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Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 13 The Expenditure Cycle: Purchasing to Cash Disbursements
1) The Squishy Things Toy Company was established in 1948. It recently signed a large contract with a
chain of retail toy stores. As a condition of the contract, the Squishy will be required to track and
forecast product sales by linking in to the chain's sales database. Squishy will then be responsible for
shipping products to the chain's regional warehouses as needed. The relationship between Squishy and
the chain is an example of
A) vendor-managed inventory.
B) sales force automation.
C) electronic data interchange.
D) optical character recognition.
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.
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
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.
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.
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?
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
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.
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.
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.
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
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
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.
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.
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
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.
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.
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
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.
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.
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.
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.
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.
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
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
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.
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
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
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
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
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.
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.
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.
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.
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Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
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
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.
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.
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.
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.
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
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
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
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.
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.
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
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
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
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.
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
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
