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Chapter 13 Disbursement Cycle by David Ricchiute


b 1. A client erroneously recorded a large purchase twice. Which of the

following control procedures would most likely detect this error in a timely
and efficient manner?
a. Footing the purchases journal.
b. Reconciling vendor's monthly statements with
subsidiary payable ledger accounts.
c. Tracing totals from the purchases journal to the ledger accounts.
d. Sending written quarterly confirmations to all vendors.

d 2. An internal control questionnaire indicates that an approved receiving

report must accompany every check request for payment of merchandise.
Which of the following procedures provides the greatest assurance that this
control is operating effectively?
a. Select and examine receiving reports and ascertain that the related
canceled checks are dated no earlier than the receiving reports.
b. Select and examine receiving reports and ascertain
that the related canceled checks are dated no later than the receiving
c. Select and examine canceled checks and ascertain that the related
receiving reports are dated no earlier than the checks.
d. Select and examine canceled checks and ascertain that the related
receiving reports are dated no later than the checks.

c 3. The accounts payable department receives the purchase order form to

accomplish all of the following except

a. Compare invoice price to purchase order price.


Ensure that the purchase had been properly


c. Ensure that the goods had been received by the party requesting the
d. Compare quantity ordered to quantity purchased.

b 4. For effective internal control purposes, which of the following individuals

should be responsible for mailing signed checks?
a. Receptionist.
b. Treasurer.
c. Accounts payable clerk.
d. Payroll clerk.


a 5. A client's expenditure/disbursement 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
a. Evaluate the reliability of information generated by the cycle.
b. Investigate the physical handling and recording of unusual acquisitions of
c. Consider the need to be on hand for the annual physical, inventory count if
this system is not functioning properly.
d. Ascertain that materials said to be ordered, received, and paid for are on

b 6. Which of the following is a primary function of the purchasing

a. Authorizing the accounting of goods.

b. Ensuring the acquisition of goods of a specified quality.

c. Verifying the propriety of goods of a specified
d. Reducing expenditures for goods acquired.

d 7. An auditor is planning the consideration of internal control over the

expenditure/disbursement cycle. The auditor will be least influenced by
a. The availability of a company procedures manual describing purchasing
and cash disbursement procedures.
b. The scope and results of work performed by the company's internal
c. The existence within the purchasing department of control procedures that
offset deficiencies.
d. The strength or deficiency of control procedures in other areas, for
example, sales and accounts receivable.

a 8. Omitting quantities from copies of purchase orders sent to the receiving

department is a control procedure intended mainly to
a. Ensure that goods received are physically counted by receiving
department personnel.
b. Identify and return damaged goods as soon as they are
c. Provide a cross-check for verifying the accuracy of
perpetual inventory records.
d. Prevent theft of goods by receiving department personnel.

d 9. Which of the following is not an appropriate activity for the treasury


a. Prepare checks.
b. Forward checks to vendors.
c. Cancel vouchers.
d. Prepare vouchers.

a 10. An effective internal control procedure that protects against the

preparation of improper or inaccurate disbursements is to require that all
checks be
a. Signed by an official after necessary supporting evidence has been
b. Reviewed by the treasurer before mailing.
c. Sequentially numbered and accounted for by internal auditors.
d. Perforated or otherwise effectively canceled when
they are returned with the bank statement.

a 11. As an in-charge auditor, you are reviewing a write-up of internal control

in cash receipt and disbursement procedures. Which of the following
deficiencies should cause you the least concern?
a. Checks are signed by only one person.
b. Signed checks are distributed by the controller to approved payees.
c. The treasurer fails to establish bonafide names and addresses of check
d. Cash disbursements are made directly out of cash receipts.

c 12. Matching the supplier's invoice, the purchase order, and the receiving
report normally should be the responsibility of the
a. Receiving department.

b. Purchasing department.
c. Accounting function.
d. Treasury function.


a 13. To avoid potential errors and irregularities, well-designed controls in the

accounts payable area should include a statement of which of the following
a. Cash disbursement and vendor invoice verification.
b. Vendor invoices and merchandise ordering.
c. Physical handling of merchandise received and preparation of receiving
d. Check signing and cancellation of payment documentation.

b 14. Which of the following is a necessary control procedure for cash


Checks should be signed by the controller and at

least one other employee of the company.

b. Checks should be sequentially numbered and the numerical sequence

should be accounted for by the person preparing the bank reconciliation.
c. Checks and supporting documents should be marked "Paid" immediately
after the check is returned with bank statement.
d. Checks should be sent directly to payee by the employee who prepares
documents that authorize check preparation.

b 15. Which of the following is not a common activity of the

expenditure/disbursement cycle?
a. Purchasing
b. Fixed asset addition

c. Receiving
d. Recording

b 16. Which of the following functions is not appropriate for the accounts
payable department?
a. Compare purchase requisitions, purchase orders, receiving reports, and
vendors' invoices.
b. Prepare purchase orders.
c. Prepare voucher and daily summary.
d. File voucher package by due date.

d 17. The accounts payable department generally should

a. Cancel supporting documentation after a cash payment is mailed.
b. Approve the price and quantity of each purchase requisition.
c. Assure that the quantity ordered is omitted from the receiving
department's copy of the purchase order.
d. Agree the vendor's invoice with the receiving report and purchase order.

d 18. Based on observations made during an audit, an independent auditor

should discuss with management the effectiveness of procedures that control
against the purchase of
a. Supplies purchased from a vendor who offers no trade or cash discounts.
b. Inventory acquired just-in-time.
c. Equipment that is needed but does not qualify for investment tax credit.
d. Supplies ordered without considering potential volume discounts.

b 19. Internal control is improved when the quantity of merchandise ordered

is omitted from the copy of the purchase order sent to the
a. Department that initiated the requisition.

b. Receiving department.
c. Purchasing agent.
d. Accounts payable department.


c 20. When goods are received, the receiving clerk should match the goods
with the
a. Purchase order and requisition.
b. Vendor's invoice and the receiving report.
c. Vendor's shipping document and the purchase order.
d. Receiving report and the vendor's shipping document.

a 21. The accounts payable department should compare the information on

each vendor's invoice with the
a. Receiving report and the purchase order.
b. Receiving report and the voucher.
c. Vendor's packing slip and the purchase order.
d. Vendor's packing slip and the voucher.(AICPA ADAPTED)

c 22. Effective internal control over the purchase of raw materials should
usually include all of the following procedures except
a. Reporting product changes that will affect raw materials needs.
b. Determining the need for raw materials prior to preparing a purchase
c. Obtaining third party written quality and quantity reports prior to paying
for the raw materials.
d. Obtaining approval prior to making a purchase commitment.

a 23. To improve control over merchandise purchases, a company's receiving

department should
a. Accept merchandise only if an approved purchase order is on hand.
b. Accept and count all merchandise received from known vendors.
c. Rely on shipping documents to prepare receiving reports.
d. Be responsible for handling merchandise but not for preparing receiving

b 24. To assure that disbursements are neither improper nor inaccurate, an

entity could require that all checks be
a. Signed by an officer after supporting documentation has been examined.
b. Reviewed by the treasurer before mailing.
c. Numbered sequentially and accounted for by internal auditors.
d. Canceled when they are returned with the bank statement.

a 25. The mailing of disbursement checks and remittance advices should be

controlled by the employee who
a. Signed the checks last.
b. Approved the vouchers for payment.
c. Matched the receiving reports, purchase orders, and vendor invoices.
d. Verified the mathematical accuracy of the vouchers and remittance

b 26. An auditor plans to examine a sample of 20 checks for

countersignatures as prescribed by the client's internal control procedures.
One of the checks in the sample cannot be found. The auditor should
a. Evaluate the results as if sample size had been 19.
b. Treat the missing check as a deviation.

c. Treat the missing check in the same manner as the majority of the other
19 checks, that is, countersigned or not.
d. Choose another check to replace the missing check in the sample.