales manager has the responsibility to
approve credit and the authority to write off
accounts.
d. The department time clerk is given the undistributed
payroll checks to mail to absent
employees.
e. The accounting clerk who shares the recordkeeping
responsibility for the accounts receivable
subsidiary ledger performs the monthly reconciliation
of the subsidiary ledger and the
control account.

3. The underlying assumption of reasonable assurance

regarding implementation of internal control
means that
a. auditor is reasonably assured that fraud has not
occurred in the period.
b. auditors are reasonably assured that employee
carelessness can weaken an internal control
structure.
c. implementation of the control procedure
should not have a significant adverse effect on
efficiency or profitability.
d. management assertions about control effectiveness
should provide auditors with reasonable
assurance.
e. a control applies reasonably well to all forms of
computer technology.

4. To conceal the theft of cash receipts from customers

in payment of their accounts, which of the following
journal entries should the bookkeeper
make?
DR CR
a. Miscellaneous Expense Cash
b. Petty Cash Cash
c. Cash Accounts Receivable
d. Sales Returns Accounts Receivable
e. None of the above

5. Which of the following controls would best prevent

the lapping of accounts receivable?
a. Segregate duties so that the clerk responsible
for recording in the accounts receivable subsidiary
ledger has no access to the general ledger.
b. Request that customers review their monthly
statements and report any unrecorded cash
payments.
c. Require customers to send payments directly
to the company’s bank.
d. Request that customers make checks payable
to the company.

6. Providing timely information about transactions in

sufficient detail to permit proper classification and
financial reporting is an example of
a. the control environment.
b. risk assessment.
c. information and communication.
d. monitoring.

7. Ensuring that all material transactions processed

by the information system are valid and in
accordance with management’s objectives is an
example of
a. transaction authorization.
b. supervision.
c. accounting records.
d. independent verification.

8. Which of the following is often called a compensating

control?
a. transaction authorization
b. supervision
c. accounting records
d. independent verification

9. Which of the following is NOT an element of the

fraud triangle?
a. ethics
b. justifiable reliance
c. situational pressure
d. opportunity
10. The fraud scheme that is similar to the ‘‘borrowing
from Peter to pay Paul’’ scheme is
a. expense account fraud.
b. bribery.
c. lapping.
d. transaction fraud.

CHAPTER 4
1. Which document is NOT prepared by the sales
department?
a. packing slip
b. shipping notice
c. bill of lading
d. stock release

2. Which document triggers the update of the inventory

subsidiary ledger?
a. bill of lading
b. stock release
c. sales order
d. shipping notice

3. Which function should the billing department

NOT perform?
a. record the sales in the sales journal
b. send the ledger copy of the sales order to
accounts receivable
c. send the stock release document and the shipping
notice to the billing department as proof
of shipment
d. send the stock release document to inventory
control

4. When will a credit check approval most likely

require specific authorization by the credit
department?
a. when verifying that the current transaction
does not exceed the customer’s credit
limit
b. when verifying that the current transaction is
with a valid customer
c. when a valid customer places a materially large
order
d. when a valid customer returns goods

5. Which type of control is considered a compensating

control?
a. segregation of duties
b. access control
c. supervision
d. accounting records

6. Which of the following is NOT an independent

verification control?
a. The shipping department verifies that the goods
sent from the warehouse are correct in type
and quantity.
b. General ledger clerks reconcile journal vouchers
that were independently prepared in various
departments.
c. The use of prenumbered sales orders.
d. The billing department reconciles the shipping
notice with the sales invoice to ensure that customers
are billed for only the quantities
shipped.

7. Which function or department below records the

decrease in inventory due to a sale?
a. warehouse
b. sales department
c. billing department
d. inventory control

8. Which situation indicates a weak internal control

structure?
a. the AR clerk authorizes the write off of bad
debts
b. the record-keeping clerk maintains both AR
and AP subsidiary ledgers
c. the inventory control clerk authorizes inventory
purchases
d. the AR clerk prepares customer statements every
month
9. The bill of lading is prepared by the
a. sales clerk.
b. warehouse clerk.
c. shipping clerk.
d. billing clerk.

10. Which of following functions should be segregated?

a. opening the mail and recording cash receipts in
the journal
b. authorizing credit and determining reorder
quantities
c. shipping goods and preparing the bill of lading
d. providing information on inventory levels and
reconciling the bank statement

ACC 207 QUIZ NO. 03

1. All of the following are factors in the fraud triangle except
a.Ethical behavior of an individual
b.Pressure exerted on an individual at home and job related
c.Materiality of the assets
d.Opportunity to gain access to assets

2. For an action to be called fraudulent, all of the following conditions are required except
a.poor judgment
b.false representation
c.intent to deceive
d.injury or loss
3. One characteristic of employee fraud is that the fraud
a.is perpetrated at a level to which internal controls do not apply
b.involves misstating financial statements
c.involves the direct conversion of cash or other assets to the employee’s personal benefit
d.involves misappropriating assets in a series of complex transactions involving third parties

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

a.a gambling addiction
b.lack of segregation of duties
c.centralized decision making environment
d.questionable integrity of employees

5. Which of the following best describes lapping?

a.applying cash receipts to a different customer’s account in an attempt to conceal previous thefts
of funds
b.inflating bank balances by transferring money among different bank accounts
c.expensing an asset that has been stolen
d.creating a false transaction

6. Skimming involves
a.stealing cash from an organization before it is recorded
b.Stealing cash from an organization after it has been recorded
c.manufacturing false purchase orders, receiving reports, and invoices
d.A clerk pays a vendor twice for the same products and cashes the reimbursement check issued
by the vendor.

7. Who is responsible for establishing and maintaining the internal control system?
a.the internal auditor
b.the accountant
c.management
d.the external auditor

8. The concept of reasonable assurance suggests that

a.the cost of an internal control should be less than the benefit it provides
b.a well-designed system of internal controls will detect all fraudulent activity
c.the objectives achieved by an internal control system vary depending on the data processing
method
d.the effectiveness of internal controls is a function of the industry environment

9. Which of the following is not a limitation of the internal control system?

a.errors are made due to employee fatigue
b.fraud occurs because of collusion between two employees
c.the industry is inherently risky
d.management instructs the bookkeeper to make fraudulent journal entries

10. The most cost-effective type of internal control is

a.preventive control
b.accounting control
c.detective control
d.corrective control

11. Which of the following is a preventive control?

a.credit check before approving a sale on account
b.bank reconciliation
c.physical inventory count
d.comparing the accounts receivable subsidiary ledger to the control account

12. The bank reconciliation uncovered a transposition error in the books. This is an example of a
a.preventive control
b.detective control
c.corrective control
d.none of the above

13. Which of the following is not an element of the control environment?

a.management philosophy and operating style
b.organizational structure of the firm
c.well-designed documents and records
d.the participation of the board of directors and the audit committee

14. The decision to extend credit beyond the normal credit limit is an example of
a.independent verification
b.authorization
c.segregation of functions
d.supervision

15. When duties cannot be segregated, the most important internal control procedure is
a.supervision
b.independent verification
c.access controls
d.accounting records

16. An accounting system that maintains an adequate audit trail is implementing which internal
control procedure?
a.access controls
b.segregation of functions
c.independent verification
d.accounting records
17. Employee fraud involves three steps. Of the following, which is not involved?
a.concealing the crime to avoid detection
b.stealing something of value
c.misstating financial statements
d.converting the asset to a usable form

18. Which of the following is not an example of independent verification?

a.comparing fixed assets on hand to the accounting records
b.performing a bank reconciliation
c.comparing the accounts payable subsidiary ledger to the control account
d.permitting only authorized users to access the accounting system

19. When certain customers made cash payments to reduce their accounts receivable, the
bookkeeper embezzled the cash and wrote off the accounts as uncollectible. Which control
procedure would most likely prevent this irregularity?
a.segregation of duties
b.accounting records
c.accounting system
d.access controls

20. All of the following are conditions for fraud except

a.false representation
b.injury or loss
c.intent
d.material reliance

21. Internal control system have limitations. These include all of the following except
a.possibility of honest error
bcircumvention
c.management override
d.stability of systems

22. Management can expect various benefits to follow from implementing a system of strong
internal control. Which of the following benefits is least likely to occur?
a.Reduced cost of an external audit.
b.Preventing employee collusion to commit fraud.
c.Availability of reliable data for decision-making purposes.
d.Some assurance of compliance with the Foreign Corrupt Practices Act of 1977.
e.Some assurance that important documents and records are protected.

23. Which of the following situations is not a segregation of duties violation?

a.The purchasing department initiates purchases when the purchasing supervisor determines
inventory levels are too low.
b.The warehouse clerk, who has the custodial responsibility over inventory in the warehouse,
keeps the official inventory records.
c.The sales manager has the responsibility to approve credit and the authority to write off
accounts.
d.The accounting clerk who shares the record keeping responsibility for the accounts receivable
subsidiary ledger performs the monthly reconciliation of the subsidiary ledger and the control
account.
e.All of these are segregation of duty violations.

24. 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

25. 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

26. 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

27. Which document triggers the revenue cycle?

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

28. 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

29. 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
30. 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

31. 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

32. 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
cprepare monthly customer statements
d.reconcile total sales on account to the debits in the accounts receivable subsidiary ledger

33. Which department is least likely to be involved in the revenue cycle?

a.credit
baccounts payable
c.billing
d.Shipping

34. 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

35. 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

36. 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

37. Which department prepares the bill of lading?

a.sales
b.warehouse
c.shipping
d.credit

38. 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
39. Which of the following is not a risk exposure in a PC 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

40. 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

41. 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

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

a.segregation of duties
b.access control
c.supervision
d.accounting records

43. Which of the following is NOT a common method for achieving multilevel security?
a.Access control list
b.Application integrity
c.Role based access control
d.All of the above

44. The employee entered "40" in the "hours worked per day" field. Which check would detect
this unintentional error?
a.numeric/alphabetic data check
b.sign check
c.limit check
dmissing data check
45. An inventory record indicates that 12 items of a specific product are on hand. A customer
purchased two of the items, but when recording the order, the data entry clerk mistakenly entered
20 items sold. Which check could detect this error?
a.numeric/alphabetic data checks
b.limit check
c.range check
d.reasonableness check

46. Methods used to maintain an audit trail in a computerized environment include all of the
following except
a.transaction logs
b.transaction listings
c.data encryption
d.log of automatic transactions

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

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

48. 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

49. 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

50. In balancing the risks and benefits that are part of every ethical decision, managers receive
guidance from each of the following except
a.justice
b.self interest
c.risk minimization
d.proportionality