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Accounting
Information Systems, 12e (Romney/Steinbart)
Chapter 13 The
Expenditure Cycle: Purchasing to Cash Disbursements
1)
The Squishy Things Toy Company was established in 1948. It recently signed a
large contract with a chain of retail toy stores. As a condition of the
contract, the Squishy will be required to track and forecast product sales by
linking in to the chain's sales database. Squishy will then be responsible for
shipping products to the chain's regional warehouses as needed. The
relationship between Squishy and the chain is an example of
A)
vendor-managed inventory.
B)
sales force automation.
C)
electronic data interchange.
D)
optical character recognition.
Page
Ref: 382
2)
Requiring all packing slips be reconciled to purchase orders before accepting a
delivery of inventory would be most likely to prevent which of the
following situations?
A)
A supplier delivers more inventory than ordered at the end of the year and
sends an invoice for the total quantity delivered.
B)
An employee mails a fake invoice to the company, which is then paid.
C)
The inventory records are incorrectly updated when a receiving department
employee enters the wrong product number on the receiving report.
D)
Receiving department employees steal inventory and then claim the inventory was
received and delivered to the warehouse.
Page
Ref: 386
3)
Comparing quantities on a vendor invoice to quantities on the receiving report
would not prevent or detect which of the following situations?
A)
Receiving and accepting inventory not ordered
B)
Theft of inventory by receiving department employees
C)
Update of wrong inventory items due to data entry error
D)
Order for an excessive quantity of inventory
Page
Ref: 386
4)
Which of the following would probably be the least effective control to
mitigate the risk of paying an invoice payable to a phony vendor for inventory
purchases, mailed to the company by an employee attempting to commit fraud?
A)
Only pay from original invoices.
B)
Cancel all invoices and supporting documentation when paid.
C)
Strict access and authorization controls for the approved vendor master file.
D)
Require three-way match for all inventory purchase invoices.
Page
Ref: 387
5)
Which of the following would be the least effective control to prevent
paying the same vendor invoice twice?
A)
Allow only the accounts payable department to authorize payment for vendor
invoices and allow only the cash disbursements department to cut and mail
checks to vendors.
B)
Only pay from original invoices.
C)
Cancel each document in the voucher package once the check is prepared and
mailed.
D)
Only pay vendor invoices that have been matched and reconciled to a purchase
order and a receiving report.
Page
Ref: 391
6)
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?
2
7) One of the basic activities in the
expenditure cycle is the receiving and storage of goods, supplies, and
services. What is the counterpart of this activity in the revenue cycle?
A)
sales order entry process
B)
shipping function
C)
cash collection activity
D)
cash payments activity
3
8)
The traditional approach to inventory management to ensure sufficient quantity
on hand to maintain production is known as
A)
safety stock.
B)
just-in-time production.
C)
economic order quantity.
D)
optimal inventory quantity.
8
9)
Economic Order Quantity (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.
8
10)
The need to place an order for inventory is specified by the
A)
company inventory policies.
B)
economic order quantity.
C)
stockout point.
D)
reorder point.
8
11)
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
4
12)
What is a key feature of materials requirements planning (MRP)?
A)
minimize or entirely eliminate carrying and stockout costs
B)
reduce required inventory levels by scheduling production rather than estimating
needs
C)
determine the optimal reorder point
D)
determine the optimal order size
8
13) Materials requirements planning (MRP)
A)
reduces the uncertainty about when materials are needed, thereby reducing the
need to carry large levels of inventory.
B)
is able to compute exactly the cost of purchasing by taking into account all
costs associated with inventory carrying.
C)
requires vendors to deliver inventory to the production site exactly when
needed and in the correct quantities.
D)
None of the above are correct.
8
14)
The inventory management approach that attempts to minimize, if not eliminate,
carrying and stockout costs is
A)
materials requirements planning.
B)
economic order quantity.
C)
just-in-time inventory.
D)
evaluated receipt settlement.
8
15)
What aspect below best characterizes a Just-In-Time (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
8-379
16)
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.
9
17)
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)
MRP is always a preferred method over JIT.
9
18)
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
Page
Ref: 380
19)
Once a vendor is selected for a product, the vendor's identity is recorded in
the
A)
purchase requisition transaction file.
B)
purchase requisition master file.
C)
inventory transaction file.
D)
inventory master file.
Page
Ref: 381
20)
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.
Page
Ref: 381
21)
Stepanek Sales and Service provides free coffee to employees. Stepanek arranged
with Ingebrigtson's Joe to deliver as many coffee packages, sugar, creamer, and
filters as needed each week. Ingebrigtson's sends a monthly invoice for
Stepanek to pay. This arrangement is best described as a
A)
blanket purchase order.
B)
set purchase order.
C)
fixed purchase order.
D)
standard purchase order.
Page
Ref: 381
22)
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.
Page
Ref: 382
23)
One of the major responsibilities of the receiving department is
A)
deciding if the delivery should be accepted.
B)
verifying any purchase discounts for the delivery.
C)
deciding on the location where the delivery will be stored until used.
D)
updating inventory subsidiary ledgers.
Page
Ref: 384
24)
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
Page
Ref: 384
25)
A receiving clerk notes that a delivery of 10 units has been received, but the
purchase order specified 12 units. A debit memo will need to be prepared to
adjust for the difference between the quantity ordered and received. Who should
prepare this document?
A)
the receiving clerk
B)
the controller
C)
the vendor
D)
the purchasing department manager
Page
Ref: 385
26)
Identify in which of the following scenarios a company could adjust the balance
due the vendor by issuing a debit memo.
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.
Page
Ref: 385
27)
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 the carrier verify quantities and item numbers
before shipment
B)
requiring all suppliers to include RFID tags on their items
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
Page
Ref: 385
28)
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
Page
Ref: 387
29)
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
Page
Ref: 390
30)
A(n) ________ system posts an approved invoice to the vendor account and stores
it in an open invoice file until payment is made by check.
A)
nonvoucher
B)
voucher
C)
cycle
D)
evaluated receipt settlement
Page
Ref: 387
31)
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.
Page
Ref: 387
32)
One 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.
Page
Ref: 387
33)
What is not an advantage of 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.
Page
Ref: 387
34)
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.
Page
Ref: 387
35)
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 cash handling is
performed by the ________.
A)
accounts payable; purchasing; cashier
B)
purchasing; accounts payable; cashier
C)
purchasing; cashier; accounts payable
D)
purchasing; accounts payable; treasurer
5
36)
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.
Page
Ref: 387
37)
Evaluated receipt settlement (ERS) approves payment of vendor invoices after
reconciling the purchase order and the
A)
vendor invoice.
B)
sales invoice.
C)
receiving report.
D)
disbursement voucher.
Page
Ref: 388
38)
All of the following are opportunities to improve efficiency of the accounts
payable function except
A)
use blanket purchase orders.
B)
convert a manual AIS system to EDI and EFT.
C)
streamline noninventory purchases.
D)
use evaluated receipt settlement.
Page
Ref: 387-388
39)
When purchasing miscellaneous supplies, companies can reduce costs, improve
efficiency, and combat employee fraud by
A)
using procurement cards.
B)
implementing a JIT inventory system.
C)
requiring employees to personally purchase items then reimbursing employees at
the end of each month.
D)
paying amounts out of petty cash.
Page
Ref: 389
40)
If available, a 1% discount for payment within 10 days instead of 30 days
represents an approximate savings of ________ % annually.
A)
1
B)
12
C)
18
D)
36
Page
Ref: 390
41)
What is the best control to mitigate the threat of paying prices that
are too high for goods ordered?
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 to eliminate data entry errors
Page
Ref: 382
42)
What is probably the most effective control for the prevention of
kickbacks to purchasing agents?
A)
purchasing from approved vendors
B)
diligent supervision in the purchasing department
C)
a corporate policy to prohibit purchasing agents from accepting kickbacks
D)
reviews of vendor performance
Page
Ref: 383
43)
One of the threats associated with the process and activity of receiving and
storing goods is
A)
errors in counting.
B)
kickbacks.
C)
requests for unnecessary items.
D)
errors in vendor invoices.
Page
Ref: 385
44)
What is the best way to prevent the acceptance of unordered goods?
A)
Order only from approved vendors.
B)
Match the packing slip to a purchase order before accepting delivery.
C)
Enforce an appropriate conflict of interest policy in place.
D)
Require specific authorization from the purchasing manager before accepting any
goods.
Page
Ref: 386
45)
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
6
46)
Double-checking the accuracy of an invoice is a control that can help to
neutralize a threat in the expenditure cycle. What activity would specifically
be associated with this control?
A)
ordering goods
B)
receiving and storing goods
C)
paying for goods and services
D)
requesting goods be ordered
Page
Ref: 389
47)
What control would best mitigate the threat of paying an invoice twice?
A)
never authorize payment of a photocopy of an invoice
B)
double-check mathematical accuracy of invoices
C)
approval of purchase orders
D)
maintaining adequate perpetual inventory records
Page
Ref: 391
48)
Which control would best 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.
Page
Ref: 392
49)
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
Page
Ref: 392
50)
A surprise count of an imprest petty cash fund should find the total of
________ equal to the amount authorized for the fund.
A)
cash and credit memos
B)
cash and vouchers
C)
cash
D)
cash and checks
Page
Ref: 392
51)
What control should be put in place that assigns responsibility for EFT
payments made to vendors?
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.
Page
Ref: 391
52)
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.
Page
Ref: 380
53)
There is a symmetrical interdependence between a firm's expenditure cycle and
its suppliers'
A)
production cycle.
B)
revenue cycle.
C)
expenditure cycle.
D)
general ledger and reporting system.
2
54)
The Squishy Things Toy Company was established in 1948. It recently signed a
large contract with a chain of retail toy stores. As a condition of the
contract, the Squishy will be required to track and forecast product sales by
linking in to the chain's sales database. Squishy will then be responsible for
shipping products to the chain's regional warehouses as needed. The technology
that is used for communication between Squishy and the chain is
A)
vendor-managed inventory.
B)
sales force automation.
C)
electronic data interchange.
D)
optical character recognition.
2
55) The
management at Sad Clown Pajamas, an Internet-based wholesaler, is considering a
new inventory control system. The current system is inadequate because it
results in stockouts that interrupt production and excess stocks of some
materials that result in markdowns and high carrying costs. The new system,
which will focus on ensuring that the amounts purchased minimize these costs,
will employ
A)
a just-in-time inventory system.
B)
the economic order quantity.
C)
a reorder point.
D)
materials requirements planning.
8
56)
The management at Sad Clown Pajamas, an Internet-based wholesaler, is
considering a new inventory control system. The current system is inadequate
because it results in stockouts that interrupt production and excess stocks of
some materials that result in markdowns and high carrying costs. The new
system, which will focus on ensuring that orders are placed with sufficient
lead time to prevent stockouts, will employ
A)
a just-in-time inventory system.
B)
the economic order quantity.
C)
a reorder point.
D)
materials requirements planning.
8
57)
The management at Sad Clown Pajamas, an Internet-based wholesaler, is
considering a new inventory control system. The current system is inadequate
because it results in stockouts that interrupt production and excess stocks of
some materials that result in markdowns and high carrying costs. The new
system, which will focus on forecasting demand for Sad Clown's products, will
employ
A)
a just-in-time inventory system.
B)
the economic order quantity.
C)
a reorder point.
D)
materials requirements planning.
8
58)
The management at Sad Clown Pajamas, an Internet-based wholesaler, is
considering a new inventory control system. The current system is inadequate
because it results in stockouts that interrupt production and excess stocks of
some materials that result in markdowns and high carrying costs. The new
system, which will focus on reducing or completely eliminating carrying costs,
will employ
A)
a just-in-time inventory system.
B)
the economic order quantity.
C)
a reorder point.
D)
materials requirements planning.
8
59)
Bob Chum is the sales manager at Folding Squid Technologies. At lunch with the
company CEO, he proudly announced that he had negotiated a(n) ________ with a
client that defined a long-term commitment to buy components from Folding
Squid.
A)
purchase order
B)
blanket purchase order
C)
evaluated receipt settlement
D)
voucher
Page
Ref: 381
60)
Bob Chum is the sales manager at Folding Squid Technologies. At lunch with the
company CEO, he proudly announced that he had received a ________ from a client
to buy a large quantity of components from Folding Squid.
A)
purchase order
B)
blanket purchase order
C)
voucher
D)
purchase requisition
Page
Ref: 381
61)
Bob Chum is the sales manager at Folding Squid Technologies. At lunch with the
company CEO, he complained that a recent shipment from a vendor had been
unsatisfactory and so had to be returned. That required the purchasing manager
to send a ________ to the supplier.
A)
purchase order
B)
blanket purchase order
C)
receiving report
D)
debit memo
Page
Ref: 385
62)
To minimize the number of checks that need to be written to pay vendor invoices
a company should use a
A)
voucher system.
B)
just-in-time inventory system.
C)
nonvoucher system.
D)
evaluated receipt settlement system.
Page
Ref: 387
63)
Evaluated receipt settlement increases efficiency by
A)
eliminating the need for receiving reports.
B)
eliminating the need for vendor invoices.
C)
eliminating the need for purchase orders.
D)
eliminating the need to prepare and mail checks.
Page
Ref: 388
64)
In the expenditure cycle, Financial Electronic Data Interchange (FEDI) increases
efficiency by
A)
eliminating the need for receiving reports.
B)
eliminating the need for vendor invoices.
C)
eliminating the need for purchase orders.
D)
eliminating the need to prepare and mail checks.
Page
Ref: 390
65)
Procurement cards differ from corporate credit cards in which of the following
ways?
A)
Credit limits can be set for procurement cards, but not corporate credit cards.
B)
Credit cards can be used to make purchases without an explicit sign off by
supervisors, but procurement cards require a sign off.
C)
Procurement cards can only be used with approved vendors, but credit cards can
be used anywhere.
D)
Procurement card invoices are sent separately for each card, whereas corporate
credit cards are consolidated into a single invoice.
Page
Ref: 389
66)
The purchasing manager at Folding Squid Technologies has responsibility for
reviewing and authorizing purchase orders. He also reviews receiving reports,
approves or corrects them, and authorizes the cashier to pay vendor invoices.
Which of the following would correct control weaknesses, if any, related to
these activities?
A)
Vendor invoices should be reviewed by the purchasing manager to ensure that
they are correct.
B)
Accounts payable should reconcile purchase orders, receiving reports, and
invoices.
C)
Vendor invoices should be reviewed by accounts receivable and then cancelled
when paid.
D)
Controls are adequate under the current system.
Page
Ref: 387
67)
The purchasing manager at Folding Squid Technologies has responsibility for
reviewing and authorizing purchase orders. Receiving reports are prepared by
shipping and receiving based on the relevant purchase order(s). Purchase
orders, receiving reports, and vendor invoices are reconciled by accounts
payable, which authorizes payment. Which of the following would correct control
weaknesses, if any, related to these activities?
A)
Vendor invoices should be reviewed by the purchasing manager to ensure that
they are correct.
B)
Accounts payable should authorize purchase orders.
C)
Receiving reports should be reviewed and corrected by the purchasing manager.
D)
Controls are adequate under the current system.
Page
Ref: 387
68)
The receiving clerk at Folding Squid Technologies examines incoming shipments
and reconciles their contents with the relevant purchase orders. A receiving
report is then sent to accounts receivable and the vendor's invoice is approved
for payment. Which of the following would correct control weaknesses, if any,
related to these activities?
A)
The invoice should be approved for payment by the shipping clerk after the
purchase order and receiving report are reconciled.
B)
Accounts payable should reconcile the purchase order and the receiving report.
C)
Invoices, purchase orders, and receiving reports should be reconciled by the
receiving clerk.
D)
Controls are adequate under the current system.
Page
Ref: 387
69)
The receiving clerk at Folding Squid Technologies examines incoming shipments
and checks their purchase order numbers. A receiving report is then sent to
accounts payable, where it is reconciled with the relevant purchase orders and
invoices and payment is authorized. Which of the following would correct
control weaknesses, if any, related to these activities?
A)
Vendor invoices should be approved for payment by the shipping clerk after the
purchase order and receiving report are reconciled.
B)
Vendor invoices should be approved for payment by the purchasing manager.
C)
Purchase orders and receiving reports should be reconciled by the purchasing
manager.
D)
Controls are adequate under the current system.
Page
Ref: 387
70)
Which of the controls below would be least effective to prevent ordering
goods at higher than market prices?
A)
Variance analysis of actual expenses to budgeted expenses
B)
For high-dollar goods, solicit competitive bids from possible vendors
C)
Only place orders with vendors on an approved vendor list
D)
Frequent review of, and update to, vendor price lists stored in the AIS
Page
Ref: 382
71)
The document below would be known as what by Alpha Omega Electronics?
A)
Receiving report
B)
Purchase order
C)
Purchase requisition
D)
Packing slip
Page
Ref: 384
72)
Which of the following would be the best control to prevent receiving
department employees from stealing inventory and claiming the ordered quantity
wasn't received from the vendor?
A)
Reconcile quantity on packing slip to physical count when accepting delivery.
B)
Restrict physical access to the receiving area.
C)
Require all deliveries be made at the receiving area.
D)
Require dual signatures on the move ticket when receiving delivers the
inventory to the warehouse.
Page
Ref: 386
73)
Define and describe the EOQ approach to inventory management.
74)
Discuss the differences between EOQ, MRP, and JIT.
75)
a) What is the major cost driver in the purchasing function? b) Describe how
information technology can be used to control this cost driver.
76)
Explain what is meant by the expenditure cycle as a "mirror image" of
the revenue cycle.
77)
Identify possible problems associated with receiving goods and appropriate
actions in response to the problems.
78)
How can information technology be used to improve the vendor invoice approval
process?
79)
Under what conditions is MRP more suitable than JIT and vice versa?
80)
In the expenditure cycle, the majority of payments made are by check. What are
some control issues related to payment of vendors by check?
81)
Identify ten threats and applicable control procedures in the expenditure
cycle.
82)
What types of decision-making and strategic information should the AIS provide
in the expenditure cycle?
83)
How can using RFID tags or bar codes on goods or products provide significant
benefit in the expenditure cycle?
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