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Chapter 6The Expenditure Cycle Part II: Payroll Processing and

Fixed Asset
Procedures
T R U E / FA L S E
1.Timecardsareusedbycostaccountingtoallocatedirectlaborchargestowork
inprocess.
ANS:F
2.Thepersonneldepartmentauthorizeschangesinemployeepayrates.
ANS:T
3.Mostpayrollsystemsformidsizefirmsuserealtimedataprocessing.
ANS:F
4.Toimproveinternalcontrol,paychecksshouldbedistributedbytheemployee's
supervisor.
ANS:F
5.Employeepaychecksshouldbedrawnagainstaspecialcheckingaccount.
ANS:T
6.Becauseatimeclockisused,nosupervisionisrequiredwhenemployeesentera
ndleavetheworkplace.
ANS:F
7.Inventorycontrolperformstheformalrecordkeepingfunctionforfixedassets.
ANS:F
8.Thedepreciationscheduleshowswhenassetsarefullydepreciated.
ANS:T
9.Authorizationtodisposeoffixedassetsshouldbeissuedbytheuseroftheasse
t.
ANS:F
10.Workinprocessrecordsareupdatedbypayrollpersonnel.
ANS:F
11.Ideally,payrollchecksarewrittenonaspecialbankaccountusedonlyforpa
yroll.
ANS:T

12.Thesupervisoristhebestpersontodeterminetheexistenceofaphantomem
ployeeandshoulddistributepaychecks.
ANS:F

13.Payrollprocessingcanbeautomatedeasilybecauseaccountingforpayrollis
verysimple.
ANS:F
14.Timekeepingispartofthepersonnelfunction.
ANS:F
15.Fixedassetaccountingsystemsincludecostallocationandmatchingprocedur
esthatarenotpartofroutineexpendituresystems.
ANS:T
16.Assetmaintenanceinvolvesonlytherecordingofdepreciationcharges.Physi
calimprovementsarealwaysexpensed.
ANS:F
17.FixedAssetSystemsmustkeeptrackofthephysicallocationofeachassetto
promoteaccountability.
ANS:T
18.Timecardscapturethetotaltimeanindividualworkerspendsoneachproduct
ionjob.
ANS:F
19.AccountingconventionsandIRSrulessometimespecifythedepreciationpara
meterstobeused.
ANS:T
20.Thefixedassetdisposalreportauthorizestheuserdepartmenttodisposeofaf
ixedasset.
ANS:F
M U LT I P L E C H O I C E
1.Thedocumentthatcapturesthetotalamountoftimethatindividualworkerssp
endoneachproductionjobiscalleda
a.timecard
b.jobticket
c.personnelactionform
d.labordistributionform

ANS:B
2.Animportantreconciliationinthepayrollsystemis
a.generalledgercomparesthelabordistributionsummaryfromcostaccountingt
othe
disbursementvoucherfromaccountspayable
b.personnelcomparesthenumberofemployeesauthorizedtoreceiveapaycheck
tothenumberofpaychecksprepared
c.productioncomparesthenumberofhoursreportedonjobticketstothenumber
ofhoursreportedontimecards
d.payrollcomparesthelabordistributionsummarytothehoursreportedontime
cards
ANS:A
3.Whichinternalcontrolisnotanimportantpartofthepayrollsystem?
a.Supervisorsverifytheaccuracyofemployeetimecards.
b.Paychecksaredistributedbyanindependentpaymaster.
c.Accountspayableverifiestheaccuracyofthepayrollregisterbeforetransferrin
gpayrollfundstothegeneralcheckingaccounting.
d.Generalledgerreconcilesthelabordistributionsummaryandthepayrolldisbur
sementvoucher.
ANS:C
4.WhichtransactionisnotprocessedintheFixedAssetSystem?
a.purchaseofbuilding
b.improvement ofequipment
c.purchaseofrawmaterials
d.saleofcompanyvan
ANS:C
5.Depreciation
a.iscalculatedbythedepartmentthatusesthefixedasset
b.allocatesthecostoftheassetoveritsusefullife
c.isrecordedweekly
d.resultsinbookvalueapproximatingfairmarketvalue
ANS:B
6.Depreciationrecordsincludeallofthefollowinginformationaboutfixedassets
except
a.theeconomicbenefitofpurchasingtheasset
b.thecostoftheasset
c.thedepreciationmethodbeingused
d.thelocationoftheasset

ANS: A
7.WhichcontrolisnotapartoftheFixedAssetSystem?
a.formalanalysisofthepurchaserequest
b.reviewoftheassumptionsusedinthecapitalbudgetingmodel
c.developmentofaneconomicorderquantitymodel
d.estimatesofanticipatedcostsavings
ANS:C
8.ObjectivesoftheFixedAssetSystemdonotinclude
a.authorizingtheacquisitionoffixedassets
b.recordingdepreciationexpense
c.computinggainand/orlossondisposaloffixedassets
d.maintainingarecordofthefairmarketvalueofallfixedassets
ANS:D
Chapter 5

The Expenditure Cycle Part I: Purchases and Cash Disbursements


Procedures
TRUE/FALSE
1. Purchasing decisions are authorized by inventory control.
ANS: T
2. The blind copy of the purchase order that goes to the receiving department contains no item
descriptions.
ANS: F
3. Firms that wish to improve control over cash disbursements use a voucher system.
ANS: T
4. In a voucher system, the sum of all unpaid vouchers in the voucher register equals the firms tota
l
voucher payable balance.
ANS: T
5. The accounts payable department reconciles the accounts payable subsidiary ledger to the control
account.ANS: F
6. The use of inventory reorder points suggests the need to obtain specific authorization.

ANS: F
7. Proper segregation of duties requires that the responsibility approving a payment be separated fro
m posting to the cash disbursements journal.
ANS: T
8. A major risk exposure in the expenditure cycle is that accounts payable may be overstated at the
end of the accounting year.
ANS: F
9. When a trading partner agreement is in place, the traditional three way match may be eliminated.
ANS: T
10. Authorization of purchases in a merchandising firm occurs in the inventory control department.
ANS: T
11. A three way match involves a purchase order, a purchase requisition, and an invoice.
ANS: F
12. Authorization for a cash disbursement occurs in the cash disbursement department upon receipt
of the suppliers invoice.
ANS: F
13. An automated cash disbursements system can yield better cash management since payments are
made on time.
ANS: T
14. Permitting warehouse staff to maintain the only inventory records violates separation of duties.
ANS: T
15. A purchasing system that employs electronic data interchange does not use a purchase order.
ANS: F
16. Inventory control should be located in the warehouse.
ANS: F
17. Inspection of shipments in the receiving department would be improved if the documentation sh
owed the value of the inventory.
ANS: F
18. One reason for authorizing purchases is to enable efficient inventory managementANS: T
19. If accounts payable receives an invoice directly from the supplier it needs to be reconciled with
the purchase order and receiving report
ANS: T
20. Supervision in receiving is intended to reduce the theft of assets.

ANS: T
MULTIPLE CHOICE
1. The purpose of the purchase requisition is to
a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. bill for goods delivered
ANS: C
2. The purpose of the receiving report is to
a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. bill for goods delivered
ANS: B
3. All of the following departments have a copy of the purchase order except
a. the purchasing department
b. the receiving department
c. accounts payable
d. general ledger
ANS: D
4. The purpose of the purchase order is to
a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. approve payment for goods received
ANS: A
5. The open purchase order file in the purchasing department is used to determine
a. the quality of items a vendor ships
b. the best vendor for a specific item
c. the orders that have not been received
d. the quantity of items received
ANS: C
6. The purchase order
a. is the source document to make an entry into the accounting records
b. indicates item description, quantity, and price

c. is prepared by the inventory control department


d. is approved by the end-user department
ANS: B
7. The reason that a blind copy of the purchase order is sent to receiving is to
a. inform receiving when a shipment is due
b. force a count of the items delivered
c. inform receiving of the type, quantity, and price of items to be delivered
d. require that the goods delivered are inspected
ANS: B
8. The receiving report is used to
a. accompany physical inventories to the storeroom or warehouse
b. advise the purchasing department of the dollar value of the goods delivered
c. advise general ledger of the accounting entry to be made
d. advise the vendor that the goods arrived safely
ANS: A
9. When a copy of the receiving report arrives in the purchasing department, it is used to
hapter 8Data Structures and CAATTs for Data Extraction
TRUE/FALSE
1.The database approach to data management is sometimes called the flat
file approach.ANS: FPTS: 1
2.The two fundamental components of data structures are organization and
access method.ANS: TPTS: 1
3.When a large portion of the file is to be processed in one operation such as
payroll,sequentialdata structures are an inefFcient method of organizing a
Fle.ANS: FPTS: 1
4.An advantage of using an indexed random file structure is that records are
easily added anddeleted.ANS: TPTS: 1
5.The hierarchical database model forces users to navigate between data
elements usingpredefined structured paths.ANS: TPTS: 1
6.A network model does not allow children Fles to have multiple parent
Fles.ANS: FPTS: 1
8.The physical database is an abstract representation of the database.ANS:
FPTS: 1
9.A customer name and an unpaid balance is an example of a one-to-many
relationship.ANS: FPTS: 1
10.In the relational model, a data element is called a relation.ANS: FPTS: 1
11.Data normalization groups data attributes into tables in accordance with
specificdesign objectives.ANS: TPTS: 1

12.Under the database approach, data is viewed as proprietary or owned by


users.ANS: FPTS: 1
13.VSAM file structures are most effective where rapid access to individual
records is a priorityneed.ANS: FPTS: 1
14.A join builds a new table by creating links.ANS: FPTS: 1
15.The deletion anomaly is the least important of the problems affecting
unnormalizeddatabases.ANS: FPTS: 1
16.EAMs allow auditors to identify significant transactions for substantive
testing.ANS: TPTS: 1
17.Generalized audit software packages are used to assist the auditor in
performingsubstantive tests.ANS: TPTS: 1
18.GAS can be used with simple data structures but not complex
structuresANS: FPTS: 1
19.Logical database design is the foundation of the conceptual design.ANS:
FPTS: 1
20.An entity is any physical thing about which the organization wishes to
capture data.ANS: FPTS: 1
21.An ER diagram is a graphical representation of a data model.ANS: TPTS: 1
22.The term occurrence is used to describe the number of attributes or fields
pertaining toa specific entity.ANS: FPTS: 1
23.Cardinality describes the number of possible occurrences in one table that
areassociated with a single occurrence in a related table.ANS: TPTS: 1
24.A table in third normal form is free of partial dependencies, multiple
dependencies,and transitive dependencies.ANS: FPTS: 1
25.Improperly normalized databases are associated with three types of
anomalies: theupdate anomaly, the insertion anomaly, and the deletion
anomaly.ANS: T