CHAPTER 13 The Expenditure Cycle: Purchasing to Cash Disbursements

Question 1

1. Gifts given by suppliers to purchasing agents for the purpose of influencing their choice
of suppliers are referred to as
a. kickbacks. 
b. bribes. 
c. invoices.

Answer 1

a. kickbacks. (Correct. Gifts given by suppliers to purchasing agents for the purpose of
influencing their choice of suppliers.)

Question 2

2. Segregation of duties can help minimize the risk of inventory theft. Employees who are
   responsible for controlling physical access to inventory should not be able to adjust records
   without review and approval.
   a. True
   b. False

Answer 2

a. True (Correct. Proper segregation of duties can significantly reduce the risk of this
threat. )

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. The combination of the supplier invoice and associated supporting documentation
creates a
a. voucher package. 
b. disbursement voucher. 
c. nonvoucher system.

Answer 4

a. voucher package. (Correct. The set of documents used to authorize payment to a
supplier. )

Question 5

5. The just-in-time inventory system attempts to minimize, if not totally eliminate, finished
   goods inventory by purchasing and producing goods in response to forecast, rather than
   actual sales.
   a. True
   b. False

Answer 5

b. False (Correct.)

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. debit memo 
d. purchase order

Answer 10

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