Expenditures/Disbursements Flashcards
Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger. Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if
There are usually invoices in an unmatched invoice file.
Vendors’ requests for confirmation of receivables often go unanswered for several months until paid invoices can be reviewed.
Partial payments to vendors are continuously made in the ordinary course of business.
It is difficult to reconcile vendors’ monthly statements.
Partial payments to vendors are continuously made in the ordinary course of business.
This answer is correct because when partial payments are continuously made to vendors, an accounts payable subsidiary ledger would be very beneficial to the corporation. The subsidiary ledger would be used to keep track of the amounts still outstanding after partial payments. Otherwise, the partial payments would have to be written on the voucher register in order to keep track of the amount still due.
Jackson, the purchasing agent of Judd Hardware Wholesalers, has a relative who owns a retail hardware store. Jackson arranged for hardware to be delivered by manufacturers to the retail store on a COD basis thereby enabling his relative to buy at Judd’s wholesale prices. Jackson was probably able to accomplish this because of Judd’s poor internal control over
Purchase orders.
Purchase requisitions.
Cash receipts.
Perpetual inventory records.
Purchase orders.
This answer is correct because proper control over purchases would require that ordered goods only be shipped to authorized locations; proper control would also determine that all ordered goods had been received by the firm. If purchase orders are issued by Judd and the purchases are never received, there is an internal control condition over the purchase orders. All purchase orders should be accounted for (prenumbered) and followed up to assure receipt of orders that are issued.
A client’s materials-purchasing cycle begins with requisitions from user departments and ends with the receipt of materials and the recognition of a liability. An auditor’s primary objective in reviewing this cycle is to
Evaluate the reliability of information generated as a result of the purchasing process.
Investigate the physical handling and recording of unusual acquisitions of materials.
Consider the need to be on hand for the annual physical count if this system is not functioning properly.
Ascertain that materials said to be ordered, received, and paid for are on hand.
Evaluate the reliability of information generated as a result of the purchasing process.
This answer is correct because the auditor’s primary objective in reviewing the materials purchasing cycle is to evaluate the reliability of the information generated as a result of the purchasing process. This answer also encompasses all the other answer choices.
Which of the following is a standard control for cash disbursements?
Checks should be signed by the controller and at least one other employee of the company.
Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing bank reconciliations.
Checks and supporting documents should be marked “Paid” immediately after the check is returned with the bank statement.
Checks should be sent directly to the payee by the employee who prepares documents that authorize check preparation.
Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing bank reconciliations.
This answer is correct because checks should be sequentially numbered, and the person preparing bank reconciliations should account for all checks. This provides control over unauthorized and unrecorded checks.
For effective internal control purposes, which of the following individuals should be responsible for mailing signed checks?
Receptionist.
Treasurer.
Accounts payable clerk.
Payroll clerk.
Treasurer.
This answer is correct because the treasurer has custody of the checks after s/he signs them and may mail them most efficiently.
To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is
Stamped “paid” by the check signer.
Returned to the vouchers payable department.
Supported by the vendor’s invoice and purchase order.
Prenumbered and accounted for.
Stamped “paid” by the check signer.
This answer is correct because if the voucher (and all attached support) is stamped “paid” by the check signer, that support may not be submitted for payment a second time.
An entity’s internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all
Purchase orders.
Canceled checks.
Receiving reports.
Approved vouchers.
Canceled checks.
The requirement is to identify the population from which items should be selected to determine whether checks are being issued for unauthorized expenditures. Answer (b) is correct because a sample of canceled checks should be selected and compared with the approved vouchers, a prenumbered purchase order and prenumbered receiving reports. A canceled check that does not have such support may have been unauthorized. Answers (a), (c), and (d) are all incorrect because selecting items from purchase orders, receiving reports, or approved vouchers will not reveal circumstances in which a check was issued without that supporting document. For example, when selecting a sample from purchase orders, one would not discover a situation in which a check had been issued without a purchase order.
A retailing entity uses the Internet to execute and record its purchase transactions. The entity’s auditor recognizes that the documentation of details of transactions will be retained for only a short period of time. To compensate for this limitation, the auditor most likely would
Compare a sample of paid vendors’ invoices to the receiving records at year-end.
Plan for a large measure of tolerable misstatement in substantive tests.
Perform tests several times during the year, rather than only at year-end.
Increase the sample of transactions to be selected for cutoff tests.
Perform tests several times during the year, rather than only at year-end.
This answer is correct because in such a circumstance auditors will perform tests throughout the year so as to be able to test transactions when such documentation is still available.
To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is
Supported by a vendor’s invoice.
Stamped “paid” by the check signer.
Prenumbered and accounted for.
Approved for authorized purchases.
Stamped “paid” by the check signer.
The requirement is to identify the audit procedure relating to paid vouchers that will provide assurance that each voucher is submitted and paid only once. Answer (b) is correct because when the check signer stamps vouchers “paid” it is unlikely to be paid a second time since that individual will notice the stamp on the voucher the second time it is submitted for payment.
An auditor compares information on canceled checks with information contained in the cash disbursement journal. The objective of this test is to determine that
Recorded cash disbursement transactions are properly authorized.
Proper cash purchase discounts have been recorded.
Cash disbursements are for goods and services actually received.
No discrepancies exist between the data on the checks and the data in the journal.
No discrepancies exist between the data on the checks and the data in the journal.
This answer is correct because discrepancies between data on the checks and data in the journal would be found by a comparison of each.
Operating control over check signing normally should be the responsibility of the
Secretary.
Chief accountant.
Vice-president of marketing.
Treasurer.
Treasurer.
This answer is correct because the treasurer has custodial responsibilities for cash and should be in a position to disburse cash upon proper authorization.
An internal control narrative indicates that an approved voucher is required to support every check request for payment of merchandise.
Which of the following procedures provides the greatest assurance that this control is operating effectively?
Select and examine vouchers and ascertain that the related canceled checks are dated no later than the vouchers.
Select and examine vouchers and ascertain that the related canceled checks are dated no earlier than the vouchers.
Select and examine canceled checks and ascertain that the related vouchers are dated no earlier than the checks.
Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks.
Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks.
This answer is incorrect because the vouchers should be dated prior to the checks.
With well-designed internal control, the same employee may be permitted to
Mail signed checks, and also cancel supporting documents.
Prepare receiving reports, and also approve purchase orders.
Approve vouchers for payment, and also have access to unused purchase orders.
Mail signed checks, and also prepare bank reconciliations.
Mail signed checks, and also cancel supporting documents.
This answer is correct because the individual who mails the signed checks is normally the individual who signs those checks and cancels the supporting documents. That individual should cancel the supporting documents to control the possibility of disbursing funds for goods not received or for paying a debt twice.
Which of the following is an effective control that encourages receiving department personnel to count and inspect all merchandise received?
Quantities ordered are excluded from the receiving department copy of the purchase order.
Vouchers are prepared by accounts payable department personnel only after they match item counts on the receiving report with the purchase order.
Receiving department personnel are expected to match and reconcile the receiving report with the purchase order.
Internal auditors periodically examine, on a surprise basis, the receiving department copies of receiving reports.
Quantities ordered are excluded from the receiving department copy of the purchase order.
This answer is correct because if the quantities ordered are not known to the receiving department personnel, they will have to count and inspect the incoming merchandise to indicate the quantity received. They will not simply compare the goods received with the quantity on the purchase order for “reasonableness.”
In a properly designed accounts payable system, a voucher is prepared after the invoice, purchase order, requisition, and receiving report are verified. The next step in the system is to
Cancel the supporting documents.
Enter the check amount in the check register.
Approve the voucher for payment.
Post the voucher amount to the expense ledger.
Approve the voucher for payment.
This answer is correct because at this point the appropriate documents have been assembled and verified to allow a decision on whether the voucher should be approved for payment.
