ACCT 307 MT1 PRACTICE EXAM

A set of 100 comprehensive practice flashcards in Question and Answer format covering Accounting Information Systems, coding schemes, systems documentation (flowcharts and DFDs), the revenue cycle, and the expenditure cycle.

What is an Accounting Information System (AIS)?

An Accounting Information System (AIS) is a system that collects, records, stores, and processes data to produce useful information for decision makers.

How do computerized AIS compare to manual accounting systems?

Most accounting information systems in use nowadays are computerized systems, which are more efficient and effective than their manual counterparts.

What are the three major components of an AIS?

The three major components of an AIS are input (data), processing methods (sorting, organizing, calculating, and applying accounting procedures), and output (information).

What is the key difference between data and information in an AIS?

Data consists of raw and unprocessed transaction details (such as sales orders), whereas information is processed data that is more useful for decision-making (such as management reports and financial statements).

What are examples of raw transaction data in an AIS?

Raw transaction data includes itemized details captured on source documents, such as sales orders, sales invoices, and payroll time cards.

What are examples of processed information produced by an AIS?

Processed information includes formatted outputs used by decision makers, such as financial statements and management reports.

In a financial AIS model, what elements constitute the input stage?

The input stage consists of source documents (such as sales invoices and payroll time cards) and files of source documents.

In a financial AIS model, what components handle transaction processing?

Transaction processing involves recording in journals, posting to ledgers, and compiling trial balances.

In a financial AIS model, what represents the output stage?

The output stage consists of financial statements and other external reports.

What central question does the study of AIS answer for accountants?

The study of AIS answers the question: 'where does information come from?'

How does studying AIS benefit an accountant's understanding of business operations?

It helps accountants understand major transaction cycles and core business processes across an organization.

What specialized technical skill is developed by studying AIS?

Studying AIS helps accountants develop specialized skills in designing an accounting system.

How does studying AIS assist accountants with organizational controls?

It prepares accountants to design and evaluate internal controls within an IT environment.

Which section of the CPA exam specifically tests AIS topics?

AIS topics are tested on the Information Systems and Controls section of the CPA exam.

What role do source document files serve in a financial AIS?

Files of source documents store input records created during business transactions, feeding data directly into transaction processing journals.

What is a source document in accounting?

A source document is a record that captures transaction data when a business activity occurs, such as the purchase or sale of goods.

In what physical or digital formats can a source document exist?

A source document can be a piece of paper or exist in electronic form.

What is source data automation?

Source data automation is the practice of capturing transaction data in machine-readable form at the time and place of origin to improve input accuracy and efficiency.

What are common examples of source data automation devices?

Examples of source data automation include bar code readers and Point of Sale (POS) terminals.

What is a journal in an accounting system?

A journal is a chronological record of accounting transactions.

How does a general journal differ from a special journal?

A general journal allows any type of accounting transaction to be recorded, whereas a special journal captures specific, recurring types of routine transactions.

What are the four most common special journals used in AIS?

The most common special journals are sales journals, purchases journals, cash receipts journals, and cash disbursements journals.

What specific types of transactions are originally entered in the general journal?

Original entries are made in the general journal for non-routine transactions (such as adjusting entries) and summaries of routine transactions.

What is a general ledger?

A general ledger is a book or file where beginning balances, increases, decreases, and ending balances are tracked for assets, liabilities, revenues, and expenses.

What four main account categories are kept in the general ledger?

The general ledger tracks assets, liabilities, revenues, and expenses.

What is a subsidiary ledger?

A subsidiary ledger contains detailed records pertaining to a specific account in the general ledger, such as individual customer balances.

What is a control account?

A control account is a general ledger account that summarizes the detailed balances contained in its corresponding subsidiary ledger.

What relationship must exist between a control account and its subsidiary ledger?

The sum of all individual account balances in the subsidiary ledger should equal the balance in the related control account.

What process transfers data from journals to the general ledger?

Entries recorded in the general journal and special journals are periodically or automatically posted to the general ledger.

How do accountants verify account balances between subsidiary ledgers and control accounts?

Accountants verify balances by comparing the sum of subsidiary account balances to the balance of the control account from time to time.

What are the three end-of-period trial balances in the accounting cycle?

The three trial balances are the pre-adjusting trial balance (unadjusted), the adjusted trial balance, and the post-closing trial balance.

What is the primary output of a financial accounting system?

Financial statements are the primary output of a financial accounting system.

What four standard financial statements are produced by an AIS?

The primary financial statements are the Income Statement, Statement of Owners' Equity, Balance Sheet, and Cash Flow Statement.

What are the eight steps in the accounting cycle, in sequential order?

1. Record transaction in a journal. 2. Post journal entries to a ledger. 3. Prepare an unadjusted trial balance. 4. Record and post adjusting journal entries. 5. Prepare an adjusted trial balance. 6. Prepare financial statements. 7. Record and post closing journal entries. 8. Prepare a post-closing trial balance.

Why do Accounting Information Systems rely on coding systems?

AISs rely on coding systems to systematically record, classify, and retrieve financial data by assigning numbers or letters to uniquely identify transactions and accounts.

How do sequence codes function in an accounting system?

With sequence codes, items are numbered consecutively so that any missing item or gap in the sequence is easily identified.

What errors or risks do sequence codes help prevent?

Sequence codes ensure that all items are accounted for and that there are no duplicate numbers, which would indicate errors or potential fraud.

What are common examples of document types that utilize sequence codes?

Examples include pre-numbered checks, invoices, and purchase orders.

How do block codes structure item categories?

When block codes are used, specific ranges of numbers within a numerical sequence are reserved for each category of the item being coded.

What is an example of product categorization using block codes?

Product type ranges such as $100000-199999$ for Electric ranges, $200000-299999$ for Refrigerators, $300000-399999$ for Washers, and $400000-499999$ for Dryers.

How do group codes convey information about an item?

In group codes, each digit or group of digits in the code signifies a distinct aspect or attribute of the item being coded.

What is a chart of accounts?

A chart of accounts is a list of all general ledger accounts an organization uses, providing the structural framework for the general ledger.

In a chart of accounts group coding scheme, what do the three digit sections represent?

The first section identifies major account categories (asset, liability, etc.), the second identifies primary sub-accounts (e.g., accounts receivable), and the third section identifies specific individual accounts.

In the chart of accounts, what does account code $120$ represent?

Account code $120$ represents Current assets (major category $1$), Accounts Receivable (sub-account $2$), Trade (specific account $0$).

What are mnemonic codes?

Mnemonic codes use letters or acronyms that provide visible clues suggestive of the specific items or categories they represent.

What are examples of mnemonic codes?

Examples include course codes like ACCT 307 or state abbreviations like CA 90012.

How is a business process defined in an AIS context?

A business process is a collection of activities within an organization that work together to create value.

What are the two core business processes common to every organization?

The two core processes are the sales process (revenue cycle) and the purchasing process (expenditure cycle).

What is the primary objective of the sales process (revenue cycle)?

The primary objective of the sales process is to achieve timely and efficient cash collection.

What full sequence of activities makes up the sales process?

The sales process begins with a customer order, followed by the shipment of goods or services, and ends with cash collection from the customer.

In the Level 0 DFD of the Revenue Cycle, what inputs and outputs are associated with Process $1.0$ (Take Order)?

Process $1.0$ receives orders from Customers and credit limits from Customer Accounts; it sends picking tickets to Process $2.0$, order data to Sales Order, and checks inventory quantities.

In the Level 0 DFD of the Revenue Cycle, what documents flow out of Process $2.0$ (Ship Goods)?

Process $2.0$ outputs a Bill of Lading and Packing list to the Shipping Company, sends sales order & shipping docs to Process $3.0$, and updates inventory quantities.

In the Level 0 DFD of the Revenue Cycle, what external entities interact with Process $3.0$ (Collect Payment)?

Process $3.0$ interacts with Customers (receiving payment/remittance advice and sending invoices), Bank (sending deposits), and updates Cash Receipts and Customer Accounts.

Through what media can customer orders be received in Process $1.0$?

Customer orders can be received in store, by mail, by phone, or online via a web site.

What is Electronic Data Interchange (EDI) in sales order entry?

EDI allows a customer to automatically transmit an order to the seller's system, where it is processed automatically without human involvement according to predetermined terms.

What is Vendor-Managed Inventory (VMI)?

VMI is an arrangement where the supplier is granted access to the customer's inventory data and takes on responsibility for managing and replenishing inventory.

What two authorization checks must occur during sales order entry?

The system must check the customer's credit limit (by verifying the customer account file) and check inventory availability (by reviewing the inventory file).

When is specific authorization required to approve credit for a customer order?

Specific credit authorization is required for new customers, customers with outstanding past-due balances, or orders that exceed a credit limit.

What action occurs if sufficient inventory is NOT available to fulfill an order?

A back order is created, notifying the production department (in manufacturing) or purchasing department (in retail) to obtain the required items.

What duties are performed by the shipping department upon receiving ordered goods from warehouse workers?

The shipping department verifies goods against the sales order, updates quantity on hand in inventory and sales data files, and generates a packing slip and bill of lading.

What is a packing slip?

A packing slip is a shipping document that lists the specific items, quantities, and descriptions of goods included in a shipment.

What is a bill of lading?

A bill of lading is a legal contract defining carriage responsibilities, carrier identification, transit instructions, FOB terms, and payment responsibility for shipped goods.

What is the difference between the open-invoice method and balance-forward method in Accounts Receivable?

Under the open-invoice method, customers pay individually against each invoice; under the balance-forward method, customers pay based on a monthly statement balance.

What is cycle billing?

Cycle billing is the practice of preparing monthly statements for different subsets of customers at varied times during the month to produce a uniform cash inflow.

What items are included when a customer remits payment?

A remittance includes a payment (check or electronic transfer) and a remittance advice serving as proof of payment.

What collection methods can companies use to reduce payment processing delays?

Companies can use bank lockboxes, Electronic Funds Transfer (EFT), or Financial Electronic Data Interchange (FEDI).

What is Financial Electronic Data Interchange (FEDI)?

FEDI is an integrated payment transmission method that combines Electronic Funds Transfer (EFT) with Electronic Data Interchange (EDI) for data exchange.

What primary input documents are utilized in the sales process?

Key input documents include Sales Orders, Packing Slips, Bills of Lading, Sales Invoices, Remittance Advices, and Debit/Credit Memos.

How do credit memos and debit memos alter customer Accounts Receivable balances?

Credit memos decrease the customer's balance for returns or allowances, whereas debit memos increase the customer's balance if an undercharge is identified.

What is an Accounts Receivable Aging Report?

An Accounts Receivable Aging Report categorizes open balances of active credit customers by the length of time overdue.

What operational reports are generated as outputs of the sales process?

Outputs include Bad Debt Reports, Cash Receipts Forecasts, Approved Customer Listings, and Sales Analysis Reports.

What are the five core objectives of the sales process?

1. Filling customer orders. 2. Billing customers for goods/services. 3. Tracking sales. 4. Collecting payment. 5. Forecasting sales and cash receipts.

What is the primary objective of the purchasing process (expenditure cycle)?

The primary objective is to minimize the cost of acquiring and maintaining necessary inventories and to pay vendors at the optimal time.

What sequential stages comprise the purchasing process?

The purchasing process starts with a purchase request, continues through receipt of goods or services, and concludes with cash payment to the vendor.

In the Level 0 DFD of the Purchase Cycle, what inputs and outputs surround Process $1.0$ (Order Goods)?

Process $1.0$ receives purchase requisitions from Various Departments and supplier data from Supplier data stores; it sends purchase orders to Suppliers and updates Open Purchase Orders.

In the Level 0 DFD of the Purchase Cycle, what data stores are updated by Process $2.0$ (Receive Goods)?

Process $2.0$ updates the Supplier file (amount owed), Inventory file (quantities), and Open Purchase Order file upon receipt of goods.

In the Level 0 DFD of the Purchase Cycle, what flows occur during Process $3.0$ (Pay for Goods)?

Process $3.0$ receives receiving reports, remits cash payment to Suppliers, updates amount owed in Supplier data, and records payments in Cash Payments.

What events trigger the creation of a purchase requisition?

A purchase requisition is triggered automatically by inventory control systems when stock falls below a set level or manually by employees noticing a shortage.

What key factors should a purchasing department evaluate when selecting suppliers?

Key supplier evaluation factors include price, material quality, and delivery dependability.

How do reverse auctions generate cost savings during purchasing?

Reverse auctions allow suppliers to bid competitively against each other, securing the lowest possible price for requested items.

What document is created upon arrival of ordered goods at the receiving dock?

A receiving report is created to document the quantity and quality of items delivered.

How are damaged or low-quality received goods handled between buyer and supplier?

The buyer issues a debit memo to decrease Accounts Payable, and the supplier issues a corresponding credit memo in acknowledgment.

What is a 'three-way match' in Accounts Payable?

A three-way match requires Accounts Payable to verify and reconcile the Purchase Order, Vendor Invoice, and Receiving Report before authorizing payment.

How is proper segregation of duties applied to cash disbursements in purchasing?

The cash disbursement function (performed by the cashier) is kept separate from the recording function (performed by Accounts Payable).

What are the main input documents involved in the purchasing process?

Inputs include Purchase Requisitions, Purchase Orders, Bills of Lading, Shipping Notices/Packing Slips, Vendor Invoices, Receiving Reports, and Debit/Credit Memos.

What are the primary output documents and reports generated in the purchasing process?

Outputs include Vendor Checks, Check Registers, Discrepancy Reports, Cash Requirements Forecasts, and Financial Statement information.

What are the six key objectives of the purchasing process?

1. Maintaining vendor records. 2. Controlling inventory. 3. Tracking purchases. 4. Tracking amounts owed. 5. Making timely/accurate vendor payments. 6. Forecasting purchases and cash outflows.

How do revenue cycle activities mirror purchasing cycle activities?

Ordering goods creates a PO that serves as input to taking orders; receiving goods handles items shipped by the seller; paying for goods generates cash processed in cash collection.

What is systems documentation in an AIS?

Systems documentation includes flowcharts, data flow diagrams, narratives, and written communications describing system inputs, processing, and outputs.

What is a document flowchart?

A document flowchart traces the physical flow of documents through an organization from creation, review, and approval to storage and distribution.

What do basic document flowchart symbols depict?

Symbols depict keying operations, paper documents, stacked document copies, manual operations, connectors, annotations, and document movement paths.

What do the letters 'A', 'N', and 'D' indicate on document flowchart permanent file symbols?

The letters indicate how documents are filed: 'A' for alphabetically, 'N' for numerically, and 'D' for chronologically.

What key guidelines should be followed when constructing document flowcharts?

Identify all involved departments, organize activities department-wise, number documents, account for every copy, and use matching letter/number connectors.

What is a system flowchart, and what standard created its symbol set?

A system flowchart depicts electronic data flows and processing steps in an AIS using standardized symbols established by the National Bureau of Standards.

In a system flowchart for preparing payroll, what symbols represent inputs, processes, master files, and outputs?

Inputs/outputs use parallelograms (Time Cards/Paychecks), computer processing uses rectangles, and master files use storage symbols (Payroll Master File).

What is the 'sandwich rule' in system flowcharting guidelines?

The sandwich rule states that a process symbol must always be placed directly between an input symbol and an output symbol.

What is a Data Flow Diagram (DFD) and when is it primarily used?

A DFD is a graphical representation of data sources, flows, processes, stores, and destinations, primarily used in systems development to analyze or plan systems.

What do the four basic symbols represent in logical Data Flow Diagrams?

Squares represent data sources/destinations, circles represent tasks/processes, parallel lines represent data stores/files, and arrows represent flow direction.

What is a context diagram in DFD modeling?

A context diagram is the highest-level DFD that provides an overall summary view of an application system and its external interactions.

What is DFD decomposition, and what guidelines govern process naming and compliance?

Decomposition explodes DFDs into lower levels (Level $0$, Level $1$) for detail; each DFD should have max $7$ bubbles, use verbs for sequentially numbered processes, and support Sarbanes-Oxley Act of $2002$ compliance.