Accounting Information Systems, 13e (Romney/Steinbart)
Chapter 13 The Expenditure Cycle: Purchasing to Cash Disbursements
13.1 Explain the basic business activities and related information processing operations
performed in the expenditure cycle.
1) The Gwallter Reece Chihuahua Sweater Co. (GRCCo) was established in 2013. It recently
signed a large contract with PetCo pet stores. GRCCo will be required to track and forecast
sweater sales by linking in to PetCo’s sales database. GRCCo will then be responsible for
shipping products to PetCo as needed. The relationship between GRCCo and PetCo is an
example of
A) sales force automation.
B) electronic data interchange.
C) optical character recognition.
D) vendor-managed inventory.
2) One of the basic activities in the expenditure cycle is the receiving and storage of goods,
supplies, and services. What is the counterpart of this activity in the revenue cycle?
A) sales order entry process
B) shipping function
C) cash collection activity
D) cash payments activity
3) 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.
4) 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.
5) The ________ specifies the point at which inventory is needed.
A) company inventory policies
B) reorder point
C) economic order quantity
D) stockout point
6) Which electronic files are either read or updated when goods are ordered from a vendor?
A) inventory, vendors, and accounts payable
B) vendors and accounts payable
C) inventory, vendors, and open purchase orders
D) open purchase orders and accounts payable
7) What is a key feature of materials requirements planning (MRP)?
A) minimize or entirely eliminate carrying and stockout costs
B) reduce required inventory levels by scheduling production rather than estimating needs
C) determine the optimal reorder point
D) determine the optimal order size
8) 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 is correct.
9) ________ attempts to minimize or eliminate carrying and stockout costs.
A) Just-in-time inventory
B) Materials requirements planning
C) Economic order quantity
D) Evaluated receipt settlement
10) Just-In-Time (JIT) inventory is best characterized by
A) frequent deliveries of large quantities to be held at the work centers.
B) frequent deliveries of smaller quantities of items to 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.
11) 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.
12) When would an MRP inventory approach be a preferred to a JIT inventory approach?
A) when a product has a short life cycle
B) when demand for inventory is fairly predictable
C) when demand for inventory is very unpredictable
D) MRP is always a preferred method over JIT.
13) Which of the following is least likely to be a major criterion in vendor selection?
A) prices of goods
B) credit rating of the vendor
C) quality of goods
D) ability to deliver on time
14) 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.
15) Duc An Incorporated provides free coffee to employees. Starbucks delivers coffee packages,
sugar, creamer, and filters each week. Every month, Starbucks sends Duc An an invoice. This
arrangement is best described as a
A) set purchase order.
B) fixed purchase order.
C) blanket purchase order.
D) standard purchase order.
16) 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. The name of this technique is
A) an EDI auction.
B) a trading exchange.
C) a reverse auction.
D) a supplier consortium.
17) 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
18) 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
19) 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.
20) 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
21) 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
22) 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
23) 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
24) 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.
25) 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.
26) 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.
27) 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.
28) 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.
29) 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.
30) 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
31) 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.
32) The Gwallter Reece Chihuahua Sweater Co. (GRCCo) was established in 2013. It recently
signed a large contract with PetCo pet stores. GRCCo will be required to track and forecast
sweater sales. The technology that is used for communication between GRCCo and PetCo is
A) electronic data interchange.
B) vendor-managed inventory.
C) sales force automation.
D) optical character recognition.
33) Ngai Nhung is the sales manager at Hung Technologies. At lunch with the company CEO,
Ngai proudly announced that he had negotiated a(n) ________ with a client that represented the
customer’s long-term commitment to buy components from Hung.
A) purchase order
B) evaluated receipt settlement
C) voucher
D) blanket purchase order
34) Ngai Nhung is the sales manager at Hung Technologies. At lunch with the company CEO,
Ngai proudly announced that he had received a ________ from a client. The client had just
requested a large quantity of components from Hung.
A) blanket purchase order
B) voucher
C) purchase order
D) purchase requisition
35) Ngai Nhung is the sales manager at Hung Technologies. At lunch with the company CEO,
Ngai complained that a recent shipment from a vendor had been unsatisfactory and was returned.
As a result, Hung’s purchasing manager needed to send a ________ to the supplier.
A) debit memo
B) purchase order
C) blanket purchase order
D) receiving report
36) To minimize the number of checks that need to be written to pay vendor invoices, a company
should use
A) a voucher system.
B) a just-in-time inventory system.
C) a nonvoucher system.
D) an evaluated receipt settlement system.
37) 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.
38) 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.
39) 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.
40) Define and describe the EOQ approach to inventory management.
41) Discuss the differences between EOQ, MRP, and JIT.
42) a) What is the major cost driver in the purchasing function? b) Describe how information
technology can be used to control this cost driver.
43) Explain what is meant by the expenditure cycle as a “mirror image” of the revenue cycle.
44) How can information technology be used to improve the vendor invoice approval process?
45) Under what conditions is MRP more suitable than JIT and vice versa?
46) Identify the department below that should not be able to submit a purchase requisition.
A) Marketing
B) Production
C) Inventory Control
D) None of the above
47) Once a purchase request is approved, what is the next step?
A) The system creates a purchase order.
B) The accounts payable department approves the purchase request, creating a purchase order.
C) The inventory master file is accessed to find the preferred supplier(s).
D) The department that created the purchase request may buy the requested item(s).
48) EFT payments are generally performed by
A) the treasurer.
B) a cashier.
C) an accounts payable clerk.
D) a credit manager.
49) Which of the following is not an activity performed in the expenditure cycle?
A) ordering
B) receiving
C) cash disbursement
D) shipping
50) The first major business activity in the expenditure cycle is
A) ordering inventory, supplies, or services.
B) a customer sale.
C) shipping goods to customers.
D) receiving goods from vendors.
51) The traditional approach to inventory management generally involves
A) high stockout costs.
B) minimizing item cost.
C) receiving goods or services just prior to the time they are needed.
D) maintaining inventory levels so that production can continue even if inventory use is greater
than expected.
52) True or False: Under the EOQ inventory approach, carrying costs are usually ignored for
low-cost/low-usage items.
53) True or False: The EOQ approach to managing inventory has been gaining popularity in
recent years.
54) Although there are some similarities between JIT and MRP, identify one major difference
below.
A) production scheduling
B) reducing the opportunity for inventory theft
C) reducing inventory carrying costs
D) requires more analysis than EOQ