Chapter 18

Question 1

A computer file for maintaining a record for each vendor of individual acquisitions, cash disbursements, acquisition returns and allowances, and vendor balances

Answer 1

Accounts Payable Master File

Question 2

A listing of the amount owed to each vendor at a point in time; prepared directly from the accounts payable and vendor balances

Answer 2

Accounts Payable Trial Balance

Question 3

The transaction cycle that includes the acquisition of and payment for goods and services from supplier outside the organization

Answer 3

Acquisition and Payment Cylce

Question 4

A journal or listing generated from the acquisitions transaction file and typically includes information such as vendor name, date, amount, and account classification for each transaction

Answer 4

Acquisitions Journal

Question 5

Tests to determine whether transactions recorded a few days before and after the balance sheet date are included in the correct period

Answer 5

Cutoff Tests

Question 6

A document indicating a reduction in the amount owed to a vendor because of returned goods or an allowance granted

Answer 6

Debit Memo

Question 7

Shipping contract in which title to the goods passes to the buyer when the goods are received

Answer 7

FOB Destination

Question 8

Shipping contract in which title to the goods passes to the buyer at the time that the goods are shipped

Answer 8

FOB Origin

Question 9

A document prepared or electronically issued by the purchasing department indicating the description, quantity, and related information for goods and services that the company intends to purchase

Answer 9

Purchase Order

Question 10

Request by an authorized employee to the purchasing department to place an order for inventory and other items used by an entity

Answer 10

Purchase Requisition

Question 11

A document prepared by the receiving department at the time tangible goods are received, indicating the description of the goods, the quantity received, the date received, and other relevant data; it is part of the documentation necessary for payment to be made

Answer 11

Receiving Report

Question 12

A document or record that specifies the details of an acquisition transaction and amount of money owed to the vendor for an acquaition

Answer 12

Vendor’s Invoice

Question 13

A statement prepared monthly by the vendor, which indicates the customer’s beginning balance , acquisitions, payments, and ending balance

Answer 13

Vendor’s Statement

Question 14

A document used to establish a formal means of recording and controlling acquisitions, primarily by enabling each acquisition transaction to be sequentially numbered

Answer 14

Voucher

Question 15

Three classes of transactions included in the acquisitions and payment cycle:

Answer 15

1) Acquisitions of goods and services
2) Cash disbursements
3) Purchase returns and allowances and purchase discounts

Question 16

The ten Accounts involved in the acquisitions and payment cycle:

Answer 16

1) Accounts Payable
2) Cash in bank
3) Purchase returns and allowances
4) Purchase Discounts
5) Manufacturing expense control account
6) Selling expense control account
7) Raw Material Purchases
8) Property, Pant and Equipment
9) Prepaid expenses
10) Administrative expense control account

Question 17

Accounts for Acquisitions class of transactions

Answer 17

Inventory and prepaid expenses

Question 18

Business Functions for the Acquisitions class of transactions

Answer 18

Processing purchase orders

Question 19

Document and records for Acquisitions class of transactions

Answer 19

Purchase requisition and purchase orders

Question 20

Accounts for Cash Disbursements class of transactions

Answer 20

Cash in Bank and Accounts Payable

Question 21

Business Functions for Cash Disbursements class of transactions

Answer 21

Processing and recording cash disbursements

Question 22

Documents and records for Cash Disbursements class of transactions

Answer 22

Cash disbursement journal or listing

Question 23

The proper recognition of the liability for the receipt of goods and services requires BLANK

Answer 23

Prompt and accurate recordings

Question 24

Vendors invoice

Answer 24

indicates the amount recorded in the acquisition file

Question 25

Documents associated with the disbursement process that auditors examine include:

Answer 25

Check, cash disbursement transaction file, and cash disbursement journal or listing

Question 26

Test of controls and substantive tests of transactions for the acquisition and payment cycle are divided into two broad categories:

Answer 26

1) Tests of acquisitions which include: processing purchase orders, receiving goods and services, and recognizing liability 2) Test of payments which includes processing and recording cash disbursements

Question 27

To prevent theft or misuse

Answer 27

Goods should be physically controlled from the time of their receipt until their use or disposal

Question 28

Personnel who record acquisitions should not

Answer 28

Have access to cash, marketable securities, and other assets

Question 29

The most important controls over cash disbursements include:

Answer 29

1) The signing of checks by an individual with proper authority 2) Separation of responsibilities for signing checks and performing the accounts payable function 3) Careful examination of supporting documents by the check signer at the time the check is signed

Question 30

Key internal controls for occurrence transaction-related audit objectives for cash disbursements

Answer 30

Approval of payment on supporting documents is given at the time checks are signed

Question 31

Common tests of controls for occurrence transaction-related audit objectives for cash disbursements

Answer 31

Examine indication of approval

Question 32

Common Substantive Tests of transactions for occurrence transaction-related audit objectives for cash disbursements

Answer 32

Examine supporting documents as part of the tests of acquisitions

Question 33

Key Internal controls for completeness transaction-related audit objectives for cash disbursements

Answer 33

Checks are prenumbered and accounted for

Question 34

Common tests of controls for completeness transaction-related audit objectives for cash disbursements

Answer 34

Account for a sequence of checks

Question 35

Common substantive tests for completeness transaction-related audit objectives for cash disbursements

Answer 35

Reconcile recorded cash disbursements

Question 36

Key internal controls for accuracy transaction-related audit objectives for cash disbursements

Answer 36

Calculations and amounts are internally verified

Question 37

Common tests of controls for accuracy transaction-related audit objectives for cash disbursements

Answer 37

Examine indication of internal verification

Question 38

Common substantive tests for accuracy transaction-related audit objectives for cash disbursements

Answer 38

Recompute cash discounts

Question 39

Key internal controls for posting and summarization transaction-related audit objectives for cash disbursements

Answer 39

Accounts payable master file contents are internally verified

Question 40

Common Tests of Controls for posting and summarization transaction-related audit objectives for cash disbursements

Answer 40

Examine indication of internal verification

Question 41

Common substantive tests of transactions for posting and summarization transaction-related audit objectives for cash disbursements

Answer 41

Test clerical accuracy by footing journals and tracing postings to general ledger and accounts payable master file

Question 42

Key internal control for classification transaction-related audit objectives for cash disbursements

Answer 42

Account classification are internally verified

Question 43

Common Tests of controls for classification transaction-related audit objectives for cash disbursements

Answer 43

Examine indication of internal verification

Question 44

Common substantive tests of transactions for classification transaction-related audit objectives for cash disbursements

Answer 44

Compare classification with chart of accounts by referring to vendors' invoices for acquisitions journal

Question 45

Key internal control for timing transaction-related audit objectives for cash disbursements

Answer 45

Dates are internally verified

Question 46

Common tests of controls for timing transaction-related audit objectives for cash disbursements

Answer 46

Examine indication of internal verification

Question 47

Common substantive tests of transactions for timing transaction-related audit objectives for cash disbursements

Answer 47

Compare dates on cancelled checks records with the bank cancellation date

Question 48

Key internal controls for occurrence transaction-related audit objectives for acquisitions

Answer 48

Documents are cancelled to prevent their reuse

Question 49

Common Tests of Controls for occurrence transaction-related audit objectives for acquisitions

Answer 49

Examine indication of cancellation

Question 50

Common substantive Tests of Transactions for occurrence transaction-related audit objectives for acquisitions

Answer 50

Examine vendor master file for unusual vendors

Question 51

Key internal controls for completeness transaction-related audit objectives for acquisitions

Answer 51

Purchase orders are prenumbered and accounted for

Question 52

Common Tests of Controls for completeness transaction-related audit objectives for acquisitions

Answer 52

Account for a sequence of purchase orders

Question 53

Common substantive Tests of Transactions for completeness transaction-related audit objectives for acquisitions

Answer 53

Trace from a file of receiving reports to the acquisitions journal

Question 54

Key internal controls for accuracy transaction-related audit objectives for acquisitions

Answer 54

Calculations and amounts are internally verified

Question 55

Common Tests of Controls for accuracy transaction-related audit objectives for acquisitions

Answer 55

Examine indication of internal verification

Question 56

Common substantive Tests of Transactions for accuracy transaction-related audit objectives for acquisitions

Answer 56

Recompute the clerical accuracy on the vendor's invoice, including discounts and freight

Question 57

Key internal controls for posting and summarization transaction-related audit objectives for acquisitions

Answer 57

Accounts payable master file is internally verified

Question 58

Common Tests of Controls for posting and summarization transaction-related audit objectives for acquisitions

Answer 58

Examine indication of internal verification

Question 59

Common substantive Tests of Transactions for posting and summarization transaction-related audit objectives for acquisitions

Answer 59

Test clerical accuracy by footing the journals and tracing posting to general ledger and counts payable and inventory master files

Question 60

Key internal controls for classification transaction-related audit objectives for acquisitions

Answer 60

Account classifications are internally verified

Question 61

Common Tests of Controls for classification transaction-related audit objectives for acquisitions

Answer 61

Examine indication of internal verification

Question 62

Common substantive Tests of Transactions for classification transaction-related audit objectives for acquisitions

Answer 62

Compare classification with chart of accounts by referring to vendors' invoices

Question 63

Key internal controls for timing transaction-related audit objectives for acquisitions

Answer 63

Date are internally verified

Question 64

Common Tests of Controls for timing transaction-related audit objectives for acquisitions

Answer 64

Examine indication of internal verification

Question 65

Common substantive Tests of Transactions for timing transaction-related audit objectives for acquisitions

Answer 65

Compare dates of receiving reports and vendors' invoices with dates in the acquisition journal

Question 66

Three important differences in acquisitions and payments journal compared to other cycles

Answer 66

1) Larger number accounts leading to greater amount of classification misstatements 2) Increased rate of auditor judgments, increasing the chance of misstatements 3) Dollar amounts of individual transactions in the cycle cover a wide range

Question 67

Analytical procedures for acquisitions and payment cycle

Answer 67

1) Compare acquisition-related expense account balances with prior years 2) Review list of accounts payable for unusual, nonvendor, and interest bearing payables 3) Compare individual accounts payable with previous years 4) Calculate ratios

Question 68

Analytical procedures for the acquisitions and payment cycle are used to uncover misstatements mostly in this account

Answer 68

Accounts payable

Question 69

The difference in emphasis in auditing assets and liability results directly from

Answer 69

The legal liability of CPAs

Question 70

Common Tests of details of detail tie-in balance related audit objective

Answer 70

Trace the total to the general ledger

Question 71

Common Tests of details of existence balance related audit objective

Answer 71

Trace from accounts payable list to vendors' invoices and statements

Question 72

Common Tests of details of completeness balance related audit objective

Answer 72

Perform out-of-period liability tests

Question 73

Common Tests of details of accuracy balance related audit objective

Answer 73

Perform same procedures as those used for existence objective and out of period liability tests

Question 74

Common Tests of details of classification balance related audit objective

Answer 74

Review the list and master file for related parties

Question 75

Common Tests of details of cutoff balance related audit objective

Answer 75

Test for inventory in transit

Question 76

Common Tests of details of obligations balance related audit objective

Answer 76

Examine vendors' statements and confirm accounts payable

Question 77

This balance related audit objective must be performed first for accounts payable

Answer 77

Detail Tie-in

Question 78

The auditor should trace receiving reports issued after year-end to BLANK

Answer 78

Test for overstatement cutoff amounts

Question 79

In determining that the accounts payable cutoff is correct:

Answer 79

it is essential that the cutoff test be coordinated with the physical observation of the inventory

Question 80

Auditors get highly reliable evidence from BLANK when they examine vendors' invoices and related supporting documents

Answer 80

Evidence about individual transactions

Question 81

The vendor's invoice is superior for verifying accounts payable because

Answer 81

it includes the ending balance

Question 82

The vendor's invoice is superior for verifying transactions because

Answer 82

the auditor verifying individual transactions and the invoice shows the details of the acquisition

Question 83

The most important distinction between a vendors' statement and a confirmation of accounts payable is

Answer 83

the source of the information