Chapter 7
ACCOUNTING INFORMATION SYSTEMS
1. Accounting information systems collect and process data from transactions and events,
organize them in useful reports, and communicate results to decision makers.
2. Accounting information systems are so accurate that decision makers in practice do not
need a basic knowledge of how the systems work.
3. The five basic principles of accounting information systems are control, competency,
compatibility, flexibility and cost-benefit.
4. Internal controls include policies to direct operations toward common goals, procedures to
ensure reliable financial reports, safeguards to protect company assets and methods to achieve
compliance with laws and regulations.
5. The flexibility principle prescribes that an accounting information system conform with a
company’s activities, personnel, and structure and adapt to a company’s unique
characteristics.
6. The compatibility principle requires that an accounting system report useful,
understandable, timely, and pertinent information for effective decision making.
7. The cost-benefit principle prescribes that the benefits from an activity in an accounting
information system outweigh the costs of that activity.
8. Accounting information systems are designed to capture information about a company’s
transactions and events and to provide output including financial, managerial, and tax reports.
9. Due to electronic files and Web communications, source documents are no longer
required.
10. Accurate source documents are crucial to accounting systems to limit the possibility of
entering faulty data into the system.
11. With advanced technology there is no need to trace information that has been entered into
an accounting information system to its source.
12. With on-line systems, all information storage should be off-line to protect the data.
13. Accounting information processes are structured to eliminate the need for professional
judgment.
14. Auditors rely on accounting system databases when they audit financial statements and a
company’s controls.
15. Input devices are the means to make accounting information available to users.
16. Input devices include journal entries, keyboards, scanners, and modems.
17. A special journal is used to record and post transactions of a similar type.
18. A sales journal is used to record cash sales.
19. The purchases journal is used to record cash purchases of merchandise.
20. The general journal is used for transactions not covered by special journals and for
adjusting, closing, and correcting entries.
21. Special journals allow an efficient division of labor, which is also an effective control
procedure.
22. When posting from special journals each debit and credit entry is entered as a separate
amount in the general ledger.
23. Most transactions for merchandising businesses fall into four groups: sales, purchases,
cash receipts, and cash disbursements.
24. Special journals are designed in a manner that is best suited for each business, so good
systems design for a business could include collapsing the sales and cash receipts journal into
one journal.
25. A subsidiary ledger is a listing of individual accounts with a common characteristic.
26. Two common subsidiary ledgers are cash receipts and cash disbursements.
27. The accounts payable ledger is used for storing transactions data regarding individual
customers.
28. The accounts payable ledger has a controlling account in the general ledger and a separate
subsidiary account for each creditor in the accounts payable ledger.
29. Equipment, inventory, and investments are other accounts that can include detailed
information in a subsidiary ledger.
30. Subsidiary ledgers are not needed in perpetual inventory systems because the accounting
system captures sufficient details to support analyses that decision makers need.
31. An advantage of online processing is up-to-date databases.
32. Off-the-shelf accounting software is not adequate to meet the needs of small businesses.
33. Enterprise resource planning software packages include the programs that manage a
company’s vital operations.
34. Computer networks are links among computers giving different users and different
computers access to common databases and programs.
35. Enterprise resource planning software is primarily used for recording journal entries.
36. Most companies use batch processing instead of online processing because batch
processing immediately updates databases.
37. The SAP enterprise-resource planning software is already being used to help direct the
operations of many of the world’s largest companies.
38. A business segment is a part of a company that is separately identified by its products or
services, or by the geographic market it serves.
39. Segment return on assets is segment operating income divided by segment average assets.
40. External users of financial statements are generally uninterested in segment information to
understand a company’s business activities.
41. Segment information is often useful to investors for evaluating a company’s profitability,
risk, and growth.
42. A columnar journal is any journal with only one column.
43. Individual transactions in the sales journal are regularly posted to customer accounts in the
accounts payable ledger.
44. Three transactions that would be recorded in the sales journal are: (1) recording sales
taxes (2) recording sales returns and allowances and (3) recording purchases discounts.
45. Each transaction recorded in the sales journal yields a debit to Accounts Receivable and a
credit to Sales.
46. Posting debits from the Sales journal to Accounts Receivable twice – once to the general
ledger account Accounts Receivable and once to the customer’s subsidiary account – violates
the accounting equation of debits equal credits.
47. A procedure called direct posting of sales invoices can substitute for the sales journal.
48. Account balances in the general ledger and the subsidiary ledgers should be proved for
accuracy after posting is complete.
49. A schedule of accounts receivable is a listing of all creditor accounts and account
balances.
50. If the total balance of the accounts receivable ledger equals the total of the controlling
Accounts Receivable account, then the accounts are presumed to be correct.
51. To check for accuracy after posting: first a trial balance is completed, then, the subsidiary
ledgers are tested by preparing a schedule of the controlling account.
52. A company using the periodic inventory system does not record the increase in cost of
goods sold and decrease in inventory at the time of each sale in the sales journal.
53. The purchases journal is identical under both the periodic and the perpetual inventory
systems.
54. The difference in the sales journal between the perpetual and periodic inventory systems is
that a column is used to record cost of goods sold and inventory amounts for each sale under
the perpetual system but not the periodic system.
55. All of the following statements regarding accounting information systems are true except:
A. Accounting information systems collect and process data from transactions and events.
B. Accounting information systems organize data in useful forms.
C. Accounting information systems do not establish internal control procedures.
D. Accounting information systems are crucial to effective decision making.
E. Accounting information systems communicate information to business decision makers.
56. All of the following statements regarding internal control procedures are true except:
A. Internal control procedures are designed to ensure reliable financial reports.
B. Internal control procedures are designed to safeguards company assets.
C. Internal control procedures direct operations toward common goals.
D. Internal control procedures include methods to achieve compliance with laws and
regulation.
E. Internal control procedures are not affected by the cost-benefit principle.
57. The control principle for accounting information systems requires that the:
A. Benefits from an activity outweigh the costs of the activity.
B. System report useful, understandable, timely, and pertinent information for effective
decision making.
C. System must have internal controls.
D. System adapts to changes in the company, business environment, and needs of decision
makers.
E. System conforms to a company’s activities, personnel, and structure.
58. The flexibility principle of accounting information systems prescribes that the:
A. Benefits from an activity outweigh the costs of the activity.
B. System report useful, understandable, timely, and pertinent information for effective
decision making.
C. System aid managers in controlling and monitoring business activities.
D. System be able to adapt to changes in the company, business environment, and needs of
decision makers.
E. System conforms to a company’s activities, personnel, and structure.
59. The accounting principle that prescribes an accounting information system to report
useful, understandable, timely, and pertinent information for effective decision-making is the:
A. Control principle.
B. Compatibility principle.
C. Relevance principle.
D. Flexibility principle.
E. Cost-Benefit principle.
60. The five fundamental principles of accounting information systems are:
A. Control, accountability, relevance, compatibility, and flexibility.
B. Historical cost, relevance, compatibility, flexibility, and cost-benefit.
C. Control, relevance, compatibility, flexibility, and safety.
D. Control, relevance, compatibility, timeliness, and cost-benefit.
E. Control, relevance, compatibility, flexibility, and cost-benefit.
61. All of the following statements regarding accounting information systems are true except:
A. Accounting information systems consist of people, records, methods, and equipment.
B. Accounting information systems have the same goals and share basic components.
C. Accounting information systems are less important than ever to decision makers.
D. Accounting information systems are designed to provide output including financial,
managerial, and tax reports.
E. Accounting information systems are designed to capture information about a company’s
transactions.
62. The basic components of an accounting information system include all of the following
except:
A. Source documents.
B. Warehouses.
C. Information processors.
D. Information storage.
E. Input devices.
63. Source documents:
A. Are input devices.
B. Provide the basic information processed by an accounting system.
C. Cannot be electronic files.
D. Store processed information for future use.
E. Cannot be paper documents.
64. Input devices include:
A. Bar-code readers.
B. Printers.
C. Software.
D. Ledgers.
E. Information processors.
65. Information storage:
A. Eliminates the need for professional judgment.
B. Keeps data in a form accessible to information processors.
C. Provides the basic information processed by an accounting system.
D. Captures information from source documents.
E. Cannot be online.