161
Chapter 4—Accounting Information Systems
Multiple
Choice
Learning
Goal(s)
Level of
Difficulty
AACSB
Tag
AICPA
Tag
Multiple
Choice
Learning
Goal(s)
Level of
Difficulty
AACSB
Tag
1
1
Easy
Reflective
Reporting
37
3
Moderate
Reflective
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1
Moderate
Reflective
Reporting
38
3
Moderate
Reflective
3
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Easy
Reflective
Reporting
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Moderate
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Reflective
Reporting
40
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Difficult
Reflective
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1
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Reflective
Reporting
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Easy
Reflective
6
1
Easy
Reflective
Reporting
42
3
Easy
Analytic
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1
Difficult
Reflective
Reporting
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Easy
Analytic
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2
Easy
Reflective
Reporting
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3
Easy
Reflective
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2
Easy
Reflective
Reporting
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3
Easy
Reflective
10
2
Easy
Reflective
Reporting
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3
Moderate
Reflective
11
2
Easy
Reflective
Reporting
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3
Moderate
Reflective
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2
Easy
Reflective
Reporting
48
4
Difficult
Analytic
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2
Easy
Reflective
Reporting
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Difficult
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14
2
Easy
Reflective
Reporting
50
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Moderate
Analytic
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Easy
Reflective
Reporting
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Moderate
Analytic
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Reflective
Reporting
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Reflective
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Reporting
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3
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Reporting
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Easy
Reflective
Reporting
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Easy
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Reporting
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Reflective
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Easy
Reflective
Reporting
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4
Moderate
Reflective
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3
Moderate
Analytic
Reporting
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Moderate
Reflective
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Reporting
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Moderate
Analytic
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3
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Reflective
Reporting
65
4
Easy
Reflective
30
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Easy
Reflective
Reporting
66
5
Moderate
Reflective
31
3
Easy
Reflective
Reporting
67
6
Easy
Reflective
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3
Easy
Analytic
Reporting
68
6
Moderate
Reflective
33
3
Difficult
Analytic
Reporting
69
Appendix
Moderate
Reflective
34
3
Difficult
Analytic
Reporting
70
Appendix
Easy
Reflective
35
3
Difficult
Reflective
Reporting
71
Appendix
Easy
Reflective
36
3
Moderate
Reflective
Reporting
162 ♦ Chapter 4
True/
False
Learning
Goal(s)
Level of
Difficulty
AACSB
Tag
1
1
Moderate
Reflective
2
1
Moderate
Reflective
3
1
Moderate
Reflective
4
1
Moderate
Reflective
5
1
Moderate
Reflective
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2
Moderate
Reflective
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Moderate
Reflective
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2
Moderate
Reflective
9
3
Moderate
Reflective
10
3
Moderate
Reflective
11
3
Difficult
Reflective
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3
Difficult
Reflective
13
3
Moderate
Reflective
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3
Moderate
Reflective
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3
Moderate
Reflective
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3
Moderate
Reflective
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Moderate
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4
Moderate
Reflective
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4
Moderate
Reflective
32
4
Moderate
Reflective
33
4
Moderate
Reflective
34
3,4
Difficult
Reflective
35
5
Moderate
Reflective
36
5
Moderate
Reflective
37
6
Moderate
Reflective
Essay
Learning
Goal(s)
Level of
Difficulty
AACSB
Tag
AICPA
Tag
1
1
Moderate
Reflective
Reporting
2
2
Moderate
Reflective
Reporting
3
3
Moderate
Reflective
Reporting
4
3
Moderate
Reflective
Reporting
5
3
Difficult
Reflective
Reporting
6
3
Moderate
Reflective
Reporting
7
3, 4
Moderate
Reflective
Reporting
8
4
Moderate
Reflective
Reporting
9
4
Moderate
Reflective
Reporting
10
4
Difficult
Reflective
Reporting
11
5
Difficult
Reflective
Reporting
12
6
Difficult
Reflective
Reporting
Problem
Learning
Goal(s)
Level of
Difficulty
AACSB
Tag
AICPA
Tag
1
3
Difficult
Analytic
Reporting
2
4
Difficult
Analytic
Reporting
3
4
Difficult
Analytic
Analytic
4
4
Difficult
Analytic
Analytic
5
Append
Difficult
Analytic
Analytic
6
3
Difficult
Analytic
Analytic
7
4
Difficult
Analytic
Analytic
8
4
Difficult
Analytic
Analytic
9
4
Difficult
Analytic
Analytic
10
Append
Difficult
Analytic
Analytic
Case
Learning
Goal(s)
Level of
Difficulty
AACSB
Tag
AICPA
Tag
1
4
Difficult
Analytic
Reporting
2
4
Difficult
Analytic
Reporting
3
4
Difficult
Analytic
Reporting
4
6
Difficult
Analytic
Reporting
Difficulty Ratings
Guide:
Easy
Taken nearly verbatim
from the text
Moderate
Using different expression
or application of concept
Difficult
Several reasoning steps
Accounting Information Systems ♦ 163
MULTIPLE CHOICE
1. In designing a business information system, who must be first identified and their information
needs determined?
a.
end users of information
b.
Customers
c.
Vendors and suppliers
d.
None of the above
2. Who would NOT be considered an information user of a business information system?
a.
Managers
b.
Operational employees
c.
Creditors
d.
Competitors
3. Controls should be designed into the collection process to ensure that the data are __________.
a.
Accurate
b.
Timely
c.
Complete
d.
All of the above
4. Controls should be designed into the information system so that errors are __________.
a.
Prevented and detected
b.
Detected only
c.
Minimized
d.
Caught periodically
5. Controls provide assurance that transactions are __________.
a.
Prevented and detected
b.
Accurately recorded
c.
Minimized
d.
Limited periodically
164 ♦ Chapter 4
6. All business information systems share common elements. which include
a.
Data sources
b.
Stakeholders
c.
Database management
d.
all of the above
7. An example of a standardized format prepared for an external user would be
a.
Balance sheet
b.
Managerial reports
c.
Operational reports
d.
all of the above
8. Accounting information systems normally consist of all of the following except __________.
a.
Management reporting system
b.
Transaction processing system
c.
Financial reporting system
d.
Distributed network system
9. A management reporting system provides what type of information to assist managers in making
decisions?
a.
Internal
b.
external
c.
Regulatory
d.
Stockholder
10. Which would NOT be an example of nonfinancial information from a management reporting
system?
a.
Budget reports
b.
employee turnover reports
c.
Financial statements
d.
Sales mix analysis
11. Which system records and summarizes the effects of financial transactions on the business?
a.
Management reporting system
b.
Transaction processing system
c.
Financial reporting system
d.
Income tax and regulatory system
Accounting Information Systems ♦ 165
12. Which of the following is NOT a common transaction cycle?
a.
Production cycle
b.
Revenue cycle
c.
Payroll cycle
d.
Inventory cycle
13. __________ cycle transactions involve providing services or selling goods.
a.
Payroll
b.
Inventory
c.
Revenue
d.
Treasury
14. __________ cycle transactions involve buying assets for the use in the normal operations of the
business.
a.
Purchasing
b.
Inventory
c.
Revenue
d.
Treasury
15. __________ cycle transactions involve the hiring and paying of employees.
a.
Payroll
b.
Inventory
c.
Revenue
d.
Treasury
16. __________ cycle transactions involve the conversion of raw materials into a finished product
through the use of a production process.
a.
Payroll
b.
Inventory
c.
Revenue
d.
Treasury
17. __________ cycle transactions involve financing the operations of the business.
a.
Payroll
b.
Inventory
c.
Revenue
d.
Treasury
166 ♦ Chapter 4
18. Examples of treasury cycle transactions include all of the following except __________.
a.
Payment of dividends
b.
Storing gold in Fort Knox
c.
Payment of long-term debt
d.
Issuing capital stock
19. Since some companies have millions of transactions daily, one element in which transactions are
recorded efficiently is the __________.
a.
Accounting system
b.
Ledger
c.
Computer
d.
Account
20. Which of the following is NOT one of the three parts of an account?
a.
Title
b.
Space for recording increases
c.
extra lines
d.
Space for recording decreases
21. In the cash account, transactions involving cash payments are ____________.
a.
Debited
b.
Credited
c.
T accounts
d.
All of the above
22. In a “T” account, the left side is called the __________.
a.
Increase side
b.
Decrease side
c.
Credit side
d.
Debit side
23. If the Cash account starts with a $10,000 debit balance and has $2,000 worth of debits and $4,000
of credits, what is the balance in the cash account?
a.
$8,000 credit
b.
$8,000 debit
c.
$12,000 debit
d.
$12,000 credit
Accounting Information Systems ♦ 167
24. Which of the following accounts are NOT increased by debiting the account?
a.
Assets
b.
expenses
c.
Dividends
d.
Revenues
25. Which of the following accounts are NOT increased by crediting the account?
a.
Assets
b.
Liabilities
c.
Stockholders’ equity
d.
Revenues
26. The only account(s) on the left side of the accounting equation that are NOT increased by a debit
are __________.
a.
Liabilities
b.
Dividends
c.
Contra assets
d.
Revenues
27. The only account(s) on the right side of the accounting equation that are NOT increased by a debit
are __________.
a.
expenses
b.
Dividends
c.
Revenues
d.
None of the above are increased by a debit
28. Which of the following is a rule of debit and credit for each transaction?
a.
Liabilities must equal assets
b.
Revenues must equal expenses
c.
Assets must equal Stockholders’ equity
d.
Total debits must equal total credits
29. Accumulated depreciation is an offset to which account?
a.
Plant assets
b.
Liabilities
c.
Stockholders’ equity
d.
All of the above
168 ♦ Chapter 4
30. Accumulated depreciation is what type of account?
a.
Liability
b.
Stockholders’ equity
c.
Income statement
d.
Contra asset
31. Each transaction is initially entered chronologically in a record called __________.
a.
A journal
b.
A T-account
c.
A ledger
d.
An entry
Offline, Inc.
In October, Offline, Inc. entered into the following transactions:
10/1
Paid $2,000 for wages earned by employees
10/2
Purchased supplies on account for $1,500
10/5
Received a utility bill and paid $500
10/11
Received $750 for services provided to customers for cash.
32. Refer to Offline, Inc. The journal entry for the 10/1 transaction is __________.
a.
Wage expense $2,000
Wages payable $2,000
b.
Cash $2,000
Wage expense $2,000
c.
Wage expense $2,000
Cash $2,000
d.
None of the above
33. Refer to Offline, Inc. The journal entry for the 10/2 transaction is __________.
a.
Supplies $1,500
Accounts Payable $1,500
b.
Accounts Payable $1,500
Supplies $1,500
c.
Supplies expense $1,500
Accounts Payable $1,500
d.
None of the above
Accounting Information Systems ♦ 169
34. Refer to Offline, Inc. The journal entry for the 10/5 transaction is __________.
a.
Utility payable 500
Utility expense 500
b.
Utility expense 500
Utility payable 500
c.
Utility expense 500
Cash 500
d.
None of the above
35. Refer to Offline, Inc. The journal entry for the 10/11 transaction is __________.
a.
Accounts receivable 750
Fees earned 750
b.
Cash 750
Fees earned 750
c.
Cash 750
Accounts receivable 750
d.
None of the above
36. Which of the following represents a payment to creditors?
a.
Wage expense XXX
Cash XXX
b.
Rent expense XXX
Cash XXX
c.
Cash XXX
Fees earned XXX
d.
Accounts payable XXX
Cash XXX
37. Which of the following represents a receipt of fees earned in the current month?
a.
Wage expense XXX
Cash XXX
b.
Rent expense XXX
Cash XXX
c.
Cash XXX
Fees earned XXX
d.
Accounts payable XXX
Cash XXX
170 ♦ Chapter 4
38. Which of the following represents a payment for this months’ rent?
a.
Wage expense XXX
Cash XXX
b.
Rent expense XXX
Cash XXX
c.
Cash XXX
Fees earned XXX
d.
Accounts payable XXX
Cash XXX
39. Which of the following represents payment for wages?
a.
Wage expense XXX
Cash XXX
b.
Rent expense XXX
Cash XXX
c.
Cash XXX
Fees earned XXX
d.
Accounts payable XXX
Cash XXX
40. The journal entry below represents:
Cash
1,000
Accounts Receivable
1,000
a.
Received 1,000 from customers in payment of their accounts
b.
Billed customers 1,000 for fees earned
c.
Received 1,000 for fees earned
d.
None of the above
41. Which of the following journal entries represents a purchase of supplies on account?
a.
Supplies XXX
Cash XXX
b.
Cash XXX
Supplies XXX
c.
Supplies XXX
Accounts payable XXX
d.
Accounts payable XXX
Supplies XXX
Accounting Information Systems ♦ 171
42. The group of accounts for a business is called its
a.
Financial statements
b.
General journal
c.
T accounts
d.
General ledger
43. The process of transferring the debits and credits from the journal entries to the ledger accounts is
called __________.
a.
Debiting and crediting
b.
Recording
c.
Posting
d.
Journalizing
44. What does a trial balance tell you?
a.
The cash balance is correct
b.
Assets = Liabilities + Stockholders’ equity
c.
There are no errors in the accounts
d.
Debits = Credits
45. Unearned rent revenue is what type of account?
a.
Liability
b.
Revenue
c.
Deferred cash
d.
It is not an account
46. Which of the following is NOT a stockholders’ equity account?
a.
Unearned rent
b.
Capital stock
c.
Retained earnings
d.
All of the above is a stockholders’ equity account
47. Which of the following is NOT a balance sheet account?
a.
Accounts receivable
b.
Unearned rent
c.
Capital stock
d.
Fees earned
172 ♦ Chapter 4
48. Which of the following adjusting journal entries show that $500 of insurance premiums expired
during the month?
a.
Prepaid insurance 500
Insurance expense 500
b.
Prepaid insurance 500
Cash 500
c.
Insurance expense 500
Prepaid insurance 500
d.
Insurance expense 500
Cash 500
49. Which entry would be made to accrue wages of $750?
a.
Wage expense 750
Cash 750
b.
Wage expense 750
Wages payable 750
c.
Wages payable 750
Wage expense 750
d.
None of the above
50. Which entry shows revenue earned and billed but NOT yet collected?
a.
Cash XXX
Accounts receivable XXX
b.
Revenue XXX
Cash XXX
c.
Accounts receivable XXX
Revenue XXX
d.
Accounts receivable XXX
Cash XXX
51. Which entry shows recording depreciation expense?
a.
Depreciation expense XXX
Accumulated depreciation XXX
b.
Depreciation expense XXX
Cash XXX
c.
Depreciation expense XXX
Depreciation payable XXX
d.
Accumulated depreciation XXX
Depreciation expense XXX
Accounting Information Systems ♦ 173
52. Which of the following is NOT a basic element of a financial reporting system?
a.
Adjusting entries
b.
Financial statements
c.
Closing entries
d.
Accounts and rules for recording transactions
53. What step in the accounting cycle is performed after posting adjusting entries to the ledger?
a.
Nothing, the accounting cycle is complete
b.
Reposting journal entries
c.
Closing entries
d.
Prepare an adjusted trial balance
54. After preparing an adjusted trial balance, what is the next step in the accounting cycle?
a.
Posting adjusting entries
b.
Balancing the ledger accounts
c.
Preparing the financial statements
d.
Preparing closing entries
55. Which of the following would NOT require an adjusting entry at the end of the period?
a.
Fees earned for cash
b.
Wages accrued but not paid
c.
Depreciation of office equipment
d.
Unearned rent earned during the period
56. Which statement cannot be prepared directly from the adjusted trial balance?
a.
Balance sheet
b.
Income statement
c.
Statement of cash flows
d.
All can be prepared directly from the adjusted trial balance
57. The annual accounting period adopted by a business is known as its __________.
a.
Revenues
b.
Income statement
c.
Fiscal year
d.
Calendar year
174 ♦ Chapter 4
58. The fiscal year known as the natural business year is
a.
the year that coincides with the calendar year.
b.
the year that ends when business activities have reached the lowest point in the annual
operating cycle.
c.
the year that ends when business activities have reached the highest point in the annual
operating cycle
d.
the year that begins in January and ends in December
59. Permanent accounts are reported on which financial statement?
a.
Balance sheet
b.
Income statement
c.
Statement of cash flows
d.
Permanent accounts are reported on all the statements
60. Temporary accounts are reported on which financial statement?
a.
Balance sheet
b.
Income statement
c.
Statement of cash flows
d.
Temporary accounts are never reported on the statements
61. Closing entries are performed for all of the following except __________.
a.
Dividends
b.
Assets
c.
Revenues
d.
expenses
62. Revenues are closed to which account?
a.
Assets
b.
Dividends
c.
expenses
d.
Retained earnings
63. After posting closing entries, which accounts will have zero balances?
a.
Revenues
b.
Dividends
c.
expenses
d.
All of the above
64. Which entry shows dividends being closed to retained earnings?
a.
Retained earnings XXX
Cash XXX
b.
Revenue XXX
Dividends XXX
c.
Retained earnings XXX
Dividends XXX
d.
Dividends XXX
Retained earnings XXX
65. The amounts in the post-closing trial balance agree exactly with __________.
a.
The balance sheet
b.
The statement of retained earnings
c.
Results of operations
d.
Stockholders’ equity report
66. The accounting cycle can be summarized into basic steps. The unadjusted trial balance is prepared
after.
a.
Transactions are recorded in the journal and posted to the ledger.
b.
Adjusted data are recorded in the journal.
c.
Closing entries are recorded and posted to the ledger.
d.
The financial statements are prepared.
67. When stakeholders adjust financial statement data for use in their analyses, such adjustments are
called __________.
a.
Tax accounting
b.
Stockholders’ equity reports
c.
Managerial accounting
d.
Pro forma
68. One common type of pro forma computation that is reported is
a.
retained earnings
b.
earnings before interest, taxes, depreciation, and amortization
c.
earnings before adjustments for accruals and deferrals
d.
earnings before expenses, depreciation and amortization
176 ♦ Chapter 4
69. Which statement shows the changes in the cash account?
a.
Income statement.
b.
Balance sheet
c.
Statement of cash flows
d.
Retained earnings statement
70. Which of the following is NOT a section in the statement of cash flows?
a.
Operating activities
b.
Investing activities
c.
Financing activities
d.
All of the above are sections in the statement of cash flows
71. Which statement converts accrual accounting to cash basis accounting?
a.
Income statement.
b.
Balance sheet
c.
Statement of cash flows
d.
Retained earnings statement
TRUE/FALSE
1. A business information system collects and processes data and distributes the information to users.
2. Accounting information systems are designed to efficiently record a large number of transactions..
3. The information needs of internal users are the same throughout the business in form and content.
4. The personnel system should include a control that would prevent an employee from accruing
vacation time beyond the total allowable.
Accounting Information Systems ♦ 177
5. The various information systems of a business should be linked to the other systems for
operational efficiency and effectiveness..
6. An accounting information system processes financial and operational data into reports useful to
external stakeholders only.
7. To efficiently process a large volume of transactions, most businesses group similar repetitive
transactions into transaction cycles.
8. The financial reporting system produces budget reports.
9. Transaction processing systems should include controls to prevent and detect errors in the
recording and summarization process.
10. Amounts entered on the left side of an account are called credits..
11. Debits always increase an account balance.
12. If business transactions were recorded differently, the comparability between companies is
enhanced..
13. Credits are always on the right side of a “T” account.
14. The rules of debit and credit are different for large versus small companies.
178 ♦ Chapter 4
15. Assets are increased via debits.
16. Revenues are increased via credits.
17. Dividends and expenses are both increased by debits to their respective accounts.
18. The normal balance of an account is the side of the account used to record increases.
19. Accounts on the left side of the accounting equation are normally increased by debits.
20. The double-entry accounting system refers to the equality of debits and credits for each transaction
that is built into the basic accounting equation.
21. The ledger provides a chronological record of transactions.
22. A journal entry records a transaction in the journal..
23. The list of accounts in the general ledger is called the chart of accounts.
24. A proof to ensure that debits = credits is called a balance sheet.
Accounting Information Systems ♦ 179
25. The trial balance does NOT provide complete proof of accuracy of a ledger.
26. Accumulated depreciation is a liability account.
27. Closing entries are made to bring liability account balances to zero.
28. Unlike regular journal entries, adjusting entries are NOT posted to the general ledger.
29. When unearned rent is earned, it becomes a revenue.
30. Wages accrued but not paid generates a receivable.
31. The accounting period most commonly used by companies is the fiscal year.
32. Permanent accounts are closed at the end of the accounting period.
33. Temporary accounts are closed to liability accounts.
34. The retained earnings reported in the post-closing trial balance is the same as the retained earnings
reported in the trial balance.
180 ♦ Chapter 4
35. The accounting cycle begins with analyzing transactions and ends with preparing the accounting
records for the next year.
36. In the accounting cycle, the financial statements are prepared after the closing entries.
37. Earnings before interest, taxes, depreciation , and amortization equals the cash flows from
operations.
ESSAY
1. Discuss the nature of business information systems.
2. Discuss the nature of accounting information systems.