Which document/s is/are not prepared on the expenditure cycle?
Chapter 11 MULTIPLE CHOICE Show
1. In the expenditure cycle, the primary external exchange of information occurs witha) customers. b) suppliers. c) management. d) the audit committee. 2. Within the expenditure cycle, internal information flowsa) from the production cycle to the expenditure cycle. b) from the revenue cycle to the expenditure cycle. c) to the general ledger from the expenditure cycle. d) All of the above are correct. 3. To accomplish the objectives set forth in the expenditure cycle, a number of keymanagement decisions must be addressed. Which of the decisions below is notordinarily 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? 4. There are three basic activities in the expenditure cycle. One of the basic activities isthe receiving and storage of goods, supplies, and services. What is the counterpart ofthis activity in the revenue cycle?a) the sales order entry process b) the shipping function c) the cash collection activity d) the cash payments activity 5. The first major business activity in the expenditure cycle is ordering inventory andsupplies. The traditional approach to management of inventory to ensure sufficientinventory to maintain production is known asa) safety stock. b) just-in-time production. c) economic order quantity. d) optimal inventory quantity. 6. EOQ includes several variables that must be taken into consideration whencalculating the optimal order size. One variable, the costs associated with holdinginventory, is referred to asa) ordering costs. b) carrying costs. c) the reorder point. d) stockout costs. 7. The decision of when to place an order in a traditional inventory system is specifiedby thea) company inventory policies. CH 13 The Expenditure Cyclea) demand for inventory is fairly predictable. b) demand for inventory is mostly unpredictable. c) product has a short life cycle. d) None of the above are correct. 15. A key decision in ordering is selecting a suitable vendor. Which of the followingwould 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 16. Once a vendor is selected for a product, the company's identity is recorded in thea) general ledger. b) purchase requisition file. c) product inventory transaction file. d) product inventory master record. 17. The paper document or electronic form that formally requests a supplier to sell anddeliver specified products at designated prices is calleda) a purchase order. b) a materials requisition. c) a sales invoice. d) a receiving report. 18. A purchase order isa) 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. 19. A standing order to purchase specified items at a designated price, from a particularsupplier for a set period of time, is called aa) set order. b) blanket purchase order. c) purchase order. d) commodity order. 20. 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 supplierscompete with each other to meet demand at the lowest price. This name of thistechnique isa) an EDI auction. b) a trading exchange. c) a reverse auction. d) a supplier consortium. 21. The receiving and storage of goods is the responsibility of the receiving department,which usually reports to the __________ function in the company.a) inventory control b) stores c) production d) purchasing 22. The receiving department has two major responsibilities in connection with theexpenditure cycle. Identify one of these responsibilities.a) shipping products most efficiently and at the lowest cost b) deciding if the delivery should be accepted c) verifying any purchase discounts for the delivery d) deciding on the location where the delivery will be stored until used 23. 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 24. A receiving clerk notes that a delivery of 10 units has been received, but the purchaseorder specified 12 units. A debit memo will be prepared to adjust for the differencein the quantity ordered and received. Who should prepare this document?a) the receiving clerk b) management c) the sales department d) the purchasing department 25. Identify which of the following scenarios the buyer could adjust by using a debitmemo document.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. 26. What is one of the best ways to improve the overall efficiency and effectiveness ofthe receipt and storage of ordered items?a) requiring all suppliers to have a second party verify quantities purchased before shipment b) requiring all suppliers to have bar-codes on their items to allow electronic scanning upon delivery by the receiving department 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 27. All of the following technologies could be useful aids in the receiving process excepta) bar coding. b) radio frequency identification tags. c) EFT. d) satellite technology. 28. Vendor invoices are approved by the __________, which reports to the __________.a) purchasing department; controller 36. What is the final activity in the expenditure cycle?a) ordering goods b) receipt and storage of goods c) approving vendor invoices for payment d) the payment of approved invoices 37. In a typical cash disbursement procedure, who usually handles the checks and mayeven be able to sign checks up to a certain dollar limit?a) the accounts payable supervisor b) the controller c) the cashier d) the treasurer 38. Duties in the expenditure cycle should be properly segregated to promote internalcontrol. This means that the authorization function is performed by __________, therecording function is performed by __________, and the cash disbursement functionis performed by the __________.a) accounts payable; purchasing; cashier b) purchasing; accounts payable; cashier c) purchasing; cashier; accounts payable d) purchasing; accounts payable; treasurer 39. A voucher package should includea) 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. 40. The evaluated receipt settlement (ERS) replaces the more traditional 3-way matchingprocess with a 2-way match of the purchase order and thea) vendor invoice. b) sales invoice. c) receiving report. d) disbursement voucher. 41. What may be the biggest opportunity to improve the efficiency of accounts payable?a) convert a manual AIS system to EDI and EFT b) streamline noninventory purchases c) use ERS d) use disbursement vouchers 42. When purchasing miscellaneous supplies, companies can reduce costs, improveefficiency, and combat employee fraud by usinga) procurement cards. b) a JIT inventory system. c) credit cards. d) debit cards. 43. If available, a 1% discount for payment within 10 days represents an approximatesavings of __________ % annually.a) 1 b) 12 c) 18 d) 36 44. When a legacy system is replaced with an integrated Enterprise Resource Planning(ERP) system, many benefits are realized for the organization. What is a keyimprovement in the record keeping function?a) Any department can now submit a request to purchase items. b) The system tracks the exact time of delivery. c) Major suppliers send electronic notification of incoming deliveries. d) Inventory records are more accurate and timely. 45. The threat of paying prices that are too high for goods ordered can pose a problem inthe expenditure cycle. What is an appropriate control that would be applicable tohelp mitigate this threat?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 46. What is probably the most effective control for the prevention of kickbacks topurchasing agents?a) purchasing from approved vendors b) good supervision in the purchasing area c) a corporate policy to prohibit purchasing agents from accepting kickbacks d) reviews of vendor performance 47. There are several threats that are associated with the process and activity of receivingand storing goods. Identify one of these threats below.a) errors in counting b) kickbacks c) requests for unnecessary items d) errors in vendor invoices 48. What is the easiest way to prevent the acceptance of unordered goods?a) order only from approved vendors b) always require that a valid purchase order exists before goods can be accepted at the time of delivery c) have an appropriate conflict of interest policy in place d) require receiving personnel to call the vendor before accepting any goods 49. Which of the following is not a common control for ensuring inventory is secure andinventory 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 b) purchasing from unauthorized vendors c) requisitioning goods not needed d) All of the above are threats in the purchase requisition process. 57. The loss of data is a threat encountered in the expenditure cycle. What is the relatedprocess/activity and applicable control used to counteract the threat?a) order goods; backup and disaster recovery plans b) general issues; backup and disaster recovery plans c) general issues; development of periodic review of appropriate performance reports d) order goods; various data entry and processing edit controls SHORT ANSWER 58. a) Define expenditure cycle. b) What are the basic expenditure cycle activities?59. What is the EOQ approach? What are the components of EOQ?60. Define the materials requirement planning (MRP)61. Define just-in-time (JIT) inventory methods.62. Briefly discuss the differences among EOQ, MRP, and JIT.63. a) What is the major cost driver in the purchasing function? b) How can informationtechnology be used to control this cost driver?64. How is the expenditure cycle a "mirror image" of the revenue cycle?65. What are the possible problems associated with receiving goods ordered from avendor?66. Name and describe the two common systems for approving vendor payments.67. How can information technology be used to improve the vendor invoice approvalprocess?ESSAY68. Under what conditions is MRP preferable to JIT and vice versa?69. In the expenditure cycle, the majority of payments made are by check. What aresome control issues related to payment of vendors by check?70. Identify ten threats and applicable control procedures for each in the expenditurecycle.71. What types of decision-making and strategic information should the AIS provide inthe expenditure cycle?72. How can using bar codes on goods or products provide significant benefit in theexpenditure cycle?ANSWER KEY1) B2) D3) D4) B5) C6) B7) D8) D9) B10) A11) C12) A13) D14) A15) C16) D17) A18) D19) B20) C21) C22) B23) A24) D25) D26) B27) C28) D29) C30) A31) B32) D33) D34) D35) D36) D37) C38) B39) B40) C41) B42) A43) C44) D45) B46) C47) A48) B49) C50) C51) A52) A53) B54) B
7: Receiving unordered goods - Controls: Receiving department must reject any goods for which there is no approved purchase order 8: Errors in counting goods received - Controls: Use "blind" P. copies to force receiving personnel to actually count goods; provide incentives for counting goods 9: Theft of inventory - Controls: Secure inventory storage locations; make transfers of inventory with proper approval and documentation; do periodic physical count and reconciliation with recorded amounts 10: Errors in vendor invoices - Controls: Invoice accuracy should be verified and compared to P.O and receiving report data 11: Paying for goods not received - Controls: Voucher package and original invoice should be necessary for payments 12: Failure to take available purchase discounts - Controls: File approved invoices by due date; track invoices by due date; use a cash budget to plan for cash needs 13: Paying same invoice twice - Controls: Invoices should be approved only with a full voucher package and paid ones should be canceled so they cannot be used again; do not pay invoices marked "Duplicate" or "Copy" 14: Recording and posting errors for purchases and payments - Controls: Data entry controls, and periodic reconciliation of subsidiary ledger with general ledger control account 15: Misappropriation of cash by paying fictitious vendors and alteration of checks - Controls: Restrict access to cash, blank checks, and check signing machine; use check protection, pre- numbered checks, and imprinted amounts on checks to cut down on forgery and fraud; use petty cash fund for small expenditures only; have proper segregation of duties and independent bank reconciliation function 16: Theft associated with EFT use - Controls: Access controls to the system; encryption of transmissions; time-stamp and number transmissions; control group should monitor all EFT activity 17: Loss of data - Controls: Use file labels, back up of all data files regularly; and, use access controls 18: Poor performance - Controls: Preparation and review of performance reports
What documents are used in the expenditure cycle?Chapter 5 Expenditure Cycle Applications.. Chapter 14 Audit of the Sales and Collection Cycle.. LESSON 5-1 Vouchers and Voucher Registers.. The Office Procedures and Technology.. Which of the following does not form part of expenditure cycle?The correct answer is option d.
All of the choices above are part of the expenditure cycle except production. Production is part of conversion cycle along with planning, physical product control, and scheduling.
What are the four basic expenditure cycle activities?Four Components of Expenditure Cycles
Ordering goods and services. Receiving what has been ordered. Approving the invoices presented by vendors and suppliers. Paying the invoices.
What are the documents and records used in expenditure cycle and there audit significance?Documents Audit Significance Production Order - a prenumbered form used to instruct a quantity of a particular product. Records approval for production personnel to procedure products. Bills of Materials - a list of raw material components required to produce a product.
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