Chapter 1The Information System: An Accountants Perspective

TRUE/FALSE
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.

Information is a business resource.

An information system is an example of a natural system
Transaction processing systems convert non-financial transactions into financial transactions.
Information lacking reliability may still have value.
A balance sheet prepared in conformity with GAAP is an example of discretionary reporting.
The Management Reporting System provides the internal financial information needed to manage a
business.
Most of the inputs to the General Ledger System come from the Financial Reporting System.
When preparing discretionary reports, organizations can choose what information to report and how to
present it.
Retrieval is the task of permanently removing obsolete or redundant records from the database.
Systems development represents 80 to 90 percent of the total cost of a computer system.
The database administrator is responsible for the security and integrity of the database.
A backbone system is completely finished, tested, and ready for implementation.
The internal auditor represents the interests of third-party outsiders.
Information Technology (IT) audits can be performed by both internal and external auditors.
The single largest user of computer services is the personnel function.
Increased control is one of the key advantages of distributed data processing.
The flat-file approach is most often associated with so-called legacy systems.
In a flat-file system, files are easily shared by users.
Legacy systems were eliminated in the effort to make systems Y2K compliant.
One of the greatest disadvantages of database systems is that all data is always available to all users.
Under SOX legislation auditors are no longer allowed to provide consulting services to audit clients.
Under SOX legislation auditors are no loger allowed to provide consulting services to their clients.
.

MULTIPLE CHOICE
1. Which of the following is not a business
resource?
a. raw material
b. Labor
c. information
d. all are business resources
ANS: D
2. Which level of management is responsible
for short-term planning and coordination
of activities necessary to accomplish
organizational objectives?
a. operations management
b. middle management
c. top management
d. line management
ANS: B
3. Which level of management is responsible
for controlling day-to-day operations?

a.
b.
c.
d.

top management
middle management
operations management
executive management

ANS: C
4. The ability to achieve the goals of a
system depends upon the effective
functioning and harmonious interaction
between its subsystems. This is called
a. system decomposition
b. system redundancy
c. backup system
d. subsystem interdependency
ANS: D
5. The value of information for users is
determined by all of the following but
a. reliability
b. relevance
c. convenience

d. completeness

c. distributing essential information to operations

personnel to support their daily operations
d. measuring and reporting the status of financial
resources and the changes in those resources

ANS: C
6. An example of a nonfinancial transaction
is
a. sale of products
b. cash disbursement
c. log of customer calls
d. purchase of inventory
ANS: C
7. An example of a financial transaction is
a. the purchase of computer
b. a suppliers price list
c. a delivery schedule
d. an employee benefit brochure
ANS: A
8. Which subsystem is not part of the
Accounting Information System?
a. Transaction Processing System
b. Expert System
c. General Ledger/Financial Reporting System
d. Management Reporting System
ANS: B

ANS: D
11. The Transaction Processing System
includes all of the following cycles except
a. the revenue cycle
b. the administrative cycle
c. the expenditure cycle
d. the conversion cycle
ANS: B
12. The primary input to the Transaction
Processing System is
a. a financial transaction
b. an accounting record
c. an accounting report
d. a nonfinancial transaction
ANS: A
13. When designing the data collection
activity, which type of data should be
avoided?
a. data that is relevant
b. data that is efficient
c. data that is redundant
d. data that is accurate

9. The major difference between the

Financial Reporting System (FRS) and the
Management Reporting System (MRS) is
the
a. FRS provides information to internal and external
users; the MRS provides information to internal 14.
users
b. FRS provides discretionary information; the MRS
provides nondiscretionary information
c. FRS reports are prepared using information
provided by the General Ledger System; the MRS
provides information to the General Ledger System
d. FRS reports are prepared in flexible,
nonstandardized formats; the MRS reports are
15.
prepared in standardized, formal formats
ANS: A

ANS: C
The most basic element of useful data in
the database is
a. the record
b. the key
c. the file
d. the attribute
ANS: D
In a database, a complete set of attributes
for a single occurrence of an entity class is
called
a. a key
b. a file
c. a record
d. a character

10. The purpose of the Transaction Processing

System includes all of the following
except
a. converting economic events into financial
ANS: C
transactions
b. recording financial transactions in the accounting
16. Effective information has all of the
records
following characteristics except

a.
b.
c.
d.

relevance
completeness
summarization
structure

ANS: D
17. Database management tasks do not
include
a. Summarization
b. Storage
c. Retrieval
d. Deletion
ANS: A

22. Which of the following is not part of the

accounting function?
a. managing the financial information resource of the
firm
b. capturing and recording transactions in the database
c. distributing transaction information to operations
personnel
d. managing the physical information system of the fir
ANS: D
23. The term accounting independence
refers to
a. data integrity
b. separation of duties, such as record keeping and
custody of physical resources
c. generation of accurate and timely information
d. business segmentation by function

18. The author distinguishes between the

Accounting Information System and the
management Information System based on
a. whether the transactions are financial or nonfinancial
b. whether discretionary or nondiscretionary reports are
prepared
24.
c. the end users of the reports
d. the organizational structure of the business
ANS: A
19. Which activity is not part of the finance
function?
a. cash receipts
b. portfolio management
c. credit
d. general ledger
ANS: D
20. Market research and advertising are part
of which business function?
a. materials management
b. finance
c. marketing
d. production
ANS: C
21. Which function manages the financial
resources of the firm through portfolio
management, banking, credit evaluation,
and cash receipts and disbursements?
a. accounting
b. finance
c. materials management
d. distribution
ANS: B

ANS: B

In the distributed data processing

approach
a. computer services are consolidated and managed as
a shared organization resource
b. the computer service function is a cost center
c. the end users are billed using a charge-back system
d. computer services are organized into small
information processing units under the control of
end users
ANS: D

25. The data control group is responsible for

a. performing the day-to-day processing of
transactions
b. security and integrity of the database
c. liaison between the end user and data processing
d. providing safe storage for off-line data files
ANS: C
26. Data processing does not involve
a. data control
b. computer operations
c. system maintenance
d. data conversion
ANS: C
27. Independent auditing is performed by
a. external auditors
b. internal accountants
c. licensed auditors
d. third-party accountants

ANS: A
28. Which individual is least involved in new
systems development?
a. systems analyst
b. external auditor
c. end user
d. data librarian

ANS: C
34. Advantages of distributed data processing
include each of the following except
a. cost reductions
b. better management of organization resources
c. improved operational efficiency
d. increased user satisfaction

ANS: D

ANS: B

29. The objectives of all information systems

35.
include all of the following except
a. support for the stewardship function of management
b. evaluating transaction data
c. support for the day-to-day operations of the firm
d. support for management decision making
ANS: B

Disadvantages of the distributed data

processing approach include all of the
following except
a. possible mismanagement of organization resources
b. redundancy of tasks
c. software incompatibility
d. system is not responsive to the users situation
ANS: D

30. Which individuals may be involved in the

Systems Development Life Cycle?
a. Accountants
b. systems professionals
c. end users
d. all of the above
ANS: D

36. ERP packages include all of the following

modules except
a. human resources
b. general ledger
c. inventory management
d. they include all of the above
ANS: D

31. An appraisal function housed within the

organization that performs a wide range of
services for management is
a. internal auditing
b. data control group
c. external auditing
d. database administration
ANS: A
32. Advantages of a database system include
all of the following except
a. elimination of data redundancy
b. open access to all data by all users
c. single update for changes in data
d. confidence that all data is current
ANS: B
33. Disadvantages of distributed data
processing include all of the following
except
a. mismanagement of organizationwide resources
b. hardware and software incompatibility
c. cost reductions
d. difficulty in hiring qualified IT professionals

37. All of the following are external end users

except
a. cost accountants
b. creditors
c. stockholders
d. tax authorities
ANS: A
38. Useful information must possess all of the
following characteristics except
a. relevance
b. timelessness
c. accuracy
d. completeness
ANS: B
39. The objectives of an information system
include each of the following except
a. support for the stewardship responsibilities of
management
b. furthering the financial interests of
shareholders
c. support for management decision making

d. support for the firms day-to-day operations

ANS: B
40. Accountants play many roles relating to
the accounting information system,
including all of the following except

a. system users
b. system designers
c. system auditors
d. system converters
ANS: D

Chapter 2Introduction to Transaction Processing

TRUE/FALSE
1. Processing more transactions at a lower unit cost makes batch processing more efficient than real-time
systems.
2. The process of acquiring raw materials is part of the conversion cycle.
3. Directing work-in-process through its various stages of manufacturing is part of the conversion cycle.
4. The top portion of the monthly bill from a credit card company is an example of a turn-around
document.
5. The general journal is used to record recurring transactions that are similar in nature.
6. Document flowcharts are used to represent systems at different levels of detail.
7. Data flow diagrams represent the physical system.
8. Document flowcharts are often used to depict processes that are handled in batches.
9. Program flowcharts depict the type of media being used (paper, magnetic tape, or disks) and terminals.
10. System flowcharts represent the input sources, programs, and output products of a computer system.
11. Program flowcharts are used to describe the logic represented in system flowcharts.
12. Batch processing systems can store data on direct access storage devices.
13. Backups are automatically produced in a direct access file environment.
14. The box symbol represents a temporary file.
15. Auditors may prepare program flowcharts to verify the correctness of program logic.
16. A control account is a general ledger account which is supported by a subsidiary ledger.
17. The most significant characteristic of direct access files is access speed.
18. Real time processing is used for routine transactions in large numbers.
19. Batch processing is best used when timely information is needed because this method processes data
efficiently
20. An inverted triangle with the letter N represents a file in name order.
21. Real-time processing in systems that handle large volumes of transactions each day can create
operational inefficiencies.
22. Operational inefficiencies occur because accounts unique to many concurrent transactions need to be
updated in real time.
23. Operational inefficiencies occur because accounts common to many concurrent transactions need to be
updated in real time.
24. Batch processing of noncritical accounts improves operational efficiency.
25. Batch processing of accounts common to many concurrent transactions reduces operational efficiency.

MULTIPLE CHOICE
1. Which system is not part of the expenditure
cycle?
a. cash disbursements
b. Payroll
c. production planning/control
d. purchases/accounts payable
ANS: C
2. Which system produces information used for
inventory valuation, budgeting, cost control,
performance reporting, and make-buy
decisions?
a. sales order processing
b. purchases/accounts payable
c. cash disbursements
d. cost accounting
ANS: D
3. Which of the following is a turn-around
document?
a. remittance advice
b. sales order
c. purchase order
d. payroll check
ANS: A
4. The order of the entries made in the ledger is
by
a. transaction number
b. account number
c. Date
d. User
ANS: B
5. The order of the entries made in the general
journal is by
a. Date
b. account number
c. User
d. customer number
ANS: A
6. In general a special journal would not be used
to record
a. sales
b. cash disbursements
c. depreciation
d. purchases

ANS: C
7. Which account is least likely to have a
subsidiary ledger?
a. sales
b. accounts receivable
c. fixed assets
d. inventory
ANS: A
8. Subsidiary ledgers are used in manual
accounting environments. What file is
comparable to a subsidiary ledger in a
computerized environment?
a. archive file
b. reference file
c. transaction file
d. master file
ANS: D
9. A journal is used in manual accounting
environments. What file is comparable to a
journal in a computerized environment?
a. archive file
b. reference file
c. transaction file
d. master file
ANS: C
10. In a computerized environment, a list of
authorized suppliers would be found in the
a. master file
b. transaction file
c. reference file
d. archive file
ANS: C
11. Which of the following is an archive file?
a. an accounts payable subsidiary ledger
b. a cash receipts file
c. a sales journal
d. a file of accounts receivable that have been written
off
ANS: D
12. Which document is not a type of source
document?
a. a sales order

b. an employee time card

c. a paycheck
d. a sales return receipt

process
d. balancing the trade off between batch size
and error detection

ANS: C

ANS: B

13. The most important purpose of a turn-around

18. In contrast to a real-time system, in a batch
document is to
processing system
a. serve as a source document
a. there is a lag between the time when the
b. inform a customer of the outstanding amount
economic event occurs and the financial
payable
records are updated
c. provide an audit trail for the external auditor
b. relatively more resources are required
d. inform the bank of electronic funds deposits
c. a greater resource commitment per unit of
output is required
ANS: A
d. processing takes place when the economic
event occurs
14. Which type of graphical documentation
represents systems at different levels of detail?
ANS: A
a. data flow diagram
b. document flowchart
19. In contrast to a batch processing system, in a
c. system flowchart
real-time system
d. program flowchart
a. a lag occurs between the time of the
economic event and when the transaction
ANS: A
is recorded
b. relatively fewer hardware, programming,
15. Data flow diagrams
and training resources are required
a. depict logical tasks that are being performed, but c. a lesser resource commitment per unit of
not who is performing them
output is required
b. illustrate the relationship between processes, and thed. processing takes place when the economic
documents that flow between them and trigger
event occurs
activities
c. represent relationships between key elements of the ANS: D
computer system
d. describe in detail the logic of the process
20. The type of transaction most suitable for batch
processing is
ANS: A
a. airline reservations
b. credit authorization
16. Document flowcharts
c. payroll processing
a. depict logical tasks that are being
d. adjustments to perpetual inventory
performed, but not who is performing them
ANS: C
b. illustrate the relationship between
processes, and the documents that flow
between them and trigger activities
21. The type of transaction most suitable for realc. represent relationships between key
time processing is
elements of the computer system
a. recording fixed asset purchases
d. describe the logic of the process
b. recording interest earned on long-term bonds
c. adjusting prepaid insurance
ANS: B
d. recording a sale on account
17. When determining the batch size, which
consideration is the least important?
a. achieving economies by grouping together
large numbers of transactions
b. complying with legal mandates
c. providing control over the transaction

ANS: D
22. Which step is not found in batch processing
using sequential files?
a. control totals
b. sort runs

c. edit runs
d. immediate feedback of data entry errors

b.

ANS: D
23. Both the revenue and the expenditure cycle can
be viewed as having two key parts. These are
a. manual and computerized
b. physical and financial
c. input and output
d. batch and real-time

c.

d.

ANS: B
24. All of the following can provide evidence of an
economic event except
a. source document
b. turn-around document
c. master document
d. product document
ANS: C

ANS: D
28. Which symbol represents accounting records?
a.

b.

25. Which method of processing does not use the

destructive update approach?
c.
a. batch processing using direct access files
b. real-time processing
c. batch processing using sequential files
d. all of the above use the destructive update approachd.
ANS: C
26. Which symbol represents a data store?
a.

b.
c.

ANS: A
29. Which symbol represents a document?
a.

b.

d.
c.
ANS: B
d.
27. Which symbol represents a manual operation?
a.
ANS: B

30. Which symbol represents a magnetic tape

(sequential storage device)?
a.

b.

33. A file that stores data used as a standard when

processing transactions is
a. a reference file
b. a master file
c. a transaction file
d. an archive file
ANS: A

c.

d.

ANS: D
31. Which symbol represents a decision?
a.

b.
c.

d.

ANS: A
32. The characteristics that distinguish between
batch and real-time systems include all of the
following except
a. time frame
b. resources used
c. file format
d. efficiency of processing
ANS: C

34. Sequential storage means

a. data is stored on tape
b. access is achieved through an index
c. access is direct
d. reading record 100 requires first reading
records 1 to 99
ANS: D
35. Real-time processing would be most beneficial
in handling a firms
a. fixed asset records
b. retained earning information
c. merchandise inventory
d. depreciation records
ANS: C
36. Which accounting application is least suited
for batch processing?
a. general ledger
b. vendor payments
c. sales order processing
d. Payroll
ANS: C
37. Which accounting application is best suited for
batch processing?
a. general ledger
b. vendor payments
c. sales order processing
d. Payroll
ANS: D
38. Operational inefficiencies occur because
a. accounts both common and unique to many
concurrent transactions need to be updated in real
time.
b. accounts common to many concurrent
transactions need to be updated in real time.
c. accounts unique to many concurrent transactions
need to be updated in real time.
d. None of the above are true statements

ANS: B
39. Operational efficiencies can be improved by
a. updating accounts both common and unique to
many concurrent transactions in real time.
b. updating accounts both common and unique to
many concurrent transactions in batch mode.
c. updating accounts unique to many concurrent
transactions in real time and updating common
accounts in batch mode.
d. None of the above are true statements
ANS: C

Chapter 3Ethics, Fraud, and Internal Control

TRUE/FALSE
1. The ethical principle of justice asserts that the benefits of the decision should be distributed fairly to
those who share the risks.
2. The ethical principle of informed consent suggests that the decision should be implemented so as to
minimize all of the risks and to avoid any unnecessary risks.
3. Employees should be made aware of the firms commitment to ethics.
4. Business ethics is the analysis of the nature and social impact of computer technology, and the
corresponding formulation and justification of policies for the ethical use of such technology.
5. Para computer ethics is the exposure to stories and reports found in the popular media regarding the
good or bad ramifications of computer technology.
6. Source code is an example of intellectual property.
7. Copyright laws and computer industry standards have been developed jointly and rarely conflict.
8. Business bankruptcy cases always involve fraudulent behavior.
9. Defalcation is another word for financial fraud.
10. The trend toward distributed data processing increases the exposure to fraud from remote locations.
11. The external auditor is responsible for establishing and maintaining the internal control system.
12. Segregation of duties is an example of an internal control procedure.
13. Controls in a computer-based information system are identical to controls in a manual system.
14. Preventive controls are passive techniques designed to reduce fraud.
15. Ethical issues and legal issues are essentially the same.
16. Internal control systems are recommended but not required of firms subject to the Foreign Corrupt
Practices Act.
17. Operations fraud is the misuse or theft of the firms computer resources.
18. The Foreign Corrupt Practices Act requires only that a firm keep good records.
19. A key modifying assumption in internal control is that the internal control system is the responsibility
of management.
20. Database management fraud includes altering, updating, and deleting an organizations data.
21. While the Sarbanes-Oxley Act prohibits auditors from providing non-accounting services to their audit
clients, they are not prohibited from performing such services for non-audit clients or privately held
companies.
22. The Sarbanes-Oxley Act requires the audit committee to hire and oversee the external auditors.
23. Section 404 requires that corporate management (including the CEO) certify their organizations
internal controls on a quarterly and annual basis.
24. Section 302 requires the management of public companies to assess and formally report on the
effectiveness of their organizations internal controls.
25. The objective of SAS 99 is to seamlessly blend the auditors consideration of fraud into all phases of
the audit process.

MULTIPLE CHOICE
1.Which ethical principle states that the benefit
from a decision must outweigh the risks,
and that there is no alternative decision
that provides the same or greater benefit
with less risk?
a. minimize risk
b. Justice
c. informed consent
d. Proportionality
ANS: D
2. Individuals who acquire some level of
skill and knowledge in the field of
computer ethics are involved in which
level of computer ethics?
a. para computer ethics
b. pop computer ethics
c. theoretical computer ethics
d. practical computer ethics
ANS: A
3. All of the following are issues of
computer security except
a. releasing incorrect data to authorized
individuals
b. permitting computer operators unlimited
access to the computer room
c. permitting access to data by unauthorized
individuals
d. providing correct data to unauthorized
individuals
ANS: B

ANS: A
6. One characteristic of employee fraud is
that the fraud
a. is perpetrated at a level to which internal
controls do not apply
b. involves misstating financial statements
c. involves the direct conversion of cash or
other assets to the employees personal
benefit
d. involves misappropriating assets in a series
of complex transactions involving third
parties
ANS: C
7. Forces which may permit fraud to occur
do not include
a. a gambling addiction
b. lack of segregation of duties
c. centralized decision making environment
d. questionable integrity of employees
ANS: C
8. Which of the following best describes
lapping?
a. applying cash receipts to a different customers
account in an attempt to conceal previous thefts
of funds
b. inflating bank balances by transferring money
among different bank accounts
c. expensing an asset that has been stolen
d. creating a false transaction
ANS: A

4. Which characteristic is not associated with

software as intellectual property?
a. uniqueness of the product
b. possibility of exact replication
c. automated monitoring to detect intruders
d. ease of dissemination
ANS: C
5. For an action to be called fraudulent, all of
the following conditions are required
except
a. poor judgment
b. false representation
c. intent to deceive
d. injury or loss

9. Operations fraud includes

a. altering program logic to cause the application to
process data incorrectly
b. misusing the firms computer resources
c. destroying or corrupting a programs logic using
a computer virus
d. creating illegal programs that can access data
files to alter, delete, or insert values
ANS: B
10. Who is responsible for establishing and
maintaining the internal control system?
a. the internal auditor
b. the accountant
c. Management

d. the external auditor

ANS: C
11. The concept of reasonable assurance
suggests that
a. the cost of an internal control should be less
than the benefit it provides
b. a well-designed system of internal controls will
detect all fraudulent activity
c. the objectives achieved by an internal control
system vary depending on the data processing
method
d. the effectiveness of internal controls is a
function of the industry environment
ANS: A

16. A physical inventory count is an example

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

12. Which of the following is not a limitation

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

18. In balancing the risks and benefits that are

part of every ethical decision, managers
receive guidance from each of the
following except
a. justice
b. self interest
c. risk minimization
d. proportionality
ANS: B

13. The most cost-effective type of internal

control is
a. preventive control
b. accounting control
c. detective control
d. corrective control
ANS: A

19. Which of the following is not an element

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

ANS: C
14. Which of the following is a preventive
control?
a. credit check before approving a sale on account 20. Which of the following suggests a
b. bank reconciliation
weakness in the internal control
c. physical inventory count
environment?
d. comparing the accounts receivable subsidiary ledger to the
a. control
the firm
account
has an up-to-date organizational
chart
ANS: A
b. monthly reports comparing actual
performance to budget are distributed to
15. A well-designed purchase order is an
managers
example of a
c. performance evaluations are prepared
a. preventive control
every three years
b. detective control
d. the audit committee meets quarterly with
c. corrective control
the external auditors
d. none of the above
ANS: C
ANS: A

21. Which of the following indicates a strong

internal control environment?
a. the internal audit group reports to the audit
committee of the board of directors
b. there is no segregation of duties between
organization functions
c. there are questions about the integrity of
management
d. adverse business conditions exist in the
industry
ANS: A
22. According to SAS 78, an effective
accounting system performs all of the
following except
a. identifies and records all valid financial
transactions
b. records financial transactions in the
appropriate accounting period
c. separates the duties of data entry and report
generation
d. records all financial transactions promptly
ANS: C
23. Which of the following is the best reason
to separate duties in a manual system?
a. to avoid collusion between the programmer and
the computer operator
b. to ensure that supervision is not required
c. to prevent the record keeper from authorizing
transactions
d. to enable the firm to function more efficiently
ANS: C
24. Segregation of duties in the computerbased information system includes
a. separating the programmer from the computer
operator
b. preventing management override
c. separating the inventory process from the
billing process
d. performing independent verifications by the
computer operator
ANS: A
25. Which of the following is not an internal
control procedure?
a. authorization
b. managements operating style
c. independent verification
d. accounting records

ANS: B
26. The decision to extend credit beyond the
normal credit limit is an example of
a. independent verification
b. authorization
c. segregation of functions
d. supervision
ANS: B
27. When duties cannot be segregated, the
most important internal control procedure
is
a. supervision
b. independent verification
c. access controls
d. accounting records
ANS: A
28. An accounting system that maintains an
adequate audit trail is implementing which
internal control procedure?
a. access controls
b. segregation of functions
c. independent verification
d. accounting records
ANS: D
29. Employee fraud involves three steps. Of
the following, which is not involved?
a. concealing the crime to avoid detection
b. stealing something of value
c. misstating financial statements
d. converting the asset to a usable form
ANS: C
30. Which of the following is not an example
of independent verification?
a. comparing fixed assets on hand to the
accounting records
b. performing a bank reconciliation
c. comparing the accounts payable
subsidiary ledger to the control account
d. permitting authorized users only to access
the accounting system
ANS: D
31. The importance to the accounting
profession of the Foreign Corrupt
Practices Act of 1977 is that

a. bribery will be eliminated

b. management will not override the companys
internal controls
c. firms are required to have an effective
internal control system
d. firms will not be exposed to lawsuits
ANS: C
32. The board of directors consists entirely of
personal friends of the chief executive
officer. This indicates a weakness in
a. the accounting system
b. the control environment
c. control procedures
d. this is not a weakness
ANS: B
33. Computer fraud can take on many forms,
including each of the following except
a. theft or illegal use of computer-readable
information
b. theft, misuse, or misappropriation of
computer equipment
c. theft, misuse, or misappropriation of assets
by altering computer-readable records and
files
d. theft, misuse, or misappropriation of printer
supplies
ANS: D
34. When certain customers made cash
payments to reduce their accounts
receivable, the bookkeeper embezzled the
cash and wrote off the accounts as
uncollectible. Which control procedure
would most likely prevent this
irregularity?
a. segregation of duties
b. accounting records
c. accounting system
d. access controls
ANS: A
35. The office manager forgot to record in the
accounting records the daily bank deposit.
Which control procedure would most
likely prevent or detect this error?
a. segregation of duties
b. independent verification
c. accounting records
d. supervision

ANS: B

36. Business ethics involves

a. how managers decide on what is right in conducting
b. how managers achieve what they decide is right for
c. both a and b
d. none of the above
ANS: C
37. All of the following are conditions for
fraud except
a. false representation
b. injury or loss
c. intent
d. material reliance
ANS: D
38. The four principal types of fraud include
all of the following except
a. bribery
b. gratuities
c. conflict of interest
d. economic extortion
ANS: B
39. The characteristics of useful information
include
a. summarization, relevance, timeliness,
accuracy, and completeness
b. relevance, summarization, accuracy,
timelessness, and completeness
c. timeliness, relevance, summarization,
accuracy, and conciseness
d. disaggregation, relevance, timeliness, accuracy,
and completeness
ANS: A
40. Internal control system have limitations.
These include
a. possibility of honest error
b. circumvention
c. management override
d. stability of systems
ANS: D
41. Management can expect various benefits
to follow from implementing a system of
strong internal control. Which of the
following benefits is least likely to occur?
a. reduced cost of an external audit.

b. prevents employee collusion to commit

fraud.
c. availability of reliable data for decisionmaking purposes.
d. some assurance of compliance with the
Foreign Corrupt Practices Act of 1977.
e. some assurance that important documents
and records are protected.

d. The department time clerk is given the

undistributed payroll checks to mail to
absent employees.
e. The accounting clerk who shares the record
keeping responsibility for the accounts
receivable subsidiary ledger performs the
monthly reconciliation of the subsidiary
ledger and the control account.

ANS: B

ANS: B

42. Which of the following situations is not a

segregation of duties violation?
a. The treasurer has the authority to sign checks
but gives the signature block to the assistant
treasurer to run the check-signing machine.
b. The warehouse clerk, who has the custodial
responsibility over inventory in the
warehouse, selects the vendor and authorizes
purchases when inventories are low.
c. The sales manager has the responsibility to
approve credit and the authority to write off
accounts.

43. Which of the following is not an issue to

be addressed in a business code of ethics
required by the SEC?
a. Conflicts of interest
b. Full and Fair Disclosures
c. Legal Compliance
d. Internal Reporting of Code Violations
e. All of the above are issues to be addressed
ANS: E

Chapter 4The Revenue Cycle

TRUE/FALSE
1. The packing slip is also known as the shipping notice.
2. The bill of lading is a legal contract between the buyer and the seller.
3. Another name for the stock release form is the picking ticket.
4. Warehouse stock records are the formal accounting records for inventory.
5. The purpose of the invoice is to bill the customer.
6. In most large organizations, the journal voucher file has replaced the formal general journal.
7. The cash receipts journal is a special journal.
8. In the revenue cycle, the internal control limit access applies to physical assets only.
9. In real-time processing systems, routine credit authorizations are automated.
10. In a computerized accounting system, segregation of functions refers to inventory control, accounts
receivable, billing, and general ledger tasks.
11. A written customer purchase order is required to trigger the sales order system.
12. Inventory control has physical custody of inventory.
13. The principal source document in the sales order system is the sales order.
14. Sales orders should be prenumbered documents.
15. Integrated accounting systems automatically transfer data between modules.
16. If a customer submits a written purchase order, there is no need to prepare a sales order.
17. Sales return involves receiving, sales, credit, and billing departments, but not accounts receivable.
18. A remittance advice is a form of turn-around document.
19. A bill of lading is a request for payment for shipping charges.
20. In point of sale systems, authorization takes the form of validation of credit card charges.
a. one subsystemorder entry
b. two subsystemssales order processing and
MULTIPLE CHOICE
cash receipts
1. The revenue cycle consists of
c. two subsystemsorder entry and inventory

control
d. three subsystemssales order processing,
credit authorization, and cash receipts
ANS: B

a.
b.
c.
d.

respond to customer queries

fill the customer order
ship the customer order
authorize customer credit

ANS: A
2. The reconciliation that occurs in the
shipping department is intended to ensure
that
a. credit has been approved
b. the customer is billed for the exact quantity
shipped
c. the goods shipped match the goods ordered
d. inventory records are reduced for the goods
shipped
ANS: C
3. The adjustment to accounting records to
reflect the decrease in inventory due to a
sale occurs in the
a. warehouse
b. shipping department
c. billing department
d. inventory control department
ANS: D
4. Which document triggers the revenue
cycle?
a. the sales order
b. the customer purchase order
c. the sales invoice
d. the journal voucher
ANS: B
5. Copies of the sales order can be used for
all of the following except
a. purchase order
b. credit authorization
c. shipping notice
d. packing slip

8. The stock release copy of the sales order is

not used to
a. locate and pick the items from the
warehouse shelves
b. record any out-of-stock items
c. authorize the warehouse clerk to release
custody of the inventory to shipping
d. record the reduction of inventory
ANS: D

9. The shipping notice

a. is mailed to the customer
b. is a formal contract between the seller and the shipp
c. is always prepared by the shipping clerk
d. informs the billing department of the quantities ship
ANS: D
10. The billing department is not responsible
for
a. updating the inventory subsidiary records
b. recording the sale in the sales journal
c. notifying accounts receivable of the sale
d. sending the invoice to the customer
ANS: A
11. Customers should be billed for backorders
when
a. the customer purchase order is received
b. the backordered goods are shipped
c. the original goods are shipped
d. customers are not billed for backorders
because a backorder is a lost sale
ANS: B

ANS: A
6. The purpose of the sales invoice is to
a. record reduction of inventory
b. transfer goods from seller to shipper
c. bill the customer
d. select items from inventory for shipment
ANS: C
7. The customer open order file is used to

12. Usually specific authorization is required

for all of the following except
a. sales on account which exceed the credit limit
b. sales of goods at the list price
c. a cash refund for goods returned without a
receipt
d. write off of an uncollectible account
receivable
ANS: B

13. Which of following functions should be

segregated?
a. opening the mail and making the journal
entry to record cash receipts
b. authorizing credit and determining reorder
quantities
c. maintaining the subsidiary ledgers and
handling customer queries
d. providing information on inventory levels
and reconciling the bank statement
ANS: A
14. Which situation indicates a weak internal
control structure?
a. the mailroom clerk authorizes credit memos
b. the record keeping clerk maintains both
accounts receivable and accounts payable
subsidiary ledgers
c. the warehouse clerk obtains a signature
before releasing goods for shipment
d. the accounts receivable clerk prepares
customer statements every month
ANS: A
15. The most effective internal control
procedure to prevent or detect the creation
of fictitious credit memoranda for sales
returns is to
a. supervise the accounts receivable department
b. limit access to credit memoranda
c. prenumber and sequence check all credit
memoranda
d. require management approval for all credit
memoranda
ANS: D
16. The accounts receivable clerk destroys all
invoices for sales made to members of her
family and does not record the sale in the
accounts receivable subsidiary ledger.
Which procedure will not detect this
fraud?
a. prenumber and sequence check all invoices
b. reconcile the accounts receivable control to
the accounts receivable subsidiary ledger
c. prepare monthly customer statements
d. reconcile total sales on account to the
debits in the accounts receivable subsidiary
ledger
ANS: C

17. Which department is least likely to be

involved in the revenue cycle?
a. Credit
b. accounts payable
c. Billing
d. Shipping
ANS: B
18. Which document is included with a
shipment sent to a customer?
a. sales invoice
b. stock release form
c. packing slip
d. shipping notice
ANS: C
19. Good internal controls in the revenue
cycle should ensure all of the following
except
a. all sales are profitable
b. all sales are recorded
c. credit is authorized
d. inventory to be shipped is not stolen
ANS: A
20. Which control does not help to ensure that
accurate records are kept of customer
accounts and inventory?
a. reconcile accounts receivable control to
accounts receivable subsidiary
b. authorize credit
c. segregate custody of inventory from record
keeping
d. segregate record keeping duties of general
ledger from accounts receivable
ANS: B
21. Internal controls for handling sales returns
and allowances do not include
a. computing bad debt expense using the
percentage of credit sales
b. verifying that the goods have been returned
c. authorizing the credit memo by
management
d. using the original sales invoice to prepare
the sales returns slip
ANS: A

22. The printer ran out of preprinted sales

invoice forms and several sales invoices
were not printed. The best internal control
to detect this error is
a. a batch total of sales invoices to be prepared
compared to the actual number of sales
invoices prepared
b. sequentially numbered sales invoices
c. visual verification that all sales invoices
were prepared
d. none of the above will detect this error
ANS: A
23. Which department prepares the bill of
lading?
a. sales
b. warehouse
c. shipping
d. credit
ANS: C
24. A remittance advice is
a. used to increase (debit) an account receivable
by the cash received
b. is a turn-around document
c. is retained by the customer to show proof of
payment
d. none of the above
ANS: B
25. A weekly reconciliation of cash receipts
would include comparing
a. the cash prelist with bank deposit slips
b. the cash prelist with remittance advices
c. bank deposit slips with remittance advices
d. journal vouchers from accounts receivable and
general ledger
ANS: A
26. At which point is supervision most critical
in the cash receipts system?
a. accounts receivable
b. general ledger
c. mail room
d. cash receipts
ANS: C
27. EDI trading partner agreements specify all
of the following except
a. selling price

b. quantities to be sold
c. payment terms
d. person to authorize transactions
ANS: D
28. A cash prelist is
a. a document that records sales returns and
allowances
b. a document returned by customers with their
payments
c. the source of information used to prepare
monthly statements
d. none of the above
ANS: D
29. An advantage of real-time processing of
sales is
a. the cash cycle is lengthened
b. current inventory information is available
c. hard copy documents provide a permanent
record of the transaction
d. data entry errors are corrected at the end of
each batch
ANS: B

30. Commercial accounting systems have

fully integrated modules. The word
integrated means that
a. segregation of duties is not possible
b. transfer of information among modules occurs auto
c. batch processing is not an option
d. separate entries are made in the general ledger acco
ANS: B
31. The data processing method that can
shorten the cash cycle is
a. batch, sequential file processing
b. batch, direct access file processing
c. real-time file processing
d. none of the above
ANS: C
32. Which of the following is not a risk
exposure in a microcomputer accounting
system?
a. reliance on paper documentation is increased
b. functions that are segregated in a manual
environment may be combined in a
microcomputer accounting system
c. backup procedures require human

intervention
d. data are easily accessible
ANS: A
33. Which journal is not used in the revenue
cycle?
a. cash receipts journal
b. sales journal
c. purchases journal
d. general journal
ANS: C
34. Periodically, the general ledger
department receives all of the following
except
a. total increases to accounts receivable
b. total of all sales backorders
c. total of all sales
d. total decreases in inventory

ANS: C
37. The revenue cycle utilizes all of the
following files except
a. credit memo file
b. sales history file
c. shipping report file
d. cost data reference file
ANS: D
38. All of the following are advantages of
real-time processing of sales except
a. The cash cycle is shortened
b. Paper work is reduced
c. Incorrect data entry is difficult to detect
d. Up-to-date information can provide a
competitive advantage in the marketplace
ANS: C

ANS: B
35. The credit department
a. prepares credit memos when goods are
returned
b. approves credits to accounts receivable when
payments are received
c. authorizes the granting of credit to customers
d. none of the above
ANS: C
36. Adjustments to accounts receivable for
payments received from customers is
based upon
a. the customers check
b. the cash prelist
c. the remittance advice that accompanies payment
d. a memo prepared in the mailroom

Chapter 5The Expenditure Cycle Part I: Purchases and Cash Disbursements

Procedures
TRUE/FALSE
1. Purchasing decisions are authorized by inventory control.
2. The blind copy of the purchase order that goes to the receiving department contains no item
descriptions.
3. Firms that wish to improve control over cash disbursements use a voucher system.
4. In a voucher system, the sum of all unpaid vouchers in the voucher register equals the firms total
voucher payable balance.

5. The accounts payable department reconciles the accounts payable subsidiary ledger to the control
account.
6. The use of inventory reorder points suggests the need to obtain specific authorization.
7. Proper segregation of duties requires that the responsibility approving a payment be separated from
posting to the cash disbursements journal.
8. A major risk exposure in the expenditure cycle is that accounts payable may be overstated at the end of
the accounting year.
9. When a trading partner agreement is in place, the traditional three way match may be eliminated.
10. Authorization of purchases in a merchandising firm occurs in the inventory control department.
11. A three way match involves a purchase order, a purchase requisition, and an invoice.
12. Authorization for a cash disbursement occurs in the cash disbursement department upon receipt of the
suppliers invoice.
13. An automated cash disbursements system can yield better cash management since payments are made
on time.
14. Permitting warehouse staff to maintain the only inventory records violates separation of duties.
15. A purchasing system that employs electronic data interchange does not use a purchase order.
16. Inventory control should be located in the warehouse.
17. Inspection of shipments in the receiving department would be improved if the documentation showed
the value of the inventory.
18. One reason for authorizing purchases is to enable efficient inventory management.
19. If accounts payable receives an invoice directly from the supplier it needs to be reconciled with the
purchase order and receiving report.
20. Supervision in receiving is intended to reduce the theft of assets.
d. general ledger
MULTIPLE CHOICE
1. The purpose of the purchase requisition is
to
a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order
goods
d. bill for goods delivered

ANS: D
4. The purpose of the purchase order is to
a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order
goods
d. approve payment for goods received
ANS: A

ANS: C
2. The purpose of the receiving report is to
a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order
goods
d. bill for goods delivered
ANS: B

3.All of the following departments have a copy of

the purchase order except
a. the purchasing department
b. the receiving department
c. accounts payable

5. The open purchase order file in the

purchasing department is used to
determine
a. the quality of items a vendor ships
b. the best vendor for a specific item
c. the orders that have not been received
d. the quantity of items received
ANS: C
6. The purchase order
a. is the source document to make an entry
into the accounting records
b. indicates item description, quantity, and
price
c. is prepared by the inventory control
department

d. is approved by the end-user department

ANS: B
7. The reason that a blind copy of the
purchase order is sent to receiving is to
a. inform receiving when a shipment is due
b. force a count of the items delivered
c. inform receiving of the type, quantity, and
price of items to be delivered
d. require that the goods delivered are inspected
ANS: B
8. The receiving report is used to
a. accompany physical inventories to the
storeroom or warehouse
b. advise the purchasing department of the
dollar value of the goods delivered
c. advise general ledger of the accounting entry
to be made
d. advise the vendor that the goods arrived
safely
ANS: A
9. When a copy of the receiving report
arrives in the purchasing department, it is
used to
a. adjust perpetual inventory records
b. record the physical transfer of inventory
from receiving to the warehouse
c. analyze the receiving departments process
d. recognize the purchase order as closed
ANS: D
10. The financial value of a purchase is
determined by reviewing the
a. packing slip
b. purchase requisition
c. receiving report
d. suppliers invoice
ANS: D
11. Which document is least important in
determining the financial value of a
purchase?
a. purchase requisition
b. purchase order
c. receiving report
d. suppliers invoice
ANS: A

12. In a merchandising firm, authorization for

the payment of inventory is the
responsibility of
a. inventory control
b. purchasing
c. accounts payable
d. cash disbursements
ANS: C
13. In a merchandising firm, authorization for
the purchase of inventory is the
responsibility of
a. inventory control
b. Purchasing
c. accounts payable
d. cash disbursements
ANS: A
14. When purchasing inventory, which
document usually triggers the recording of
a liability?
a. purchase requisition
b. purchase order
c. receiving report
d. suppliers invoice
ANS: D
15. Because of time delays between receiving
inventory and making the journal entry
a. liabilities are usually understated
b. liabilities are usually overstated
c. liabilities are usually correctly stated
d. none of the above
ANS: A
16. Usually the open voucher payable file is
organized by
a. Vendor
b. payment due date
c. purchase order number
d. transaction date
ANS: B
17. Which of the following statements is not
correct?
a. the voucher system is used to improve
control over cash disbursements
b. the sum of the paid vouchers represents the
voucher payable liability of the firm
c. the voucher system permits the firm to

consolidate payments of several invoices on

one voucher
d. many firms replace accounts payable with a
voucher payable system
ANS: B
18. In the expenditure cycle, general ledger
does not
a. post the journal voucher from the accounts
payable department
b. post the account summary from inventory
control
c. post the journal voucher from the
purchasing department
d. reconcile the inventory control account with
the inventory subsidiary summary
ANS: C
19. The documents in a voucher packet
include all of the following except
a. a check
b. a purchase order
c. a receiving report
d. a suppliers invoice
ANS: A
20. To maintain a good credit rating and to
optimize cash management, cash
disbursements should arrive at the
vendors place of business
a. as soon as possible
b. on the due date
c. on the discount date
d. by the end of the month
ANS: C
21. The cash disbursement clerk performs all
of the following tasks except
a. reviews the supporting documents for
completeness and accuracy
b. prepares checks
c. signs checks
d. marks the supporting documents paid
ANS: C
22. When a cash disbursement in payment of
an accounts payable is recorded
a. the liability account is increased
b. the income statement is changed
c. the cash account is unchanged

d. the liability account is decreased

ANS: D
23. Authorization for payment of an accounts
payable liability is the responsibility of
a. inventory control
b. Purchasing
c. accounts payable
d. cash disbursements
ANS: C
24. Of the following duties, it is most
important to separate
a. warehouse from stores
b. warehouse from inventory control
c. accounts payable and accounts receivable
d. purchasing and accounts receivable
ANS: B
25. In a firm with proper segregation of
duties, adequate supervision is most
critical in
a. Purchasing
b. Receiving
c. accounts payable
d. general ledger
ANS: B
26. The receiving department is not
responsible to
a. inspect shipments received
b. count items received from vendors
c. order goods from vendors
d. safeguard goods until they are transferred
to the warehouse
ANS: C
27. The major risk exposures associated with
the receiving department include all of the
following except
a. goods are accepted without a physical count
b. there is no inspection for goods damaged in
shipment
c. inventories are not secured on the receiving
dock
d. the audit trail is destroyed
ANS: D

28. When searching for unrecorded liabilities

at the end of an accounting period, the
accountant would search all of the files
except
a. the purchase requisition file
b. the cash receipts file
c. the purchase order file
d. the receiving report file
ANS: B
29. In regards to the accounts payable
department, which statement is not true?
a. the purchase requisition shows that the
transaction was authorized
b. the purchase order proves that the
purchase was required
c. the receiving report provides evidence of
the physical receipt of the goods
d. the suppliers invoice indicates the
financial value of the transaction
ANS: B
30. In a computerized system that uses an
economic order quantity (EOQ) model
and the perpetual inventory method, who
determines when to reorder inventory?
a. the inventory control clerk
b. the purchasing department
c. the vendor
d. the computer system
ANS: D
31. Firms can expect that proper use of a valid
vendor file will result in all of the
following benefits except
a. purchasing agents will be discouraged from
improperly ordering inventory from related
parties
b. purchases from fictitious vendors will be
detected
c. the most competitive price will be obtained
d. the risk of purchasing agents receiving
kickbacks and bribes will be reduced
ANS: C
32. In a real-time processing system with a
high number of transactions, the best and
most practical control over cash
disbursements is to have
a. all checks manually signed by the treasurer
b. all checks signed by check-signing equipment

c. checks over a certain dollar amount manually signe

d. checks over a certain dollar amount manually signe
ANS: C
33. The document which will close the open
purchase requisition file is the
a. purchase order
b. vendor invoice
c. receiving report
d. none of the above
ANS: C
34. Goods received are inspected and counted
to
a. determine that the goods are in good condition
b. determine the quantity of goods received
c. preclude payment for goods not received or
received in poor condition
d. all of the above
ANS: D
35. If a company uses a standard cost system,
inventory records can be updated from the
a. vendor invoice
b. purchase order
c. receiving report
d. purchase requisition
ANS: C
36. If a company uses an actual cost system,
inventory records can first be updated
from the
a. vendor invoice
b. purchase order
c. receiving report
d. purchase requisition
ANS: A
37. Copies of a purchase order are sent to all
of the following except
a. inventory control
b. receiving
c. general ledger
d. accounts payable
ANS: C
38. The receiving report
a. is used to update the actual cost inventory
ledger
b. accompanies the goods to the storeroom

c. is sent to general ledger

d. is returned to the vendor to acknowledge
receipt of the goods
ANS: B
39. A supplier invoice
a. is included with the goods
b. shows what was ordered even if all was not shipped
c. is sent by vendor to accounts payable
d. none of the above
ANS: C
40. The cash disbursement function is
a. part of accounts payable
b. an independent accounting function
c. a treasury function
d. part of the general ledger department
ANS: C

Chapter 6The Expenditure Cycle Part II: Payroll Processing and Fixed Asset
Procedures
TRUE/FALSE
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

Time cards are used by cost accounting to allocate direct labor charges to work in process.
The personnel department authorizes changes in employee pay rates.
Most payroll systems for mid-size firms use real-time data processing.
To improve internal control, paychecks should be distributed by the employee's supervisor.
Employee paychecks should be drawn against a special checking account.
Because a time clock is used, no supervision is required when employees enter and leave the work
place.
Inventory control performs the formal record keeping function for fixed assets.
The depreciation schedule shows when assets are fully depreciated.
Authorization to dispose of fixed assets should be issued by the user of the asset.
Work-in-process records are updated by payroll personnel.
Ideally, payroll checks are written on a special bank account used only for payroll.
The supervisor is the best person to determine the existence of a phantom employee and should
distribute paychecks.
Payroll processing can be automated easily because accounting for payroll is very simple.
Timekeeping is part of the personnel function.
Fixed asset accounting systems include cost allocation and matching procedures that are not part of
routine expenditure systems.
Asset maintenance involves only the recording of depreciation charges. Physical improvements are
always expensed.
Fixed Asset Systems must keep track of the physical location of each asset to promote accountability.
Time cards capture the total time an individual worker spends on each production job.
Accounting conventions and IRS rules sometime specify the depreciation parameters to be used.
The fixed asset disposal report authorizes the user department to dispose of a fixed asset.

MULTIPLE CHOICE
1. The document that captures the total
amount of time that individual workers
spend on each production job is called a
a. time card
b. job ticket
c. personnel action form
d. labor distribution form
ANS: B
2. An important reconciliation in the payroll
system is
a. general ledger compares the labor
distribution summary from cost accounting
to the disbursement voucher from accounts

payable
b. personnel compares the number of
employees authorized to receive a paycheck
to the number of paychecks prepared
c. production compares the number of hours
reported on job tickets to the number of
hours reported on time cards
d. payroll compares the labor distribution
summary to the hours reported on time
cards
ANS: A
3. Which internal control is not an important
part of the payroll system?
a. Supervisors verify the accuracy of
employee time cards.
b. Paychecks are distributed by an
independent paymaster.

c. Accounts payable verifies the accuracy of

the payroll register before transferring
payroll funds to the general checking
accounting.
d. General ledger reconciles the labor
distribution summary and the payroll
disbursement voucher.
ANS: C
4. Which transaction is not processed in the
Fixed Asset System?
a. purchase of building
b. improvement of equipment
c. purchase of raw materials
d. sale of company van

value of all fixed assets

ANS: D
9. Which of the following is not a
characteristic of the Fixed Asset System?
a. Acquisitions are routine transactions requiring
general authorization.
b. Retirements are reported on an authorized
disposal report form.
c. Acquisition cost is allocated over the expected
life of the asset.
d. Transfer of fixed assets among departments is
recorded in the fixed asset subsidiary ledger.
ANS: A

ANS: C

10. In the payroll subsystem, which function

should distribute paychecks?
5. Depreciation
a. Personnel
a. is calculated by the department that uses the fixed asset b. Timekeeping
b. allocates the cost of the asset over its useful life
c. Paymaster
c. is recorded weekly
d. Payroll
d. results in book value approximating fair market value
ANS: C
ANS: B
11. Where does the responsibility lie for
6. Depreciation records include all of the
reconciling the labor distribution summary
following information about fixed assets
and the payroll disbursement voucher?
except
a. cash disbursements
a. the economic benefit of purchasing the asset
b. cost accounting
b. the cost of the asset
c. Personnel
c. the depreciation method being used
d. general ledger
d. the location of the asset
ANS: D
ANS: A
12. Which of the following statements is not
7. Which control is not a part of the Fixed
true?
Asset System?
a. Routine payroll processing begins with the
a. formal analysis of the purchase request
submission of time cards.
b. review of the assumptions used in the capital
b. Payroll clerks must verify the hours reported
budgeting model
on the time cards.
c. development of an economic order quantity
c. Payroll reconciles personnel action forms
model
with time cards and prepares paychecks.
d. estimates of anticipated cost savings
d. Cash disbursements signs paychecks and
forwards them to the paymaster for
ANS: C
distribution.
8. Objectives of the Fixed Asset System do
not include
a. authorizing the acquisition of fixed assets
b. recording depreciation expense
c. computing gain and/or loss on disposal of
fixed assets
d. maintaining a record of the fair market

ANS: B
13. In a manufacturing firm, employees use
time cards and job tickets. Which of the
following statements is not correct?
a. Job tickets are prepared by employees for
each job worked on, so an employee may

have more that one job ticket on a given day.

b. An individual employee will have only one
time card.
c. The time reported on job tickets should
reconcile with the time reported on time
cards.
d. Paychecks should be prepared from the job
tickets.
ANS: D
14. Which department is responsible for
approving changes in pay rates for
employees?
a. Payroll
b. Treasurer
c. Personnel
d. cash disbursements
ANS: C

d. Depreciation policies are in writing.

ANS: C
18. Cost accounting updates work-in-process
accounts from
a. time cards
b. the labor distribution summary
c. job tickets
d. personnel action forms
ANS: C
19. Payroll uses time card data to do all of the
following except
a. prepare the payroll register
b. update employee payroll records
c. prepare the labor distribution summary
d. prepare paychecks
ANS: C

15. Which of the following situations

20. Payroll checks are typically drawn on
represents a serious control weakness?
a. Timekeeping is independent of the payroll department. a. the regular checking account
b. a payroll imprest account
b. Paychecks are distributed by the employees immediate supervisor.
c. a wages payable account
c. Time cards are reconciled with job tickets.
petty cash
d. Personnel is responsible for updating employee records, d.
including
creation of records for
new hires.
ANS: B
ANS: B
16. Why would an organization require the
paymaster to deliver all unclaimed
paychecks to the internal audit
department?
a. to detect a phantom employee for whom
a check was produced
b. to prevent an absent employees check
from being lost
c. to avoid paying absent employees for
payday
d. to prevent the paymaster from cashing
unclaimed checks
ANS: A
17. Which of the following is not a reasonable
control for fixed assets?
a. Proper authorization is required for
acquisition and disposal of fixed
assets.
b. Fixed asset records show the location
of each asset.
c. Fully depreciated assets are
immediately disposed of.

21. The personnel action form provides

authorization control by
a. preventing paychecks for terminated
employees
b. verifying pay rates for employees
c. informing payroll of new hires
d. all of the above
ANS: D
22. Accounting records that provide the audit
trail for payroll include all of the
following except
a. time cards
b. job tickets
c. payroll register
d. accounts payable register
ANS: D
23. Personnel actions forms are used to do all
of the following except
a. activate new employees
b. terminate employees
c. record hours worked

d. change pay rates

ANS: C
24. The payroll department performs all of the
following except
a. prepares the payroll register
b. distributes paychecks
c. updates employee payroll records
d. prepares paychecks
ANS: B
25. The document that records the total
amount of time spent on a production job
is the
a. time card
b. job ticket
c. labor distribution summary
d. personnel action form
ANS: C
26. A control technique that can reduce the
risk of a terminated employee being paid
is
a. a security camera viewing the time clock
b. the supervisor taking role during the shift
c. paychecks being distributed by an independent
paymaster
d. reconciliation of time cards and job tickets
ANS: C
27. Accounts payable
a. signs paychecks
b. prepares the payroll voucher
c. reconciles time cards and employee records
d. distributes paychecks to employees
ANS: B
28. All of the following are processed by the
Fixed Asset System except
a. sale of unneeded equipment
b. purchase of raw materials
c. repair of production equipment
d. purchase of a new plant
ANS: B
29. The Fixed Asset System performs all of
the following except
a. determines the need for new assets
b. maintains depreciation records

c. records retirement and disposal of

assets
d. tracks the physical location of fixed
assets
ANS: A
30. The payroll department performs all of the
following except
a. prepares paychecks
b. transfers adequate funds to the payroll imprest
account
c. updates employee payroll records
d. prepares the payroll register
ANS: B
31. Depreciation
a. assures that assets are reported at fair market
value
b. is discretionary for many firms
c. allocates the cost of an asset over its useful life
d. is the responsibility of the department using
the asset
ANS: C
32. The Fixed Asset System is similar to the
expenditure cycle except
a. fixed asset transactions are non-routine and
require special authorization and controls
b. fixed assets are capitalized, not expensed
c. both a and b
d. none of the above
ANS: C
33. Asset maintenance involves
a. the recording of periodic depreciation
b. adjusting the asset records to reflect the cost
of physical improvements
c. keeping track of the physical location of the
assets
d. all of the above
ANS: D
34. The Fixed Asset Systems does all of the
following except
a. records acquisition of assets
b. records improvements to assets
c. estimates the fair market value of assets in
service
d. records the disposal of assets
ANS: C

35. Asset disposal

a. occurs as soon as an asset is fully
depreciated
b. requires no special authorization
c. automatically initiates the purchase of a
replacement asset
d. must follow formal authorization
procedures
ANS: D