Chapter 13 – ‘The Expenditure Cycle: Purchasing to Cash Disbursements’

Question 1

1. Which of the following inventory control methods is most likely to be
   used for a product for which sales can be reliably forecast?
   a. JIT  
   b. EOQ 
   c. MRP
   d. ABC

Answer 1

c. MRP (Correct. MRP forecasts sales and uses that information to purchase
inventory to meet anticipated needs.)

Question 2

2. Which of the following matches is performed in evaluated receipt
   settlement (ERS)?
   a. the vendor invoice with the receiving report
   b. the purchase order with the receiving report
   c. the vendor invoice with the purchase order
   d. the vendor invoice, the receiving report, and the purchase order

Answer 2

b. the purchase order with the receiving report(Correct. ERS eliminates the
vendor invoice and schedules payments based on matching the purchase order
and receiving report.)

Question 3

3. Which of the following is true? 
   a. It is easier to verify the accuracy of invoices for purchases of services than
   invoices for purchases of raw materials.
   b. Setting up petty cash as an imprest fund violates segregation of duties.
   c. The EOQ formula is used to identify when to reorder inventory.
   d. A voucher package usually includes a debit memo.

Answer 3

b. Setting up petty cash as an imprest fund violates segregation of duties.
(Correct. Technically, setting up petty cash as an imprest fund violates
segregation of duties because the same person has custody of the asset—
cash—authorizes its disbursement, and maintains records.)

Question 4

4. Which document is used to establish a contract for the purchase of
goods or services from a supplier?
a. vendor invoice 
b. purchase requisition 
c. Purchase order 
d. disbursement voucher

Answer 4

c. Purchase order (Correct. A purchase order is an offer to buy goods)

Question 5

5. Which method would provide the greatest efficiency improvements for
   the purchase of noninventory items such as miscellaneous office supplies?
   a. Bar-coding
   b. EDI
   c. Procurement cards
   d. EFT

Answer 5

c. procurement cards (Correct. Procurement cards were designed specifically
for purchase of noninventory items.)

Question 6

6. Which of the following expenditure cycle activities can be eliminated
   through the use of IT or reengineering?  
   a. ordering goods
   b. approving vendor invoices
   c. receiving goods
   d. cash disbursements

Answer 6

b. approving vendor invoices (Correct. ERS systems eliminate vendor
invoices. )

Question 7

7. What is the best control procedure to prevent paying the same invoice
   twice?
   a. Segregate check-preparation and check-signing functions.  
   b. Prepare checks only for invoices that have been matched to receiving reports
   and purchase orders.
   c. Require two signatures on all checks above a certain limit.
   d. Cancel all supporting documents when the check is signed.

Answer 7

d. Cancel all supporting documents when the check is signed.(Correct. This
ensures that the supporting documents cannot be resubmitted to pay the same
invoice again.)

Question 8

8. For good internal control, who should sign checks?  
   a. cashier
   b. accounts payable  
   c. purchasing agent
   d. controller

Answer 8

a. cashier (Correct. The cashier is responsible for managing cash and reports
to the treasurer.)  

Question 9

9. Which of the following procedures is designed to prevent the purchasing agent from receiving kickbacks? 
   a. maintaining a list of approved suppliers and requiring all purchases to be
   made from suppliers on that list
   b. requiring purchasing agents to disclose any financial investments in
   potential suppliers
   c. requiring approval of all purchase orders
   d. prenumbering and periodically accounting for all purchase orders

Answer 9

b. requiring purchasing agents to disclose any financial investments in
potential suppliers (Correct. The purpose of such disclosure is to minimize the
risk of conflicts of interest that could result in kickbacks.) 

Question 10

10. Which document is used to record adjustments to accounts payable
    based on the return of unacceptable inventory to the supplier?
    a. receiving report
    b. credit memo  
    c. purchase order
    d. debit memo

Answer 10

d. debit memo (Correct. This document is used to adjust accounts payable.)