Unit 3 Test

Question 1

Which item reflects vital information such as quantities and unit prices?

Receiving report
Supplier's invoice
Blind copy
Sales order

Answer 1

Sales order

The correct answer is “Sales order.” The sales order contains vital information such as unit prices and quantities.

Question 2

How do inventory control functions adjust inventory at the time of a return?

A sales invoice generates in the system.
A shipping notice automatically indicates the system update.
A credit memo issues automatically.
A packing slip generates automatically in system.

Answer 2

A credit memo issues automatically.

The correct answer is “A credit memo issues automatically.” An approved credit memo triggers the system to adjust the inventory when items are returned.

Question 3

Which risk is associated with charge accounts within the revenue cycle?

-The sales clerk enters an inaccurate journal posting of items sold.
-The sales clerk allows customers who are not creditworthy to buy items on the charge account.
-The sales clerk is allowed to accept payment on the charge accounts.
-The sales clerk files the remittance and prepares the deposit.

Answer 3

-The sales clerk allows customers who are not creditworthy to buy items on the charge account.

The correct answer is “The sales clerk allows customers who are not creditworthy to buy items on the charge account.” The clerk can be careless and allow purchases from individuals who do not pay their bills.

Question 4

Which function reflects the expenditure cycle?

Updating inventory
Posting cash disbursement
Storing inventory
Updating payroll

Answer 4

Updating inventory

The correct answer is “Updating inventory.” Inventory is a part of the expenditure cycle because the quantities and condition are updated.

Question 5

What is the purpose of the blind copy?

Reconcile and verify contents
Ensure the customer receives goods
Accept all shipments
Monitor the shipping department

Answer 5

Reconcile and verify contents

The correct answer is “Reconcile and verify contents.” The blind copy is used to force the clerk to count contents to verify items match.

Question 6

Which items reflect fixed assets?

Office supplies
Buildings
401(k) plans
Company uniforms

Answer 6

Buildings

The correct answer is “Buildings.” Buildings can sold and converted to cash.

Question 7

What contributes to the success of the electronic data interchange system?

Implementation of agreements
Use of multiple vendors
Integration of purchase order reconciliation
Increased personnel

Answer 7

Implementation of agreements

The correct answer is “Implementation of agreements.” Implementation of agreements contributes to the success by circumventing discrepancies.

Question 8

What is an example of a payroll system information technology (IT) control?

Source documents
Transaction authorization
Direct deposit
Single-level security

Answer 8

Direct deposit

The correct answer is “Direct deposit.” Direct deposit is an example of an IT control.

Question 9

Which department is responsible for receiving the supplier’s invoice, the purchase order, and the receiving report in order to post the acquisition of fixed assets?

Purchasing
Fixed Asset Accounting
Accounts Payable
External Auditor

Answer 9

Accounts Payable

The correct answer is “Accounts Payable.” Accounts Payable receives the supplier’s invoice, purchase order, and receiving report to post the acquisition of fixed assets in the accounts payable subledger.

Question 10

Which information from timecards provides an audit trail to support financial reporting?

Employee position
Employee signature
Supervisor approval
Hours worked

Answer 10

Hours worked

The correct answer is “Hours worked.” Payroll expenses should be supported with hours worked by employees on a specified date.

Question 11

Why are journal vouchers reviewed and approved before entry into the general ledger (GL)?

-Journal vouchers are reviewed and approved as required by generally accepted accounting principles (GAAP).
-Journal vouchers are reviewed and approved to ensure they have been entered and processed in the GL.
-Journal vouchers are reviewed and approved as part of a system of internal control to ensure GL entries are authorized.
-Journal vouchers are reviewed and approved because accounting systems are configured with this requirement.

Answer 11

-Journal vouchers are reviewed and approved as part of a system of internal control to ensure GL entries are authorized.

The correct answer is “Journal vouchers are reviewed and approved as part of a system of internal control to ensure GL entries are authorized.” Journal vouchers are entered into the GL and require a level of review and approval to ensure information is accurate, complete, authorized, and supported.

Question 12

Why is a management reporting system a control?

-A management reporting system contains data that are audited as part of the annual financial statement audit.
-A management reporting system contains data that can be used to monitor the company.
-A management reporting system contains the source for detailed accounting transactions.
-A management reporting system contains an independent set of company data used to manage operations.

Answer 12

-A management reporting system contains data that can be used to monitor the company.

The correct answer is “A management reporting system contains data that can be used to monitor the company.” Management reporting systems are implemented at the discretion of organization management based on internal user needs to manage and control business activities.

Question 13

Why is the general ledger history file used for comparative financial reports?

-The file contains the account structure required for presentation in accordance with audit standards.
-The file contains the detailed revenue and expense information.
-The file contains current and historical information, and therefore, comparisons can be made on the account data.
-The file uses the same format as the general ledger master, and therefore, the account structures will be the same for information year to year.

Answer 13

-The file uses the same format as the general ledger master, and therefore, the account structures will be the same for information year to year.

The correct answer is “The file uses the same format as the general ledger master, and therefore, the account structures will be the same for information year to year.” The same format and account structures allow for transactions to be grouped and categorized consistently from year to year.

Question 14

Which comparison serves as a tool for managers by using data from the budget master file and from the responsibility center file?

-A comparison of budgets to actual amounts and review of the variance
-A comparison of each manager’s budget as a percentage of the company’s total budget
-A comparison of revenues exceeding expenses and expenses exceeding revenues
-A comparison of budget amounts increasing and decreasing from year to year

Answer 14

-A comparison of budgets to actual amounts and review of the variance

The correct answer is “A comparison of budgets to actual amounts and review of the variance.” A comparison of budgeted amounts in accounts to actual revenue and expense amounts by responsibility center in accounts can signal accounts that require further inquiry.

Question 15

Which strategic agreement is made between buyer and seller for electronic data interchange?

-The agreement includes authorizations and approval of all products purchased
-The agreement requires managers to review a list of contents ordered
-The agreement details the quantities to be sold, guaranteed delivery times, payment terms, and methods of handling disputes
-The agreement allows for fluctuation in the prices of products ordered

Answer 15

-The agreement details the quantities to be sold, guaranteed delivery times, payment terms, and methods of handling disputes

The correct answer is “The agreement details the quantities to be sold, guaranteed delivery times, payment terms, and methods of handling disputes.” The strategic agreement of the electronic data interchange technology has specific terms agreed on prior to utilization of the service.

Question 16

What is a reason for sales returns?

Utilizing data that is nonsequential
Buyer refusing due to late arrival
Failure to employ safety tips for the organization
Failure to update inventory

Answer 16

Buyer refusing due to late arrival

The correct answer is “ Buyer refusing due to late arrival.” Late deliveries can affect sales returns.

Question 17

Which risk is associated with charge accounts within the revenue cycle?

-The sales clerk is allowed to accept payment on the charge accounts.
-The sales clerk files the remittance and prepares the deposit.
-The sales clerk allows customers who are not creditworthy to buy items on the charge account.
-The sales clerk enters an inaccurate journal posting of items sold.

Answer 17

-The sales clerk allows customers who are not creditworthy to buy items on the charge account.

The correct answer is “The sales clerk allows customers who are not creditworthy to buy items on the charge account.” The clerk can be careless and allow purchases from individuals who do not pay their bills.

Question 18

What is a risk associated with one clerk receiving inventory?

Inventory stocked more slowly
Items placed in a centralized location
Unauthorized purchases
Inventory availability limited

Answer 18

Unauthorized purchases

The correct answer is “Unauthorized purchases.” Unauthorized purchases can cause excessive inventory and tie up funds.

Question 19

What is the importance of supervisory control?

To review payable checks for mailing purposes
To review and examine content reported
To review inventory to send a report
To review payroll checks for accuracy of time clock history

Answer 19

To review and examine content reported

The correct answer is “To review and examine content reported.” This is the compensating control function that allows a manager to review all content of sales for accuracy.

Question 20

What is the purpose of authorized vendors?

To document operating expenses
To reduce fraud
To record liability
To track performance

Answer 20

To reduce fraud

The correct answer is “ To reduce fraud.” The purpose of authorized vendors is to reduce vendor fraud schemes.

Question 21

Which procedure should be followed when receiving goods?

-The clerk should examine the bill of lading for the list of items being delivered.
-The clerk must count and inspect all deliveries to ensure receipt of the right product.
-The clerk should unload items and place them on shelves.
-The clerk must verbally verify goods with the delivery driver.

Answer 21

-The clerk must count and inspect all deliveries to ensure receipt of the right product.

The correct answer is “The clerk must count and inspect all deliveries to ensure receipt of the right product.” All incoming and outgoing items should be physically counted to ensure accuracy.

Question 22

Which information from timecards provides an audit trail to support financial reporting?

Hours worked
Supervisor approval
Employee position
Employee signature

Answer 22

Hours worked

The correct answer is “ Hours worked.” Payroll expenses should be supported by hours worked by an employee on a specified date.

Question 23

Which entry is made to record wages payable?

Debit wages payable; credit factory overhead
Debit work-in-process; credit wages payable
Debit wages payable; credit direct labor
Debit cash; credit wages payable

Answer 23

Debit work-in-process; credit wages payable

The correct answer is “Debit work-in-process; credit wages payable.” To record wages payable, the general ledger accountant will debit work-in-process and credit wages payable.

Question 24

Which task is included when a supervisor reviews and approves employee time (timecards, time sheets, and job tickets)?

Review and approval of the production materials
Review and approval of the numbers of hours worked
Review and approval of the performance evaluation
Review and approval of the payroll register

Answer 24

Review and approval of the numbers of hours worked

The correct answer is “Review and approval of the numbers of hours worked.” Supervisors review and approve the number of hours worked to determine if information is accurate and complete.

Question 25

Which journals record the results of transaction cycles?

-Special journals and subsidiary accounts of the general ledger
-Special journals and subsidiary accounts of the management reporting system
-Special journals and subsidiary accounts of the general ledger history system
-Special journals and subsidiary accounts of the financial reporting system

Answer 25

-Special journals and subsidiary accounts of the general ledger

The correct answer is “ Special journals and subsidiary accounts of the general ledger.” Transaction cycles are part of the accounting information system and record individual events in the special journals and subsidiary accounts of the general ledger.

Question 26

Why is a management reporting system a control?

-A management reporting system contains data that are audited as part of the annual financial statement audit.
-A management reporting system contains data that can be used to monitor the company.
-A management reporting system contains the source for detailed accounting transactions.
-A management reporting system contains an independent set of company data used to manage operations.

Answer 26

-A management reporting system contains data that can be used to monitor the company.

The correct answer is “ A management reporting system contains data that can be used to monitor the company.” Management reporting systems are implemented at the discretion of organization management based on internal user needs to manage and control business activities.

Question 27

Which efficiencies do real-time general ledger/financial reporting systems have on an organization’s ability to produce financial statements?

-A real-time general ledger/financial reporting system uses manual journal vouchers to be prepared, entered, and processed in the system.
-A real-time general ledger/financial reporting system uses nightly batch processing for transactions to post information in bulk.
-A real-time general ledger/financial reporting system uses integrated transaction processing for concurrent posting in the system.
-A real-time general ledger/financial reporting system uses an annual routine to create and post journal vouchers in the system.

Answer 27

-A real-time general ledger/financial reporting system uses integrated transaction processing for concurrent posting in the system.

The correct answer is “ A real-time general ledger/financial reporting system uses integrated transaction processing for concurrent posting in the system.” An efficiency of a real-time general ledger/financial reporting system is integrated transaction processing, which allows concurrent posting in the system.

Question 28

Which control framework does the general ledger/financial reporting system (GL/FRS) follow?

-Securities and Exchange Commission (SEC)
-Generally accepted auditing standards (GAAS)
-Committee of Sponsoring Organizations of the Treadway Commission (COSO)
-Generally accepted accounting principles (GAAP)

Answer 28

-Committee of Sponsoring Organizations of the Treadway Commission (COSO)

The correct answer is “Committee of Sponsoring Organizations of the Treadway Commission (COSO).” The discussion of GL/FRS control activities follows the COSO framework.