ACC 564 Quiz 3 – New

ACC 564 Quiz 3 – Strayer New

ACC 564 Week 8 Quiz 3 Chapter 10 Through 13

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Chapter 10 Information Systems Controls for Systems ReliabilityPart 3: Processing Integrity and Availability

1) The best example of a hash total for a payroll transaction file could be
A) total of employees’ social security numbers.
B) sum of net pay.
C) total number of employees.
D) sum of hours worked.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) Error logs and review are an example of
A) data entry controls.
B) data transmission controls.
C) output controls.
D) processing controls.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
3) Following is the result of batch control totals on employee Social Security Numbers in a payroll processing transaction:

Correct Values From Masterfile Values Entered During Processing
487358796 487358796
534916487 534916487
498374526 498374526
514873420 514873420
534196487 534916487
678487853 678487853
471230589 471230589
3719438158 3720158158

The difference in the control totals is 720,000. Which data entry control would best prevent similar data entry errors in the future?
A) Modulus 11
B) Validity check
C) Check digit
D) Sequence check
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

4) Which of the following data entry controls would not be useful if you are recording the checkout of library books by members?
A) Sequence check
B) Prompting
C) Validity check
D) Concurrent update control
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

5) A customer failed to include her account number on her check, and the accounts receivable clerk credited her payment to a different customer with the same last name. Which control could have been used to most effectively to prevent this error?
A) Closed-loop verification
B) Duplicate values check
C) Validity check
D) Reconciliation of a batch control total
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) If invoices are processed in groups of fifty, which fields from the document shown below would not be used to create a hash control total?

A) Amount
B) Item Number
C) Quantity Ordered
D) Sales Order number
Answer:

Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Reflective Thinking

7) A data entry input control in which the application software sums the first four digits of a customer number to calculate the value of the fifth digit and then compares the calculated number to the number typed in during data entry is an example of a
A) check digit verification.
B) validity check.
C) closed-loop verification.
D) duplicate data check.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

8) All of the following controls for online entry of a sales order would be useful except
A) check digit verification on the dollar amount of the order.
B) validity check on the inventory item numbers.
C) field check on the customer ID and dollar amount of the order.
D) concurrent update control.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic

9) A specific inventory record indicates that there were 12 items on hand before a customer brings two of the items to the check stand to be purchased. The cashier accidentally entered quantity 20 instead of 2. Which data entry control would best have prevented this error?
A) sign check
B) limit check
C) validity check
D) field check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

10) When processing weekly payroll, an employee accidentally entered 400 for hours worked. The best data entry control for this error would be
A) a limit check.
B) a check digit.
C) batch total reconciliation.
D) a field check.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

11) The data entry control that would best prevent entering an invoice received from a vendor who is not on an authorized supplier list is
A) a validity check.
B) an authorization check.
C) a check digit.
D) closed-loop verification.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

12) Forms design is an example of this type of control.
A) Data entry control
B) Processing control
C) Output control
D) Input control
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

13) Sequentially prenumbered forms is an example of a(n)
A) data entry control.
B) data transmission control.
C) processing control.
D) input control.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

14) Turnaround documents are an example of a(n)
A) data entry control.
B) output control.
C) processing control.
D) input control.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

15) A validity check is an example of a(n)
A) data entry control.
B) data transmission control.
C) output control.
D) input control.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

16) Parity checks are an example of a(n)
A) data entry control.
B) data transmission control.
C) output control.
D) processing control.
Answer:
Page Ref: 279
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

17) User reviews are an example of a(n)
A) data entry control.
B) data transmission control.
C) output control.
D) processing control.
Answer:
Page Ref: 278
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

18) Data matching is an example of a(n)
A) data entry control.
B) data transmission control.
C) processing control.
D) input control.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

19) Batch totals are an example of a(n)
A) data entry control.
B) data transmission control.
C) output control.
D) processing control.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

20) Cancellation and storage of documents means that
A) data are copied from a document and stored, after which the document is shredded.
B) documents are defaced before being shredded.
C) documents are defaced and stored.
D) cancellation data are copied from documents before they are stored.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

21) Check digit verification is an example of a(n)
A) data transmission control.
B) output control.
C) processing control.
D) input control.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

22) This ensures that the input data will fit into the assigned field.
A) Limit check
B) Range check
C) Size check
D) Validity check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

23) This tests a numerical amount to ensure that it does not exceed a predetermined value nor fall below another predetermined value.
A) Completeness check
B) Field check
C) Limit check
D) Range check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

24) This determines if all required data items have been entered.
A) Completeness check
B) Field check
C) Limit check
D) Range check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

25) This determines the correctness of the logical relationship between two data items.
A) Range check
B) Reasonableness test
C) Sign check
D) Size check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

26) This determines if characters are of the proper type.
A) Field check
B) Alpha-numeric check
C) Range check
D) Reasonableness test
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

27) This tests a numerical amount to ensure that it does not exceed a predetermined value.
A) Completeness check
B) Limit check
C) Range check
D) Sign check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

28) This batch processing data entry control sums a field that contains dollar values.
A) Record count
B) Financial total
C) Hash total
D) Sequence check
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

29) This batch processing data entry control sums a non-financial numeric field.
A) Record count
B) Financial total
C) Hash total
D) Sequence check
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

30) When I enter a correct customer number, the data entry screen displays the customer name and address. This is an example of
A) prompting.
B) preformatting.
C) closed-loop verification.
D) error checking.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

31) This control ensures that the correct and most current files are being updated.
A) Cross-footing balance test
B) Data matching
C) File labels
D) Write-protect mechanism
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

32) This batch processing data entry control sums the number of items in a batch.
A) Financial total
B) Hash total
C) Record count
D) Sequence check
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

33) This data entry control compares the ID number in transaction data to a master file to verify that the ID number exists.
A) Reasonableness test
B) User review
C) Data matching
D) Validity check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

34) File labels are an example of
A) data entry controls.
B) output controls.
C) processing controls.
D) source data controls.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

35) A computer operator accidentally used the wrong master file when updating a transaction file. As a result, the master file data is now unreadable. Which control could best have prevented this from happening?
A) Internal header label
B) Validity check
C) Check digit
D) Parity check
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

36) Chaz Finnerty called the IT Help Desk in a huff. “I’m trying to open an Excel file and I get a message that says that the file is locked for editing. What’s going on?” The answer is likely that
A) the file is corrupted due to a computer virus.
B) there is no problem. Chaz is editing the file, so it is locked.
C) concurrent update controls have locked the file.
D) Chaz probably opened the file as read-only.
Answer:
Page Ref: 278
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
37) This control protects records from errors that occur when two or more users attempt to update the same record simultaneously.
A) Concurrent update controls
B) Cross-footing balance test
C) Data conversion controls
D) Recalculation of batch totals
Answer:
Page Ref: 278
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

38) Modest Expectations Investment Services (MEIS) allows customers to manage their investments over the Internet. If customers attempt to sell more shares of a stock than they have in their account, an error message is displayed. This is an example of a
A) reasonableness test.
B) field check.
C) validity check.
D) limit check.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

39) Modest Expectations Investment Services (MEIS) allows customers to manage their investments over the Internet. If customers attempt to spend more money than they have in their account, an error message is displayed. This is an example of a
A) reasonableness test.
B) field check.
C) validity check.
D) limit check.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
40) The Spontaneous Combustion Rocket Shoppe in downtown Fargo, North Dakota, generates three quarters of its revenue from orders taken over the Internet. The revenue clearing account is debited by the total of cash and credit receipts and credited by the total of storefront and Internet sales. This is an example of a
A) data integrity test.
B) zero-balance test.
C) trial balance audit.
D) cross-footing balance test.
Answer:
Page Ref: 278
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

41) What is the most effective way to ensure information system availability?
A) High bandwidth
B) Maintain a hot site
C) Maintain a cold site
D) Frequent backups
Answer:
Page Ref: 287
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

42) Concerning system availability, which of the following statements is true?
A) Human error does not threaten system availability.
B) Proper controls can maximize the risk of threats causing significant system downtime.
C) Threats to system availability can be completely eliminated.
D) Threats to system availability include hardware and software failures as well as natural and man-made disasters.
Answer:
Page Ref: 284
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
43) Which of the following is not an objective of a disaster recovery plan?
A) Minimize the extent of the disruption, damage or loss.
B) Permanently establish an alternative means of processing information.
C) Resume normal operations as soon as possible.
D) Train employees for emergency operations.
Answer:
Page Ref: 287
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

44) Which item below would not typically be part of an adequate disaster recovery plan?
A) a system upgrade due to operating system software changes
B) uninterruptible power systems installed for key system components
C) scheduled electronic vaulting of files
D) backup computer and telecommunication facilities
Answer:
Page Ref: 287
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

45) A facility that contains all the computing equipment the organization needs to perform its essential business activities is known as a
A) cold site.
B) hot site.
C) remote site.
D) subsidiary location.
Answer:
Page Ref: 287
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

46) A facility that is pre-wired for necessary telecommunications and computer equipment, but doesn’t have equipment installed, is known as a
A) cold site.
B) hot site.
C) remote site.
D) subsidiary location.
Answer:
Page Ref: 287
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
47) When a computer system’s files are automatically duplicated on a second data storage system as they are changed, the process is referred to as
A) real-time mirroring.
B) batch updating.
C) consistency control.
D) double-secure storage.
Answer:
Page Ref: 287
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

48) ________ enables a system to continue functioning in the event that a particular component fails.
A) An incremental backup procedure
B) Fault tolerance
C) Preventive maintenance
D) A concurrent update control
Answer:
Page Ref: 284
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

49) A copy of a database, master file, or software that will be retained indefinitely as a historical record is known as a(n)
A) archive.
B) cloud computing.
C) differential backup.
D) incremental backup.
Answer:
Page Ref: 286
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

50) While this type of backup process takes longer than the alternative, restoration is easier and faster.
A) Archive
B) Cloud computing
C) Differential backup
D) Incremental backup
Answer:
Page Ref: 286
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

51) ________ involves copying only the data items that have changed since the last partial backup.
A) Archive
B) Cloud computing
C) Differential backup
D) Incremental backup
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

52) ________ copies all changes made since the last full backup.
A) Archive
B) Cloud computing
C) Differential backup
D) Incremental backup
Answer:
Page Ref: 286
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

53) The maximum amount of time between backups is determined by a company’s
A) recovery time objective.
B) recovery point objective.
C) recovery objective.
D) maximum time recovery objective.
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

54) The maximum acceptable down time after a computer system failure is determined by a company’s
A) recovery time objective.
B) recovery point objective.
C) recovery objective.
D) maximum time recovery objective.
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

55) The accounting department at Synergy Hydroelectric records an average of 12,500 transactions per hour. By cost-benefit analysis, managers have concluded that the maximum acceptable loss of data in the event of a system failure is 25,000 transactions. If the firm’s recovery time objective is 120 minutes, then the worst case recovery time objective is
A) 1 hour
B) 2 hours
C) 3 hours
D) 4 hours
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

56) The accounting department at Synergy Hydroelectric records an average of 10,000 transactions per hour. By cost-benefit analysis, managers have concluded that the maximum acceptable loss of data in the event of a system failure is 20,000 transactions. If the firm’s recovery time objective is 60 minutes, then the worst case recovery time objective is
A) 1 hour
B) 2 hours
C) 3 hours
D) 4 hours
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

57) The accounting department at Synergy Hydroelectric records an average of 10,000 transactions per hour. By cost-benefit analysis, managers have concluded that the maximum acceptable loss of data in the event of a system failure is 40,000 transactions. The firm’s recovery point objective is therefore
A) 40,000 transactions
B) 10,000 transactions
C) 10 hours
D) 4 hours
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

58) The accounting department at Synergy Hydroelectric records an average of 12,500 transactions per hour. By cost-benefit analysis, managers have concluded that the maximum acceptable loss of data in the event of a system failure is 25,000 transactions. The firm’s recovery point objective is therefore
A) 25,000 transactions
B) 12,500 transactions
C) 1 hour
D) 2 hours
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

59) This control entails verifying that the proper number of bits are set to the value 1 in each character received.
A) Echo check
B) Field check
C) Parity check
D) Trailer record
Answer:
Page Ref: 279
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
60) Probably the most important change management control is
A) monitoring user rights and privileges during the change process.
B) testing all changes thoroughly prior to implementation on a stand-alone computer.
C) updating all documentation to reflect changes made to the system.
D) management’s careful monitoring and review.
Answer:
Page Ref: 289
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

61) Which of the following is true?
A) Cloud computing is a control technique for system availability.
B) Cloud computing eliminates the need for backup of applications and data.
C) Cloud computing refers to the practice of storing application files and backup data on satellites ‘in the clouds’.
D) Cloud computing eliminates the need for companies to own their own software and servers.
Answer:
Page Ref: 288
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

62) Discuss how cloud computing could both positively and negatively affect system availability.

63) Define and contrast a recovery point objective and a recovery time objective.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 11 Auditing Computer-Based Information Systems

1) Auditing involves the
A) collection, review, and documentation of audit evidence.
B) planning and verification of economic events.
C) collection of audit evidence and approval of economic events.
D) testing, documentation, and certification of audit evidence.
Answer:
Page Ref: 303
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) What is not a typical responsibility of an internal auditor?
A) helping management to improve organizational effectiveness
B) assisting in the design and implementation of an AIS
C) preparation of the company’s financial statements
D) implementing and monitoring of internal controls
Answer:
Page Ref: 303
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

3) Which type of work listed below is not typical of internal auditors?
A) operational and management audits
B) information system audits
C) financial statement audit
D) financial audit of accounting records
Answer:
Page Ref: 303
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

4) The ________ audit examines the reliability and integrity of accounting records.
A) financial
B) informational
C) information systems
D) operational
Answer:
Page Ref: 303
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

5) The ________ audit reviews the general and application controls of an AIS to assess its compliance with internal control policies and procedures and its effectiveness in safeguarding assets.
A) financial
B) information systems
C) management
D) internal control
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) One type of audit that is concerned with the economical and efficient use of resources and the accomplishment of established goals and objectives is known as a(n) ________ audit.
A) financial
B) information systems
C) internal control
D) operational or management
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

7) The ________ audit is concerned with the economical and efficient use of resources and the accomplishment of established goals and objectives.
A) financial
B) informational
C) information systems
D) operational
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
8) The purpose of ________ is to determine why, how, when, and who will perform the audit.
A) audit planning
B) the collection of audit evidence
C) the communication of audit results
D) the evaluation of audit evidence
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) Organizing the audit team and the physical examination of assets are components of which two separate audit stages?
A) planning; evaluating audit evidence
B) planning; collecting audit evidence
C) collecting audit evidence; communicating audit results
D) communicating audit results; evaluating audit evidence
Answer:
Page Ref: 304-305
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

10) With which stage in the auditing process are the consideration of risk factors and materiality most associated?
A) audit planning
B) collection of audit evidence
C) communication of audit results
D) evaluation of audit evidence
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

11) A system that employs various types of advanced technology has more ________ risk than traditional batch processing.
A) control
B) detection
C) inherent
D) investing
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
12) Control risk is defined as the
A) susceptibility to material risk in the absence of controls.
B) risk that a material misstatement will get through the internal control structure and into the financial statements.
C) risk that auditors and their audit procedures will not detect a material error or misstatement.
D) risk auditors will not be given the appropriate documents and records by management who wants to control audit activities and procedures.
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

13) The possibility that a material error will occur even though auditors are following audit procedures and using good judgment is referred to as
A) control risk.
B) detection risk.
C) inherent risk.
D) investigating risk.
Answer:
Page Ref: 305
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

14) The ________ stage of the auditing process involves (among other things) the auditors observing the operating activities and having discussions with employees.
A) audit planning
B) collection of audit evidence
C) communication of audit results
D) evaluation of audit evidence
Answer:
Page Ref: 305
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
15) Verifying the accuracy of certain information, often through communication with third parties, is known as
A) reperformance.
B) confirmation.
C) substantiation.
D) documentation.
Answer:
Page Ref: 305
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

16) The evidence collection method that examines all supporting documents to determine the validity of a transaction is called
A) review of documentation.
B) vouching.
C) physical examination.
D) analytical review.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

17) The evidence collection method that considers the relationships and trends among information to detect items that should be investigated further is called
A) review of the documentation.
B) vouching.
C) physical examination.
D) analytical review.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
18) Assessing the quality of internal controls, the reliability of information, and operating performance are all part of which stage of the auditing process?
A) audit planning
B) collection of audit evidence
C) evaluation of audit evidence
D) communication of audit results
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

19) An auditor must be willing to accept some degree of risk that the audit conclusion is incorrect. Accordingly, the auditor’s objective is to seek ________ that no material error exists in the information audited.
A) absolute reliability
B) reasonable evidence
C) reasonable assurance
D) reasonable objectivity
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

20) The risk-based audit approach is
A) a four-step approach to internal control evaluation.
B) a four-step approach to financial statement review and recommendations.
C) a three-step approach to internal control evaluation.
D) a three-step approach to financial statement review and recommendations.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

21) Which of the following is the first step in the risk-based audit approach?
A) Identify the control procedures that should be in place.
B) Evaluate the control procedures.
C) Determine the threats facing the AIS.
D) Evaluate weaknesses to determine their effect on the audit procedures.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
22) Determining whether the necessary control procedures are in place is accomplished by conducting
A) a systems overhaul.
B) a systems review.
C) tests of controls.
D) both B and C
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic

23) According to the risk-based auditing approach, when a control deficiency is identified, the auditor should inquire about
A) tests of controls.
B) the feasibility of a systems review.
C) materiality and inherent risk factors.
D) compensating controls.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

24) The ________ to auditing provides auditors with a clear understanding of possible errors and irregularities and the related risks and exposures.
A) risk-based approach
B) risk-adjusted approach
C) financial audit approach
D) information systems approach
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

25) What is the purpose of an information systems audit?
A) To determine the inherent risk factors found in the system
B) To review and evaluate the internal controls that protect the system
C) To examine the reliability and integrity of accounting records
D) To examine whether resources have been used in an economical and efficient manner in keeping with organization goals and objectives
Answer:
Page Ref: 307
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

26) The information systems audit objective that pertains to source data being processed into some form of output is known as
A) overall security.
B) program development.
C) program modifications.
D) processing.
Answer:
Page Ref: 307
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

27) To maintain the objectivity necessary for performing an independent evaluation function, auditors should not be involved in
A) making recommendations to management for improvement of existing internal controls.
B) examining system access logs.
C) examining logical access policies and procedures.
D) developing the information system.
Answer:
Page Ref: 309
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
28) The auditor’s role in systems development should be as
A) an advisor and developer of internal control specifications.
B) a developer of internal controls.
C) an independent reviewer only.
D) A and B above
Answer:
Page Ref: 309
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

29) Regarding program modifications, which statement below is incorrect?
A) Only material program changes should be thoroughly tested and documented.
B) When a program change is submitted for approval, a list of all required updates should be compiled and then approved by management and program users.
C) During the change process, the developmental version of the program must be kept separate from the production version.
D) After the modified program has received final approval, the change is implemented by replacing the developmental version with the production version.
Answer:
Page Ref: 311
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

30) How could auditors determine if unauthorized program changes have been made?
A) By interviewing and making inquiries of the programming staff
B) By examining the systems design and programming documentation
C) By using a source code comparison program
D) By interviewing and making inquiries of recently terminated programming staff
Answer:
Page Ref: 311
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
31) Which auditing technique will not assist in determining if unauthorized programming changes have been made?
A) Use of a source code comparison program
B) Use of the reprocessing technique to compare program output
C) Interviewing and making inquiries of the programming staff
D) Use of parallel simulation to compare program output
Answer:
Page Ref: 311
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

32) Strong ________ controls can partially compensate for inadequate ________ controls.
A) development; processing
B) processing; development
C) operational; internal
D) internal; operational
Answer:
Page Ref: 310
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

33) The ________ procedure for auditing computer process controls uses a hypothetical series of valid and invalid transactions.
A) concurrent audit techniques
B) test data processing
C) integrated test facility
D) dual process
Answer:
Page Ref: 312
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

34) The auditor uses ________ to continuously monitor the system and collect audit evidence while live data are processed.
A) test data processing
B) parallel simulation
C) concurrent audit techniques
D) analysis of program logic
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
35) Auditors have several techniques available to them to test computer-processing controls. An audit technique that immediately alerts auditors of suspicious transactions is known as
A) a SCARF.
B) an audit hook.
C) an audit sinker.
D) the snapshot technique.
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

36) A type of software that auditors can use to analyze program logic and detect unexecuted program code is
A) a mapping program.
B) an audit log.
C) a scanning routine.
D) program tracing.
Answer:
Page Ref: 314
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

37) One tool used to document the review of source data controls is
A) a flowchart generator program.
B) a mapping program.
C) an input control matrix.
D) a program algorithm matrix.
Answer:
Page Ref: 314
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

38) An audit software program that generates programs that perform certain audit functions, based on auditor specifications, is referred to as a(n)
A) input controls matrix.
B) CAATS.
C) embedded audit module.
D) mapping program.
Answer:
Page Ref: 317
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic
39) The use of a secure file library and restrictions on physical access to data files are control procedures used together to prevent
A) an employee or outsider obtaining data about an important client.
B) a data entry clerk from introducing data entry errors into the system.
C) a computer operator from losing or corrupting files or data during transaction processing.
D) programmers making unauthorized modifications to programs.
Answer:
Page Ref: 316
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

40) An auditor might use which of the following to convert data from several sources into a single common format?
A) computer assisted audit techniques software
B) Windows Media Converter
C) concurrent audit technique
D) Adobe Professional
Answer:
Page Ref: 317
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

41) What is the primary purpose of computer audit software?
A) eliminate auditor judgment errors
B) assist the auditor in retrieving and reviewing information
C) detect unauthorized modifications to system program code
D) recheck all mathematical calculations, cross-foot, reprocess financial statements and compare to originals
Answer:
Page Ref: 317
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
42) The scope of a(n) ________ audit encompasses all aspects of systems management.
A) operational
B) information systems
C) financial
D) internal control
Answer:
Page Ref: 318
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic

43) Evaluating effectiveness, efficiency, and goal achievement are objectives of ________ audits.
A) financial
B) operational
C) information systems
D) all of the above
Answer:
Page Ref: 318
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

44) In the ________ stage of an operational audit, the auditor measures the actual system against an ideal standard.
A) evidence collection
B) evidence evaluation
C) testing
D) internal control
Answer:
Page Ref: 318
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

45) An increase in the effectiveness of internal controls would have the greatest effect on
A) reducing control risk.
B) reducing detection risk.
C) reducing inherent risk.
D) reducing audit risk.
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic
46) An expansion of a firm’s operations to include production in Russia and China will have the effect of
A) increasing inherent risk.
B) reducing inherent risk.
C) increasing control risk.
D) reducing control risk.
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

47) An increase in the effectiveness of auditing software will have the effect of
A) increasing detection risk.
B) reducing detection risk.
C) increasing control risk.
D) reducing control risk.
Answer:
Page Ref: 305
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

48) An auditor examines all documents related to the acquisition, repair history, and disposal of a firm’s delivery van. This is an example of collecting audit evidence by
A) confirmation.
B) reperformance.
C) vouching.
D) analytical review.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

49) An auditor manually calculates accumulated depreciation on a delivery van and compares her calculation with accounting records. This is an example collecting audit evidence by
A) confirmation.
B) reperformance.
C) vouching.
D) analytical review.
Answer:
Page Ref: 305
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
50) An auditor finds that employee absentee rates are significantly higher on Mondays and Fridays than on other work days. This is an example collecting audit evidence by
A) confirmation.
B) reperformance.
C) vouching.
D) analytical review.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

51) An auditor creates a fictitious customer in the system and then creates several fictitious sales to the customer. The records are then tracked as they are processed by the system. The auditor is using
A) an integrated test facility.
B) the snapshot technique.
C) a system control audit review file.
D) continuous and intermittent simulation.
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

52) An auditor sets an embedded audit module to flag all credit transactions in excess of $1,500. The flag causes the system state to be recorded before and after each transaction is processed. The auditor is using
A) an integrated test facility.
B) the snapshot technique.
C) a system control audit review file.
D) audit hooks.
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
53) An auditor sets an embedded audit module to record all credit transactions in excess of $1,500 and store the data in an audit log. The auditor is using
A) the snapshot technique.
B) a system control audit review file.
C) audit hooks.
D) continuous and intermittent simulation.
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

54) An auditor sets an embedded audit module to flag questionable online transactions, display information about the transaction on the auditor’s computer, and send a text message to the auditor’s cell phone. The auditor is using
A) the snapshot technique.
B) a system control audit review file.
C) audit hooks.
D) continuous and intermittent simulation.
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

55) An auditor sets an embedded audit module to selectively monitor transactions. Selected transactions are then reprocessed independently, and the results are compared with those obtained by the normal system processing. The auditor is using
A) an integrated test facility.
B) the snapshot technique.
C) a system control audit review file.
D) continuous and intermittent simulation.
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic
56) Which of the following is not one of the types of internal audits?
A) reviewing corporate organizational structure and reporting hierarchies
B) examining procedures for reporting and disposing of hazardous waste
C) reviewing source documents and general ledger accounts to determine integrity of recorded transactions
D) comparing estimates and analysis made before purchase of a major capital asset to actual numbers and results achieved
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

57) When programmers are working with program code, they often employ utilities that are also used in auditing. For example, as program code evolves, it is often the case that blocks of code are superseded by other blocks of code. Blocks of code that are not executed by the program can be identified by
A) embedded audit modules.
B) scanning routines.
C) mapping programs.
D) automated flow charting programs.
Answer:
Page Ref: 314
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

58) When programmers are working with program code, they often employ utilities that are also used in auditing. For example, as program code evolves, it is often the case that variables defined during the early part of development become irrelevant. The occurrences of variables that are not used by the program can be found using
A) program tracing.
B) scanning routines.
C) mapping programs.
D) embedded audit modules.
Answer:
Page Ref: 314
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
59) Explain the differences between each type of audit risk.

60) Explain why the auditor’s role in program development and acquisition should be limited.

61) How and to whom does an auditor communicate the audit results?

62) Audit tests and procedures traditionally have been performed on a sample basis. Do options exist for auditors to test significantly more (or all) transactions?

63) When doing an information systems audit, auditors must review and evaluate the program development process. What errors or fraud could occur during the program development process?

64) Briefly describe tests that can be used to detect unauthorized program modifications.

65) Define and give examples of embedded audit modules.

66) How is a financial audit different from an information systems audit?

67) Why do all audits follow a sequence of events that can be divided into four stages, and what are the four stages?

68) Name and describe the different types of audits.
AACSB: Analytic

69) Describe the risk-based audit approach.

71) Describe the disadvantages of test data processing.

72) Describe how audit evidence can be collected.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 12 The Revenue Cycle: Sales to Cash Collections

1) In organizations with at least basic segregation of duties, the credit manager reports to the ________ and the treasurer reports to the ________.
A) controller; vice president of finance
B) treasurer; controller
C) marketing manager; vice president of finance
D) treasurer; vice president of finance
Answer:
Page Ref: 331
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

2) In the revenue cycle, before a shipping notice is prepared, the shipping department personnel should match the inventory received from the warehouse to details from
A) picking tickets.
B) sales order and bill of lading.
C) sales order.
D) picking ticket and sales order.
Answer:
Page Ref: 345
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

3) Which is the best control to prevent invoicing customers for the quantity ordered, which was more than the quantity shipped due to items on backorder?
A) Use the information from the packing slip to prepare the sales invoice.
B) Use the information from the picking ticket to prepare the sales invoice.
C) Use the information from the bill of lading to prepare the sales invoice.
D) Use the information from the sales order to prepare the sales invoice.
Answer:
Page Ref: 350
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Reflective Thinking

4) The cashier deposits checks in the bank for Very Large Corporation (VLC) and also prepares payments to vendors. Of the following, who is best to reconcile the bank statement to VLC’s records on a regular basis?
A) Internal audit department
B) Treasurer
C) External auditor
D) Cashier
Answer:
Page Ref: 355
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

5) Which of the following documents normally triggers the billing process in the revenue cycle?
A) Packing slip received from the shipping department
B) Sales order received from the sales department
C) Picking ticket received from the sales department
D) Journal voucher received from the shipping department
Answer:
Page Ref: 348
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) Which of the following documents would normally trigger the process to record a customer payment?
A) Remittance advice
B) Customer monthly statement
C) Deposit slip
D) Sales invoice
Answer:
Page Ref: 353
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
7) Which document should always be included with a merchandise shipment to a customer?
A) Packing slip
B) Picking ticket
C) Remittance advice
D) Sales invoice
Answer:
Page Ref: 345
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

8) A monthly statement sent to customers serves a control purpose by
A) providing an opportunity for customers to verify the balance owed and activity on the account.
B) triggering the process to record a customer payment.
C) summarizing invoices and amounts due for customers.
D) reminding customers of the balance due and due date.
Answer:
Page Ref: 355
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

9) Accounting recognizes a sale when
A) inventory becomes the legal property of the customer.
B) cash is received from the customer.
C) a sales order is approved by sales, inventory control, and credit departments.
D) inventory is removed from the warehouse.
Answer:
Page Ref: 345
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

10) Which of the following is not one of the controls for the mail room where customer payments are commingled with other mail?
A) Requiring the controller to be personally present when mail is received and opened
B) Preparing a remittance list as mail is opened
C) Restrictively endorsing checks when received
D) Requiring two mail room clerks to open mail together
Answer:
Page Ref: 337
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
11) What is the primary objective of the revenue cycle?
A) to maximize revenue and minimize expense
B) to reduce outstanding accounts receivable balances through increased cash sales
C) to provide the right product in the right place at the right time at the right price
D) to sell as much product as possible and/or to maximize service billings
Answer:
Page Ref: 332
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

12) Which of the decisions below is not ordinarily found as part of the revenue cycle?
A) What credit terms should be offered?
B) How often should accounts receivable be subjected to audit?
C) How can customer payments be processed to maximize cash flows?
D) What are the optimal prices for each product or service?
Answer:
Page Ref: 332-333
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

13) Which of the following is not a basic activity of the revenue cycle?
A) sales order entry
B) shipping
C) receiving
D) billing
Answer:
Page Ref: 333
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

14) Retail stores could send their orders directly to the manufacturer’s sales order system in a format that would eliminate the need for data entry, using
A) Vendor Managed Inventory.
B) Electronic Data Interchange.
C) Point Of Sale.
D) Electronic Funds Transfer.
Answer:
Page Ref: 338
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
15) Matching customer account numbers and inventory item numbers to the numbers in the customer and inventory master files is an example of a
A) completeness test.
B) field check.
C) reasonableness test.
D) validity check.
Answer:
Page Ref: 339
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

16) During the sales order entry process, a ________ is performed to compare the quantity ordered with the standard amounts normally ordered.
A) completeness test
B) redundant data check
C) field check
D) reasonableness test
Answer:
Page Ref: 339
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

17) During the sales order entry process, a ________ is performed to verify that each transaction record contains all appropriate data items.
A) completeness test
B) redundant data check
C) field check
D) reasonableness test
Answer:
Page Ref: 339
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
18) When a customer places an order (on account) for a certain product, what should be done before the order is checked for inventory availability?
A) The customer’s available credit should be checked.
B) The sales order should be created and written to a file.
C) Shipping should be notified of an order in process.
D) A picking list should be generated for the warehouse.
Answer:
Page Ref: 335
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

19) How is credit approval generally handled for established customers with a documented payment history?
A) Specific authorization by the credit manager
B) General authorization by a sales clerk
C) A new credit application is requested
D) A formal credit check should be made for each sale
Answer:
Page Ref: 340
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

20) What is a typical procedure for processing sales orders from new customers or customers making a purchase that causes their credit limit to be exceeded?
A) General authorization to approve the order is given to sales clerks.
B) Specific authorization must be granted by the credit manager.
C) The sale should be rejected.
D) The sales clerk should order a report from a credit bureau before approving the order.
Answer:
Page Ref: 340
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
21) A company should check inventory quantities before accepting a sales order for all the following reasons except to
A) verify the accuracy of the perpetual inventory records.
B) inform the customer about availability and delivery times.
C) know which items may need to be back ordered.
D) update inventory records to reduce the quantity available by the number of items ordered.
Answer:
Page Ref: 341-342
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

22) Responding to customer inquiries and general customer service is an important aspect in the revenue cycle. Since customer service is so important, software programs have been created to help manage this function. These special software packages are called
A) EDI systems.
B) POS systems.
C) VMI systems.
D) CRM systems.
Answer:
Page Ref: 343
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

23) The best solution for maintaining accurate automated perpetual inventory system is to use
A) closed-loop verification when inventory is received from vendors and recorded.
B) point of sale devices integrated with inventory records.
C) periodic physical counts to reconcile with perpetual inventory records.
D) RFID tags.
Answer:
Page Ref: 342
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

24) This document is a legal contract that defines responsibility for goods that are in transit.
A) packing slip
B) bill of lading
C) picking list
D) back order
Answer:
Page Ref: 345
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

25) Two documents usually accompany goods shipped to a customer. What are the two documents?
A) a bill of lading and an invoice
B) a packing slip and a bill of lading
C) an invoice and a packing slip
D) an invoice and a sales order
Answer:
Page Ref: 345
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

26) What is the basic document created in the billing process?
A) bill of lading
B) sales order
C) packing list
D) sales invoice
Answer:
Page Ref: 349
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

27) A company uses the method for tracking accounts receivable where customers pay according to individual sales invoices. This describes the ________ method.
A) monthly statement
B) open-invoice
C) balance forward
D) cycle billing
Answer:
Page Ref: 350
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

28) A method for tracking accounts receivable that matches specific invoices and payments from the customer is called a(n) ________ method.
A) specific identification
B) balance forward
C) cycle billing
D) open-invoice
Answer:
Page Ref: 350
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

29) The document a customer returns with their payment and that identifies the source and the amount of the payment is called a
A) remittance advice.
B) remittance list.
C) credit memorandum.
D) debit memorandum.
Answer:
Page Ref: 350
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

30) In the ________ method of tracking accounts receivable, customers pay according to the amount showing on their monthly statement and payments are applied against the total account balance.
A) specific identification
B) open-invoice
C) balance forward
D) remittance advice
Answer:
Page Ref: 350
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
31) When a customer pays off the balance on an invoice, the payment is credited to the ________ file.
A) customer master
B) sales transaction
C) cash receipts master
D) All of the above are correct.
Answer:
Page Ref: 351
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

32) A type of business document in which part of the original document is returned to the source for further processing is called a ________ document.
A) feedback
B) returnable
C) closed-loop
D) turnaround
Answer:
Page Ref: 350
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

33) A document typically encountered in the revenue cycle that is both an output document and a source document is the
A) sales invoice.
B) customer purchase order.
C) sales order.
D) packing slip.
Answer:
Page Ref: 349
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
34) A ________ system prepares and mails monthly statements to customers throughout the entire month, instead of just at the end of the month.
A) continuous
B) open-invoice
C) cycle billing
D) balance forward
Answer:
Page Ref: 351
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

35) The accounts receivable department must know when customers pay their invoices, yet segregation of duties controls dictate that the collection and recording functions be kept separate from each other. What is a solution to this potential internal control problem?
A) Have customers send a remittance advice with their payment.
B) Have mailroom personnel prepare a remittance list which can be forwarded to accounts receivable.
C) Establish a lockbox arrangement with a bank.
D) all of the above
Answer:
Page Ref: 353-354
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

36) The benefits of a lockbox arrangement with a bank are maximized when
A) the bank is located nearby to the company, so remittance advices can be delivered to the company every day.
B) several banks around the country are used, in order to minimize the time payments spend in the mail.
C) an arrangement is made with only one bank, so all remittance advices can be batched for processing.
D) the bank deposits the payments and accesses the customer’s information system to record the payments.
Answer:
Page Ref: 354
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
37) An arrangement where a bank receives customer payments through the postal system, scans the remittance advices, and transmits payment data to the business electronically is known as
A) e-commerce.
B) an electronic lockbox.
C) electronic funds transfer (EFT).
D) electronic data interchange (EDI).
Answer:
Page Ref: 354
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

38) Customers that send their payments electronically directly to the company’s bank are using
A) electronic data interchange (EDI).
B) electronic funds transfer (EFT).
C) procurement cards.
D) an electronic lockbox.
Answer:
Page Ref: 354
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

39) A way to incorporate the advantages of Electronic Data Interchange with the Electronic Funds Transfer is
A) Financial Electronic Data Interchange.
B) e-commerce.
C) to use procurement cards.
D) an electronic lockbox.
Answer:
Page Ref: 354
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

40) Key differences exist when an integrated Enterprise Resource Planning system (ERP) replaces an existing AIS or legacy system. For example, ________ are more accurate and timely, enabling sales order entry staff to provide customers more accurate information about delivery dates.
A) inventory records
B) cash receipts
C) credit approval decisions
D) exception reports
Answer:
Page Ref: 342
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

41) When an ERP is used, it is assumed that there will be increases in efficiency and the effectiveness of the activities related to the revenue cycle. However, what must be in place and functioning well to fully realize these benefits?
A) an effective marketing staff
B) all the components of the expenditure cycle
C) adequate controls
D) adequate system flowchart documentation
Answer:
Page Ref: 335
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

42) The activities involved in soliciting and processing customer orders within the revenue cycle are known as the ________.
A) sales order entry process
B) shipping order process
C) revenue process
D) marketing process
Answer:
Page Ref: 337
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
43) To ensure proper segregation of duties, only the ________ has authority to issue credit memos.
A) accounts receivable supervisor
B) controller
C) credit manager
D) cashier
Answer:
Page Ref: 352
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

44) It has been discovered that credit sales have been made to customers with a poor credit rating. If this continues, the company will face increasing uncollectible receivables and losses due to bad debts. Separation of duties between ________ and ________ should help resolve the problem.
A) shipping; billing duties
B) credit approval; marketing
C) billing; credit approval
D) marketing; accounts receivable
Answer:
Page Ref: 340
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

45) Consider the following revenue cycle scenario: The company has been exposed to customer dissatisfaction and the suggested control procedure to be implemented is to install and use bar-code scanners. What is the threat?
A) The company may be shipping the wrong merchandise.
B) The company may be shipping the wrong quantities of merchandise.
C) The company may be shipping orders to the wrong address.
D) All of the above threats may apply to this scenario.
Answer:
Page Ref: 345
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
46) Which of the following would be the least effective control to minimize the loss of inventory?
A) Secure the storage location of inventory.
B) Release inventory only with proper documentation.
C) Periodically back up all perpetual inventory records.
D) Reconcile the physical counts with and perpetual records.
Answer:
Page Ref: 345
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

47) Separating the shipping and billing functions is designed to reduce the threat of
A) failure to bill customers.
B) billing customers for wrong quantities.
C) billing customers before merchandise has been shipped.
D) shipping the wrong merchandise.
Answer:
Page Ref: 350
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

48) All of the following edit checks for online editing of accounts receivable transactions would probably be included except
A) validity checks on customer ID and invoice numbers.
B) check digit verification on the amount of the sale.
C) closed loop verification on the customer ID.
D) field checks on the values in dollar fields.
Answer:
Page Ref: 352
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
49) When a proper segregation of duties exists in the area of handling cash receipts, the ________, who reports to the ________, actually handles the cash and is not the same person who posts cash receipts to customer accounts.
A) cashier; treasurer
B) cashier; controller
C) accountant; treasurer
D) accountant; controller
Answer:
Page Ref: 355
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

50) In a revenue cycle with proper controls, the ________ who reports to the ________, is not involved in any cash handling activities.
A) accounts receivable clerk; treasurer
B) accounts receivable clerk; controller
C) cashier; controller
D) cashier; treasurer
Answer:
Page Ref: 355
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

51) A serious exposure in the revenue cycle is loss of assets. What is the related threat and applicable control procedure that address this exposure?
A) shipping errors; reconciliation of sales order with picking ticket and packing slip
B) theft of cash; segregation of duties and minimization of cash handling
C) making sales that turn out to be uncollectible; force sales people to make collection calls on customers with past due balances
D) poor performance; preparation and review of performance reports
Answer:
Page Ref: 337
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
52) Which of the following duties could be performed by the same individual and not violate segregation of duty controls?
A) handling cash and posting to customer accounts
B) issuing credit memos and maintaining customer accounts
C) handling cash and authorizing credit memos
D) handling cash receipts and mailing vendor payments
Answer:
Page Ref: 355
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

53) To prevent the loss of valuable data in the revenue cycle, internal file labels can be used to
A) keep competitors from accessing files.
B) record off-site storage locations.
C) organize the on-site physical storage site.
D) reduce the possibility of erasing important files.
Answer:
Page Ref: 277, 335
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

54) The manager of Callow Youth Clothing was entering an order online from Sad Clown Pajamas. He ordered 100 one-size fits all pajama bottoms, but when he ordered 1000 one-size fits all pajama tops, the following error message popped up: “Did you mean to enter a quantity of 1000 for your order?” This message is the result of a
A) reasonableness test.
B) validity check.
C) limit check.
D) closed-loop verification.
Answer:
Page Ref: 339
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Reflective Thinking
55) The manager of Callow Youth Clothing was entering an order online from Sad Clown Pajamas. He entered all the items and quantities, completed the checkout and payment process, but the following error message popped up when he tried to exit the site: “Please enter your email address.” This message is likely the result of a
A) customer relationship management software application.
B) validity check.
C) completeness test.
D) closed-loop verification.
Answer:
Page Ref: 339
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Reflective Thinking

56) Sad Clown Pajamas is an Internet-based wholesaler. Customers enter their orders online. The manager of Callow Youth Clothing was entering an order when the following error message popped up: “Your total order exceeds your available credit. A Credit Department representative will contact you within 24 hours.” This message is the result of a
A) validity check.
B) reasonableness test.
C) limit check.
D) sign check.
Answer:
Page Ref: 340
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

57) In Petaluma, California, electric power is provided to consumers by the Power To The People Electrical Company, a local co-op. Each month PTTP mails bills to 70,000 households and then processes payments as they are received. The customers are provided with a remittance advice, which is a
A) warning that failure to pay by the due date will result in a late charge.
B) confirmation of the firm’s privacy policy.
C) turnaround document.
D) bill.
Answer:
Page Ref: 350
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
58) Laz Chance wears roller blades and headphones when he is at work at the Squishy Things Toy Company. He is a product packer. The headphones give him computer-generated instructions so he knows the location of each item and quantity that should be included in the order. These instructions are the equivalent of a
A) picking ticket.
B) bill of lading.
C) packing slip.
D) sales order.
Answer:
Page Ref: 342
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

59) The shipping department at Squishy Things Toy Company follows policies that determine which carrier will deliver orders according to the size, weight, and destination of the shipment. It maintains standing agreements with shippers that specify legal responsibility for the shipment while it is in transit. The terms of the agreements are documented on
A) picking tickets.
B) bills of lading.
C) packing slips.
D) RFID tags.
Answer:
Page Ref: 345
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

60) Sad Clown Pajamas is an Internet-based wholesaler. The manager of Callow Youth Clothing received an order from Sad Clown and found that the wrong product had been shipped. He repackaged the order and sent it back for a refund. When Sad Clown Pajamas received the returned product, they mailed a ______ to Callow Youth Clothing’s manager.
A) packing slip
B) letter requesting an explanation
C) remittance advice
D) credit memo
Answer:
Page Ref: 352
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
61) A customer service manager at Sad Clown Pajamas, Bob, received a call from the manager at Callow Youth Clothing, who informed Bob that Callow was entering bankruptcy liquidation and it was unlikely that they would be able to pay the outstanding balance on their account. Bob should
A) document the phone conversation and forward it to the billing department manager.
B) prepare a credit memo.
C) approve a credit memo.
D) document the phone conversation and forward it to the credit department manager.
Answer:
Page Ref: 352
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Reflective Thinking

62) Because it is the most fungible of all assets, the management of cash has always been the most difficult of all control issues. The most important of cash controls is
A) minimization of cash handling.
B) lockbox arrangements.
C) segregation of duties.
D) frequent reconciliation of records.
Answer:
Page Ref: 355
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

63) A sales clerk at an electronics store scanned the bar code for a low cost set of headphones and then substituted a high cost set of headphones for his friend, who paid the lower price. Which of the following controls would best help to prevent this sort of fraud?
A) Use of RFID tags
B) Physical inventory count
C) Segregation of duties
D) Limited physical access to bar codes
Answer:
Page Ref: 342
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
64) The accounts receivable management method typically used by credit card companies is
A) balance forward.
B) postbilling.
C) monthly statement.
D) open-invoice.
Answer:
Page Ref: 351
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

65) The accounts receivable clerk destroys all invoices for sales made to family and friends and does not record the sales in the accounts receivable subsidiary ledgers. The family and friends usually give the clerk cash as a”thank you”. Which procedure will not prevent or detect this fraud?
A) Send monthly statements to all customers with balances owed.
B) Reconcile sales invoices in the billing department to the total debits to accounts receivable subsidiary ledgers.
C) Sequentially prenumber all invoices and prepare a sequence check at the end of each day.
D) Reconcile the accounts receivable control account to the accounts receivable subsidiary ledger.
Answer:
Page Ref: 350
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

66) Which of the following poses an internal control problem?
A) Physical inspection of inventory quantity and condition is outsourced to a firm that specializes in this service.
B) Products are released from inventory after a warehouse employee and a shipping clerk both sign the pick list.
C) Sales representatives have authority to increase customers’ credit limits in $1,000 increments.
D) When customer payments are received in the mail, checks are sent to the cashier’s office and remittance advices are sent to the accounts receivable department.
Answer:
Page Ref: 340
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
67) For sales returns, the least effective control to prevent fraudulent processing of a credit memo is to
A) reconcile total of credit memos to total debits posted to customers’ subsidiary ledgers.
B) require approval for each credit memo by the credit manager.
C) sequentially prenumber all credit memos and perform a sequence check at the end of each day.
D) match each credit memo with a receiving report.
Answer:
Page Ref: 352
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

68) Describe the basic revenue cycle activities.

69) Explain how validity checks, completeness tests and reasonableness tests can be implemented to ensure accuracy of customer orders.

70) Define and describe benefits of a CRM system.

71) How can Electronic Data Interchange (EDI) facilitate the billing and accounts receivable process?

72) Describe typical credit approval procedures.

73) Describe the two methods to manage accounts receivable.

74) Describe cycle billing and identify how an organization might benefit by using cycle billing.

75) Failure to collect cash on credit sales is a threat in the revenue cycle. What controls can be used to help neutralize this threat?

76) Discuss ways in which technology can be used to streamline cash collections.

77) Describe four threats in the revenue cycle and identify appropriate controls for each threat.

78) Discuss the general control issue of the loss of data, as it relates to the revenue cycle.

79) Explain how to effectively segregate duties in the sales order activity.

80) Discuss the revenue cycle threat of stockouts, carrying costs, and markdowns.

81) You have been hired by a catalog company to computerize its sales order entry process. Approximately 70% of all orders are received over the telephone by a sales person. The other 30% of orders are received by a sales person through mail or fax. The catalog company wants the phone orders processed real-time. The mail and fax orders will be processed in batches of 50 orders. The following attributes are collected for every sales order:
Customer number (if the order is from a new customer, a new number needs to be assigned)
Customer name
Address
Payment method (credit card for phone and fax orders and check for mailed orders)
Credit card number and expiration date
Items ordered and quantity of each
Unit price of each item ordered
Identify and describe at least ten specific control policies and procedures you will implement for the sales order process. Be very specific describing the controls and number each new control you suggest.

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.
Answer:
Page Ref: 382
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 386
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

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
Answer:
Page Ref: 386
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

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.
Answer:
Page Ref: 387
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

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.
Answer:
Page Ref: 391
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

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?
Answer:
Page Ref: 372
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

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
Answer:
Page Ref: 373
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

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.
Answer:
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
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.
Answer:
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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
Answer:
Page Ref: 374
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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
Answer:
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
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.
Answer:
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic

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
Answer:
Page Ref: 378-379
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
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.
Answer:
Page Ref: 379
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 379
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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
Answer:
Page Ref: 380
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 381
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
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.
Answer:
Page Ref: 381
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 381
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 382
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 384
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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
Answer:
Page Ref: 384
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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
Answer:
Page Ref: 385
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 385
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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
Answer:
Page Ref: 385
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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
Answer:
Page Ref: 390
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
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
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
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.
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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
Answer:
Page Ref: 375
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
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.
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 388
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 387-388
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 389
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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
Answer:
Page Ref: 390
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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
Answer:
Page Ref: 382
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
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
Answer:
Page Ref: 383
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 385
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 386
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

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
Answer:
Page Ref: 376
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
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
Answer:
Page Ref: 389
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

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
Answer:
Page Ref: 391
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 392
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

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
Answer:
Page Ref: 392
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
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
Answer:
Page Ref: 392
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 391
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 380
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
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.
Answer:
Page Ref: 372
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

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.
Answer:
Page Ref: 372
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 378
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
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.
Answer:
Page Ref: 378
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

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.
Answer:
Page Ref: 378
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

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.
Answer:
Page Ref: 378
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
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
Answer:
Page Ref: 381
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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
Answer:
Page Ref: 381
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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
Answer:
Page Ref: 385
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
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.
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 388
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 390
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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.
Answer:
Page Ref: 389
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 387
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 387
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 387
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

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.
Answer:
Page Ref: 387
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

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
Answer:
Page Ref: 382
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

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
Answer:
Page Ref: 384
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

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.
Answer:
Page Ref: 386
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

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?