Unit 3 - Module 4

Question 1

purchase requisition

Answer 1

Document that authorizes a purchase transaction.

Question 2

purchase order

Answer 2

Document based on a purchase requisition that specifies items ordered from a vendor or supplier.

Question 3

open/closed purchase order file

Answer 3

The last copy that is filed while preparing a purchase order.

Question 4

blind copy

Answer 4

Purchase order copy that contains no price or quantity information.

Question 5

receiving report

Answer 5

Report that lists quantity and condition of the inventories received.

Question 6

AP pending file

Answer 6

File containing supporting documents needed to set up an account payable.

Question 7

receiving report file

Answer 7

File in which a copy of the receiving report (stating the quantity and condition of the inventories) is placed.

Question 8

standard cost system

Answer 8

Organizations that carry their inventories at a predetermined standard value regardless of the price actually paid to the vendor.

Question 9

actual cost inventory ledger

Answer 9

A ledger that records inventory values based on actual costs rather than standard costs.

Question 10

supplier’s invoice

Answer 10

Bill sent from the seller to the buyer showing unit costs, taxes, freight, and other charges.

Question 11

AP packet

Answer 11

Reconciled AP supporting documents (PO, receiving report, and invoice).

Question 12

open AP file

Answer 12

File organized by payment due date and scanned daily to ensure that debts are paid on the last possible date without missing due dates and losing discounts.

Question 13

AP subsidiary ledger

Answer 13

Records controlling the exposure in the cash disbursements subsystems.

Question 14

vouchers payable system

Answer 14

System under which the AP department uses cash disbursement vouchers and maintains a voucher register.

Question 15

cash disbursement vouchers

Answer 15

Provide improved control over cash disbursements and allow firms to consolidate several payments to the same supplier on a single voucher, thus reducing the number of checks written.

Question 16

voucher register

Answer 16

Register that reflects a firm’s accounts payable liability.

Question 17

vouchers payable file

Answer 17

Equivalent to the open AP file.

Question 18

check register

Answer 18

Record of all cash disbursements.

Question 19

cash disbursements journal

Answer 19

Contains the voucher number authorizing each check and provides an audit trail for verifying the authenticity of each check written.

Question 20

closed AP file

Answer 20

Record of all accounts payable that have been discharged by making payment to the creditors.

Question 21

Basic Technology Purchase System

Answer 21

Question 22

purchase requisition file

Answer 22

Comprises purchase requisitions. It is created during the sales activity when the inventories drop to their predetermined reorder point.

Question 23

open purchase requisition file

Answer 23

File that contains a copy of purchase requisitions

Question 24

open purchase order file

Answer 24

File that contains the last copy of the multipart purchase order along with the purchase requisition.

Question 25

Basic Technology Cash Disbursements System

Answer 25

Question 26

Integrated Purchases System

Answer 26

Question 27

File Structure for AP Supporting Documents

Answer 27

Question 28

Integrated Cash Disbursements System

Answer 28

Question 29

What are physical and IT controls for an unauthorized inventory purchases risk?

Answer 29

Physical control - Transaction authorization-formal purchase requisition
IT Control - Automated purchase approval

Question 30

What are physical and IT controls for receiving incorrect items risk?

Answer 30

Physical control
-Independent verification (Receiving department reconciles receipt with the PO)
-Supervision in Receiving Department

IT Control
-scanner technology

Question 31

What are physical and IT controls for an inaccurate record keeping risk?

Answer 31

Physical control
- Transaction authorization (AP department authorizes cash disbursements to make payment
- Accounting records (audit trail documents, journals, accounts, and files)
- Independent verification (inventory control, accounts payable, cash disbursements, and GL)

IT Control
- Input data edits
- Error messages
- Automated posting to accounts
- File backup

Question 32

What are physical and IT controls for a misappropriation of cash and inventory risk?

Answer 32

Physical control
- Supervision (receiving department)
- Independent verification (three-way match)
- Segregation of duties (cash, disbursements, GL, AP function, warehouse, inventory records)

IT Control
- Automated three-way match
- Multilevel Security to provide segregation of duties

Question 33

What are physical and IT controls for an unauthorized access to data risk?

Answer 33

Physical control
- Access control (source documents, journals, ledgers)
- Segregation of duties (sub-ledgers, GL, asset custody)

IT Control
- Password control
- Multilevel security to prevent unauthorized access to data

Question 34

vendor’s invoice

Answer 34

Commercial document issued by a vendor to a buyer, indicating the products or services, quantities, and agreed prices for products or services that the vendor has already provided to the buyer. An invoice indicates that payment is due from the buyer to the vendor, according to the payment terms.

Question 35

A copy of the purchase order (PO) is sent to the

vendor.
accounts receivable function.
shipping department.
sales function.

Answer 35

vendor.

The correct answer is “vendor.” A copy of the purchase order (PO) is sent to the vendor. The purchase order is the formal document that tells the vendor what material is needed, at what price, in what quantity and on what date.

Question 36

The departments involved in the purchasing process are purchasing, receiving, inventory control and

sales.
human resources.
accounts payable.
accounts receivable.

Answer 36

accounts payable.

The correct answer is “accounts payable.” The departments involved in the purchasing process are purchasing, receiving, inventory control and accounts payable. Accounts payable completes the purchasing process by authorizing and executing the cash disbursement based on a signal from receiving or inventory control.

Question 37

When a cash disbursement in payment of an accounts payable is recorded

the liability account is decreased.
the liability account is increased.
the cash account is unchanged.
the income statement is changed.

Answer 37

the liability account is decreased.

The correct answer is “the liability account is decreased.” When a cash disbursement in payment of an accounts payable is recorded the liability account is decreased. On the Balance Sheet, accounts payable is a current liability. When a cash disbursement is recorded, the liability will be reduced.

Question 38

The greatest risk of misappropriation of funds occurs in

the mailroom.
accounts payable.
the receiving department.
the warehouse.

Answer 38

accounts payable.

The correct answer is “accounts payable.” The greatest risk of misappropriation of funds occurs in accounts payable. This may take the form of payments for goods not ordered or received and to vendors that do not exist. The risk can be reduced through supervision, segregation of duties, independent verification, or automated processes.

Question 39

In a firm with proper segregation of duties, adequate supervision as a compensating control is still necessary in

general ledger.
accounts payable.
purchasing.
receiving.

Answer 39

receiving.

The correct answer is “receiving.” In a firm with proper segregation of duties, adequate supervision is most critical in receiving. Every day materials arrive on the receiving dock. Until those receipts are recorded in the system, they are invisible to anyone but the receivers and their supervisors. Supervision is a compensating control appropriate before more automated controls take effect. Scanning technology and automated three-way match are technological controls that reduce risk.