AIS

b) suppliers

In the expenditure cycle, the primary external exchange of information occurs with

a) customers.
b) suppliers.
c) management.
d) the audit committee.

d) All of the above are correct

Within the expenditure cycle, internal information flows

a) from the production cycle to the expenditure cycle.
b) from the revenue cycle to the expenditure cycle.
c) to the general ledger from the expenditure cycle.
d) All of the above are correct.

d) What are the optimal prices for each product or service?

To accomplish the objectives set forth in the expenditure cycle, a number of key management decisions must be addressed. Which of the decisions below is not ordinarily found as part of the expenditure cycle?

a) How can cash payments to vendors be managed to maximize cash flow?
b) What is the optimal level of inventory and supplies to carry on hand?
c) Where should inventories and supplies be held?
d) What are the optimal prices for each product or service?

b) the shipping function

There are three basic activities in the expenditure cycle. One of the basic activities is the receiving and storage of goods, supplies, and services. What is the counterpart of this activity in the revenue cycle?

a) the sales order entry process
b) the shipping function
c) the cash collection activity
d) the cash payments activity

c) economic order quantity

The first major business activity in the expenditure cycle is ordering inventory and supplies. The traditional approach to management of inventory to ensure sufficient
inventory to maintain production is known as

a) safety stock.
b) just-in-time production.
c) economic order quantity.
d) optimal inventory quantity.

b) carrying costs

EOQ includes several variables that must be taken into consideration when calculating the optimal order size. One variable, the costs associated with holding
inventory, is referred to as

a) ordering costs.
b) carrying costs.
c) the reorder point.
d) stockout costs.

d) reorder point

The decision of when to place an order in a traditional inventory system is specified by the

a) company inventory policies.
b) economic order quantity.
c) stockout point.
d) reorder point.

d) inventory, vendors, and open purchase orders

When goods are being ordered from a vendor, which electronic files are either read or updated?

a) inventory, vendors, and accounts payable
b) vendors and accounts payable
c) open purchase orders and accounts payable
d) inventory, vendors, and open purchase orders

b) to reduce required inventory levels by scheduling production rather than estimating needs

One alternative approach to managing inventory is materials requirements planning (MRP). What is a key feature of this approach?

a) to minimize or entirely eliminate carrying and stockout costs
b) to reduce required inventory levels by scheduling production rather than estimating needs
c) to determine the optimal reorder point
d) to determine the optimal order size

a) the uncertainty about when materials are needed is reduced, thus reducing the need to carry large
levels of inventory.

The major advantage of an MRP inventory system is that it reduces inventory levels. This is because

a) the uncertainty about when materials are needed is reduced, thus reducing the need to carry large
levels of inventory.
b) the system is able to compute exactly the cost of purchasing by taking into account all costs
associated with inventory carrying.
c) inventory is brought to the production site exactly when needed and in the correct quantities by the
vendor.
d) None of the above are correct.

c) a just-in-time inventory system

The inventory management approach that attempts to minimize, if not eliminate, carrying and stockout costs is

a) the materials requirements planning.
b) the economic order quantity.
c) a just-in-time inventory system.
d) There is no such inventory management approach.

a) frequent deliveries of smaller quantities of items to the work centers

What aspect below best characterizes a JIT inventory system?

a) frequent deliveries of smaller quantities of items to the work centers
b) frequent deliveries of large quantities to be held at the work centers
c) less frequent deliveries of large quantities of goods to central receiving
d) infrequent bulk deliveries of items directly to work centers

d) MRP schedules production to meet estimated sales needs; JIT schedules production to meet customer demands.

What is the key difference between the MRP and JIT inventory management approaches?

a) Only JIT reduces costs and improves efficiency.
b) MRP is especially useful for products such as fashion apparel.
c) JIT is more effectively used with products that have predictable patterns of demand.
d) MRP schedules production to meet estimated sales needs; JIT schedules production to meet
customer demands.

a) demand for inventory is fairly predictable

MRP will be a preferred method over JIT when the

a) demand for inventory is fairly predictable.
b) demand for inventory is mostly unpredictable.
c) product has a short life cycle.
d) None of the above are correct.

c) credit rating of the vendor

A key decision in ordering is selecting a suitable vendor. Which of the following would not be a major criterion in vendor selection?

a) prices of goods
b) quality of goods
c) credit rating of the vendor
d) ability to deliver on time

Once a vendor is selected for a product, the company's identity is recorded in the

a) general ledger.
b) purchase requisition file.
c) product inventory transaction file.
d) product inventory master record.

d) product inventory master record

The paper document or electronic form that formally requests a supplier to sell and deliver specified products at designated prices is called

a) a purchase order.
b) a materials requisition.
c) a sales invoice.
d) a receiving report.

a) a purchase order

A purchase order is

a) a document formally requesting a vendor to sell a certain product at a certain price.
b) a request for delivery of certain items and quantities.
c) a contract between the buyer and vendor once accepted by the vendor.
d) All of the above are true.

d) All of the above are true

A standing order to purchase specified items at a designated price, from a particular supplier for a set period of time, is called a

a) set order.
b) blanket purchase order.
c) purchase order.
d) commodity order.

b) blanket purchase order

A major cost in the purchasing function is the number of purchase orders processed. One technique that may reduce purchasing-related expenses is to have suppliers
compete with each other to meet demand at the lowest price. This name of this technique is

a) an EDI auction.
b) a trading exchange.
c) a reverse auction.
d) a supplier consortium.

c) a reverse auction

The receiving and storage of goods is the responsibility of the receiving department,
which usually reports to the __________ function in the company.

a) inventory control
b) stores
c) production
d) purchasing

c) production

The receiving department has two major responsibilities in connection with the expenditure cycle. Identify one of these responsibilities.

a) shipping products most efficiently and at the lowest cost
b) deciding if the delivery should be accepted
c) verifying any purchase discounts for the delivery
d) deciding on the location where the delivery will be stored until used

b) deciding if the delivery should be accepted

Which of the following is generally not shown on a receiving report?

a) price of the items
b) quantity of the items
c) purchase order number
d) counted and inspected by

a) price of the items

A receiving clerk notes that a delivery of 10 units has been received, but the purchase
order specified 12 units. A debit memo will be prepared to adjust for the difference in the quantity ordered and received. Who should prepare this document?

a) the receiving clerk
b) management
c) the sales department
d) the purchasing department

d) the purchasing department

Identify which of the following scenarios the buyer could adjust by using a debit memo document.

a) quantity different from that ordered
b) damage to the goods
c) goods that fail inspection for quality
d) All of the above are possible scenarios.

d) All of the above are possible scenarios

What is one of the best ways to improve the overall efficiency and effectiveness of the receipt and storage of ordered items?

a) requiring all suppliers to have a second party verify quantities purchased before shipment
b) requiring all suppliers to have bar-codes on their items to allow electronic scanning upon delivery
by the receiving department
c) requiring all suppliers to use EDI to expedite the receiving department function
d) requiring all delivery trucks to have satellite data terminals to expedite the receiving department
function

b) requiring all suppliers to have bar-codes on their items to allow electronic scanning upon delivery
by the receiving department

All of the following technologies could be useful aids in the receiving process except

a) bar coding.
b) radio frequency identification tags.
c) EFT.
d) satellite technology.

c) EFT

Vendor invoices are approved by the __________, which reports to the __________.

a) purchasing department; controller
b) accounts payable department; treasurer
c) purchasing department; treasurer
d) accounts payable department; controller

d) accounts payable department; controller

From a legal standpoint, when does the obligation to pay a vendor arise?

a) when the goods are requisitioned
b) when the goods are ordered
c) when the goods are received by the purchaser
d) when the goods are billed

c) when the goods are received by the purchaser

The disbursement voucher and supporting documents are sent to the __________ for payment prior to the due date.

a) cashier
b) treasurer
c) controller
d) accounts payable department

a) cashier

A __________ system is a system in which an approved invoice is posted to the
vendor account and is stored in an open invoice file until payment is made by check.

a) voucher
b) nonvoucher
c) cycle
d) blanket invoice

b) nonvoucher

A disbursement voucher contains

a) a list of outstanding invoices.
b) the net payment amount after deducting applicable discounts and allowances.
c) the general ledger accounts to be debited.
d) All of the above are correct.

d) All of the above are correct

A legal obligation arises at the time goods are received from a supplier. The objective of accounts payable is to authorize payment only for goods or services actually ordered and received. The best way to process supplier invoices is to use

a) electronic funds transfer for small, occasional purchases from suppliers.
b) a nonvoucher system.
c) EDI for all small, occasional purchases from suppliers.
d) a disbursement voucher system.

d) a disbursement voucher system

What is not an advantage to using disbursement vouchers?

a) Disbursement vouchers reduce the number of checks written.
b) Disbursement vouchers can be prenumbered which simplifies the tracking of all payables.
c) Disbursement vouchers facilitate separating the time of invoice approval from the time of invoice
payment.
d) There are no disadvantages to using disbursement vouchers

d) There are no disadvantages to using disbursement vouchers

Which of the following is not an advantage of a voucher system?

a) several invoices may be included on one voucher, reducing the number of checks
b) disbursement vouchers may be pre-numbered and tracked through the system
c) the time of voucher approval and payment can be kept separate
d) it is a less expensive and easier system to administer than other systems

d) it is a less expensive and easier system to administer than other systems

What is the final activity in the expenditure cycle?

a) ordering goods
b) receipt and storage of goods
c) approving vendor invoices for payment
d) the payment of approved invoices

d) the payment of approved invoices

In a typical cash disbursement procedure, who usually handles the checks and may even be able to sign checks up to a certain dollar limit?

a) the accounts payable supervisor
b) the controller
c) the cashier
d) the treasurer

c) the cashier

Duties in the expenditure cycle should be properly segregated to promote internal control. This means that the authorization function is performed by __________, the
recording function is performed by __________, and the cash disbursement function is performed by the __________.

a) accounts payable; purchasing; cashier
b) purchasing; accounts payable; cashier
c) purchasing; cashier; accounts payable
d) purchasing; accounts payable; treasurer

b) purchasing; accounts payable; cashier

A voucher package should include

a) a purchase requisition, vendor invoice, and receiving report.
b) a purchase order, vendor invoice, and receiving report.
c) a purchase requisition, purchase order, and receiving report.
d) a bill of lading and vendor invoice.

b) a purchase order, vendor invoice, and receiving report

The evaluated receipt settlement (ERS) replaces the more traditional 3-way matching process with a 2-way match of the purchase order and the

a) vendor invoice.
b) sales invoice.
c) receiving report.
d) disbursement voucher.

c) receiving report

What may be the biggest opportunity to improve the efficiency of accounts payable?

a) convert a manual AIS system to EDI and EFT
b) streamline noninventory purchases
c) use ERS
d) use disbursement vouchers

b) streamline noninventory purchases

When purchasing miscellaneous supplies, companies can reduce costs, improve efficiency, and combat employee fraud by using

a) procurement cards.
b) a JIT inventory system.
c) credit cards.
d) debit cards.

a) procurement cards

If available, a 1% discount for payment within 10 days represents an approximate savings of __________ % annually.

a) 1
b) 12
c) 18
d) 36

c) 18

When a legacy system is replaced with an integrated Enterprise Resource Planning (ERP) system, many benefits are realized for the organization. What is a key improvement in the record keeping function?

a) Any department can now submit a request to purchase items.
b) The system tracks the exact time of delivery.
c) Major suppliers send electronic notification of incoming deliveries.
d) Inventory records are more accurate and timely.

d) Inventory records are more accurate and timely

The threat of paying prices that are too high for goods ordered can pose a problem in the expenditure cycle. What is an appropriate control that would be applicable to help mitigate this threat?

a) require the receiving department to verify the existence of a valid purchase order
b) use only approved suppliers and solicit competitive bids
c) only pay invoices that are supported by the original voucher package
d) use bar-code technology

b) use only approved suppliers and solicit competitive bids

What is probably the most effective control for the prevention of kickbacks to purchasing agents?

a) purchasing from approved vendors
b) good supervision in the purchasing area
c) a corporate policy to prohibit purchasing agents from accepting kickbacks
d) reviews of vendor performance

c) a corporate policy to prohibit purchasing agents from accepting kickbacks

There are several threats that are associated with the process and activity of receiving and storing goods. Identify one of these threats below.

a) errors in counting
b) kickbacks
c) requests for unnecessary items
d) errors in vendor invoices

a) errors in counting

What is the easiest way to prevent the acceptance of unordered goods?

a) order only from approved vendors
b) always require that a valid purchase order exists before goods can be accepted at the time of
delivery
c) have an appropriate conflict of interest policy in place
d) require receiving personnel to call the vendor before accepting any goods

b) always require that a valid purchase order exists before goods can be accepted at the time of
delivery

Which of the following is not a common control for ensuring inventory is secure and
inventory counts are accurate?

a) control of physical access to the inventory storage areas
b) transfers of inventory with proper documentation
c) sending "blind" copies of purchase orders to inventory control for data entry
d) making physical counts of inventory at least once per year

c) sending "blind" copies of purchase orders to inventory control for data entry

Double-checking the accuracy of an invoice is an applicable control that can help to neutralize a threat in the expenditure cycle. What process or activity would specifically be associated with this control?

a) order goods
b) receive and store goods
c) pay for goods and services
d) general issues

c) pay for goods and services

There is a threat of paying an invoice twice. What is an applicable control that may help mitigate this threat?

a) payment should never be authorized for a photocopy of an invoice
b) double-check invoice accuracy
c) approval of a purchase order
d) adequate perpetual inventory records

a) payment should never be authorized for a photocopy of an invoice

Which control would be best to prevent payments made to fictitious vendors?

a) allow payments only to approved vendors
b) restrict access to any payment or approval documents
c) have an independent bank reconciliation
d) make sure all documents are in order before approving payments

a) allow payments only to approved vendors

In the expenditure cycle, good control dictates that expenditures should be paid by
check. This may not be feasible when minor purchases are made. To facilitate quick payment for minor purchases, a(n) __________ should be set up and maintained using __________.

a) special bank account; disbursement vouchers
b) imprest fund; vouchers
c) cash box; small denomination bills
d) petty cash fund; procurement cards

b) imprest fund; vouchers

A surprise count of petty cash by the auditor should find the total of __________ equal to the amount authorized for the fund.

a) cash and credit memos
b) cash and petty cash vouchers
c) cash
d) cash and checks

b) cash and petty cash vouchers

Special care should be taken when EFT payments are made to vendors. What control should be put in place that assigns responsibility for EFT payments?

a) encrypt all EFT transmissions
b) time stamp all EFT transactions
c) establish a control group to monitor EFT transactions for validity and accuracy
d) number all EFT transactions

c) establish a control group to monitor EFT transactions for validity and accuracy

Which of the following threats is not specific to the purchase requisition process of
the expenditure cycle

a) stockouts
b) purchasing from unauthorized vendors
c) requisitioning goods not needed
d) All of the above are threats in the purchase requisition process.

b) purchasing from unauthorized vendors

The loss of data is a threat encountered in the expenditure cycle. What is the related
process/activity and applicable control used to counteract the threat?

a) order goods; backup and disaster recovery plans
b) general issues; backup and disaster recovery plans
c) general issues; development of periodic review of appropriate performance reports
d) order goods; various data entry and processing edit controls

b) general issues; backup and disaster recovery plans

1. When the company is a vendor, goods flow into the company and cash is paid out.

F

2. Companies in the same line of business are not likely to have many differences in their purchasing habits.

F

3. The purchasing process starts when the purchase invoice is submitted by the vendor.

F

4. A purchase order is essentially an internal document, one that does not go outside the company, whereas a purchase requisition is an external document, which will be presented to an entity outside the company.

F

5. A purchase requisition is essentially an internal document, one that does not go outside the company, whereas a purchase order is an external document, which will be presented to an entity outside the company.

T

6. The use of a blind purchase order forces the receiving clerk to perform an independent check of the quantity and quality of the delivery.

T

7. A company is not obligated to pay for goods until 30 days after the goods are received.

F

8. Even though a company has an obligation to pay for goods as soon as the goods are received, it is common to not record the actual liability until the invoice is received.

T

9. It is necessary for the purchasing department to set up the proper procedures to avoid problems related to cutoff issues.

T

10. The accounts payable department keeps copies of purchase orders and receiving reports, that will be compared to the related invoice, to be sure that the invoices represent goods that were ordered and received.

T

11. The accounting department is responsible for implementing internal controls over each business process.

F

12. Independent reconciliation of the accounts payable subsidiary ledger to the general ledger control account will help to assure that all inventories has been properly recorded.

F

13. Independent reconciliation of the periodic inventory counts and the inventory ledger and the general ledger will help to assure that inventory is being properly accounted for.

T

14. For a number of different reasons, a company may find it necessary to reject goods received which will start the purchase returns process.

T

15. The cash disbursement process must be designed to ensure that the company appropriately records all accounts payable transactions.

F

16. Most companies conduct business transactions with checks so that a written record is established for cash disbursements.

T

17. Copies of invoices should be filed in the account in alphabetic order by name of the vendors.

F

18. When an invoice is paid, it should be canceled to indicate that it has been paid.

T

19. When preparing the cash disbursement journals, it is important that the records have the actual date of cash disbursement, as is shown on the check.

T

20. Cash should be periodically verified by comparing the balance in the check book with the balance in the cash account in the general ledger.

F

21. Cash should be periodically verified by comparing the cash balance with the bank statement.

T

22. Only the purchasing department should authorize the processing of a cash disbursement transaction.

F

23. The authorization of a cash disbursement occurs when the accounts payable department matches the purchase order, receiving report, and the invoice, and then forwards the matched documents to the cash disbursements department.

T

24. Designated members of management should be given the responsibility for authorizing the actual payments and sign their signatures on the face of the check.

T

25. If the purchasing, receiving, accounts payable, and cash disbursements processes are completed by the same individuals, the internal controls will be stronger because someone in the company will have an overall view of company activities.

F

26. In order to institute an automated matching system, all of the relevant files must exist in the same physical room.

F

27. When an automated matching system is used, all of the relevant files must be online (or in databases). The system can then access the online purchase order and receiving files and check the match of items, quantities, and prices.

T

28. A user who logs in to the computer-based accounting system to enter invoices should also have access to the portion of the system that would allow her him to order goods.

F

29. Computer logs should be maintained in order to have a complete record of who used the system and the histories of that use. This computer log would allow monitoring and identification of unauthorized accesses or uses.

T

30. When a company implements an evaluated receipt settlement results in the increase in the strength of the internal controls.

F

31. Because the evaluated receipts settlement process relies heavily on an IT system that can quickly access online purchase-order files, a system slowdown could halt all receiving activity.

T

32. E-business and EDI have much different advantages and risks to the vendor than what exists for the customer.

F

33. Redundancy is needed for servers, data, and networks.

T

34. It is likely that expenditure fraud and ethics violations could be eliminated by a strong, ethical "tone at the top" along with encouragement of ethical behavior by all employees, and strong internal controls.

F

35. Corporate governance policies and procedures must be in place to assure that funds are expended only to the benefit the organization and its owners.

T

36. It is necessary that managers remember that they are stewards of funds expended by a business - that the funds are not owned by the managers.

T

37. Strong corporate governance will prevent fraud, theft, and mismanagement within the expenditure process.

F

FALSE

When a sales order has been entered into the system, the customer’s credit status must be checked. For existing customers, the sale on account should be approved only if the customer has exceeded their credit limit.

FALSE

Whenever a sales order is received, it is necessary to check the inventory to make sure that the items ordered are in stock. If the items are in stock, a packing slip will be prepared.

FALSE

Billing to the customer should take place prior to shipment so that the customer receives the bill before the merchandise arrives.

TRUE

A benefit of a company accounting for their documents in a numerical sequence is that it is much easier to see if a document or documents are missing.

FALSE

At a minimum, those who handle cash should be the ones to reconcile the bank statement.

C. Proof of recorded dates, quantities, and prices on an invoice.

An example of an independent verification in the sale process is:

A. Preparation of packing lists on prenumbered forms.
B. Initialing the sales order.
C. Proof of recorded dates, quantities, and prices on an invoice.
D. Physical controls in record storage areas.