CH 11

Chapter 11 - Auditing the Purchasing Process
Chapter 11
Auditing the Purchasing Process
True / False Questions
1. Product costs should be matched directly with specific transactions and are recognized
upon recognition of revenue.
True False
2. A purchase transaction usually begins with the preparation of a purchase order.

True False
3. A receiving report is used to document the ordering of goods.

True False
4. The purchase journal is referred to as a check register.

True False
5. The principal business objectives of the purchasing process are acquiring goods and
services and paying for those goods and services.
True False
6. The accounts payable department is responsible for ensuring that all vendor invoices, cash
disbursements, and adjustments are recorded in the accounts payable records.
True False
7. After the controls are tested, the auditor sets the level of control risk.
True False
11-1
8. Because of the low volume of purchase return transactions, the auditor normally does not
test the controls associated with these transactions.
True False
9. Analytical procedures can be used to examine the reasonableness of accounts payable and
accrued expenses.
True False
10. Account payable confirmations are used less frequently by auditors than accounts
receivable confirmations.
True False
Multiple Choice Questions
11. A product cost is

A. An expense allocated by a systematic procedure
B. Recognized during the period in which a liability is incurred
C. Recognized in the period during which related revenue is recognized
D. Recognized in the period in which cash is spent
12. Which of the following accounts is not affected by cash disbursement transactions?
A. Cash
B. Accounts payable
C. Purchase discounts
D. Purchase returns
13. A debit memo

A. Reduces the amount of accounts payable to a vendor
B. Reduces accounts payable when payment is made
C. Is used by vendors to record cash payments received
D. Authorizes a debit to purchases when goods are received
11-2
14. In assessing control risk for purchases, an auditor vouches a sample of entries in the
voucher register to the supporting documents. Which assertion would this test of controls
most likely support?
A. Completeness
B. Occurrence
C. Accuracy
D. Classification
15. The occurrence assertion for accounts payable includes

A. Determining whether all accounts payable are recorded
B. Determining whether all accounts payable actually are liabilities
C. Determining whether all accounts payable are recorded in the proper period
D. Determining whether all accounts payable are properly classified in the financial
statements
16. The cutoff assertion for accounts payable includes

statements
17. The accounts payable department receives the purchase order form to accomplish all of
the following except to
A. Compare invoice price to purchase order price
B. Ensure that the purchase had been properly authorized
C. Ensure that the goods had been received by the party requesting the goods
D. Compare quantity ordered to quantity purchased
11-3
18. Unrecorded liabilities are most likely to be found during the review of which of the
following documents?
A. Unpaid bills
B. Shipping records
C. Bills of lading
D. Unmatched sales invoices
19. To determine whether accounts payable are complete, an auditor performs a test to verify
that all merchandise received is recorded. The population of documents for this test consists
of all
A. Payment vouchers
B. Receiving reports
C. Purchase requisitions
D. Vendor's invoices
20. The cash disbursements journal also is called the

A. Voucher register
B. Purchases journal
C. Check register
D. Accounts payable subsidiary ledger
21. An important primary purpose of the auditor's review of the client's procurement system
should be to determine the effectiveness of the activities to protect against
A. Improper materials handling
B. Unauthorized persons issuing purchase orders
C. Mispostings of purchase returns
D. Excessive shrinkage or spoilage
22. A client erroneously recorded a large purchase twice. Which of the following internal
controls would be most likely to detect this error in a timely and efficient manner?
A. Footing the purchases journal
B. Reconciling vendors' 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
11-4
23. An auditor performs a test to determine whether all merchandise for which the client was
billed was received. The population for this test consists of all
A. Merchandise received
B. Vendors' invoices
C. Canceled checks
D. Receiving reports
24. An auditor compares information on canceled checks with information contained in the
cash disbursements journal. The objective of this test is to determine that
A. Recorded cash disbursement transactions are properly authorized
B. Proper cash purchase discounts have been recorded
C. Cash disbursements are for goods and services actually received
D. No discrepancies exist between the data on the checks and the data in the journal
25. Which of the following procedures would an auditor most likely perform in searching for
unrecorded payables?
A. Reconcile receiving reports with related cash payments made just prior to year-end
B. Contrast the ratio of accounts payable to purchases with the prior year's ratio
C. Vouch a sample of creditor balances to supporting invoices, receiving reports and purchase
orders
D. Compare cash payments occurring after the balance sheet date with the accounts payable
trial balance
26. Tests designed to detect purchases made before the end of the year that have been
recorded in the subsequent year most likely would provide assurance about management's
assertion of
A. Accuracy
B. Occurrence
C. Cutoff
D. Classification
11-5
27. The audit procedures used to verify accrued liabilities differ from those employed for the
verification of accounts payable because
A. Accrued liabilities usually pertain to services of a continuing nature, while accounts
payable are the result of completed transactions
B. Accrued liability balances are less material than accounts payable balances
C. Evidence supporting accrued liabilities is nonexistent, while evidence supporting accounts
payable is readily available
D. Accrued liabilities at year-end will become accounts payable during the following year
28. The auditor is most likely to verify accrued commissions payable in conjunction with the
A. Sales cutoff review
B. Verification of employees
C. Review of post balance sheet date disbursements
D. Examination of trade accounts payable
29. Which of the following procedures relating to the examination of accounts payable could
the auditor delegate entirely to the client's employees?
A. Test footings in the accounts payable ledger
B. Reconcile unpaid invoices to vendors' statements
C. Prepare a schedule of accounts payable
D. Mail confirmations for selected account balances
30. Which of the following audit procedures is least likely to detect an unrecorded liability?
A. Analysis and recomputation of interest expense
B. Analysis and recomputation of depreciation expense
C. Mailing of standard bank confirmation forms
D. Reading of the minutes of meetings of the board of directors
11-6
31. A client's procurement system ends with the assumption of a liability and the eventual
payment of the liability. Which of the following best describes the auditor's primary concern
with respect to liabilities resulting from the procurement system?
A. Accounts payable are not materially understated
B. Authority to incur liabilities is restricted to one designated person
C. Acquisition of materials is not made from one vendor or one group of vendors
D. Commitments for all purchases are made only after established competitive bidding
procedures are followed
32. For effective internal control, 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
33. The authority to accept incoming goods in receiving should be based on a(an):
A. Vendor's invoice
B. Materials requisition
C. Bill of lading
D. Approved purchase order
34. A voucher
A. Is a bill from the vendor
B. Is a document that records the receipt of goods
C. Is a document that requests goods from an authorized individual in the entity
D. Serves as the basis for recording a vendor's invoice in the purchases journal
35. Operating control over the check signature plate normally should be the responsibility of
the
A. Secretary
B. Chief accountant
C. Vice president of finance
D. Treasurer
11-7
36. In testing controls over cash disbursements, an auditor most likely would determine that
the person who signs the checks also
A. Reviews the monthly bank reconciliation
B. Returns the checks to accounts payable
C. Is denied access to the supporting documents
D. Is responsible for mailing the checks
37. With respect to a small company's system of purchasing supplies, an auditor's primary
concern should be to obtain satisfaction that supplies ordered and paid for have been
A. Requested and approved by authorized individuals who have no incompatible duties
B. Received, counted, and checked to quantities and amounts on purchase orders and invoices
C. Properly recorded as assets and systematically amortized over the estimated useful life of
the supplies
D. Used in the course of business and solely for business purposes during the year under audit
38. As an in-charge auditor, you are reviewing a summary of control weaknesses in cash
disbursement procedures. Which one of the following weaknesses, standing alone, 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. Treasurer fails to establish validity of names and addresses of check payees
D. Cash disbursements are made directly out of cash receipts
39. Tests of controls for the occurrence assertion for purchases include all of the following
except
A. Evaluating proper segregation of duties
B. Testing a sample of vouchers for an authorized purchase order
C. Testing a sample of vouchers for matching receiving reports
D. Tracing a sample of vouchers to purchases journal
11-8
40. An internal control questionnaire indicates that an approved receiving report is required to
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 reports
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
41. An auditor wishes to perform tests of controls on a client's cash disbursements procedures.
If the control activities leave no audit trail of documentary evidence, the auditor most likely
will test the procedures by
A. Inquiry and analytical procedures
B. Confirmation and observation
C. Observation and inquiry
D. Analytical procedures and confirmation
42. An entity's internal control requires that for every check request 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
A. Purchase orders
B. Canceled checks
C. Receiving reports
D. Approved vouchers
43. 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
A. Supported by a vendor's invoice
B. Stamped "paid" by the check signer
C. Prenumbered and accounted for
D. Approved for authorized purchases
11-9
44. Which of the following is the most effective control activity to detect vouchers prepared
for the payment of goods that were not received?
A. Counting of goods upon receipt in the storeroom
B. Matching of purchase order, receiving report, and vendor invoice for each voucher in the
accounts payable department
C. Comparison of goods received with goods requisitioned in the receiving department
D. Verification of vouchers for accuracy and approval in the internal audit department
45. When an auditor selects a sample of items from the vouchers payable register for the last
month of the period under audit and traces these items to underlying documents, the auditor is
gathering evidence primarily in support of the assertion that
A. Recorded obligations were paid
B. Incurred obligations were recorded in the correct period
C. Recorded obligations were valid
D. Cash disbursements were recorded as incurred obligations
46. An auditor traced a sample of purchase orders and the related receiving reports to the
purchases journal and the cash disbursements journal. The purpose of this substantive
procedure most likely was to
A. Identify unusually large purchases that should be investigated further
B. Verify that cash disbursements were for goods actually received
C. Determine that purchases were properly recorded
D. Test whether payments were for goods actually ordered
47. Substantive procedures to examine the occurrence assertion for accounts payable include
A. Selecting a sample of vouchers and agreeing them to authorized purchase orders
B. Selecting a sample of vouchers and tracing them to the purchases journal
C. Comparing dates on vouchers to dates in the purchases journal
D. Recomputing the mathematical accuracy of a sample of vendor invoices
11-10
48. Substantive procedures to examine the completeness assertion for accounts payable
include
49. Substantive procedures to examine the cutoff assertion for accounts payable include
B. Selecting a sample of vouchers and agreeing them to the purchases journal
C. Selecting a sample of receiving reports around year-end and comparing dates on related
vouchers to dates in the purchases journal
50. Purchase cutoff procedures should be designed to test whether or not all inventory
A. Purchased and received before the year-end was recorded before year-end
B. On the year-end balance sheet was carried at lower of cost or market
C. On the year-end balance sheet was paid for by the company
D. Owned by the company is in the possession of the company
51. When searching for unrecorded liabilities at year-end, the population identified for
sampling would be
A. Cash receipts from related parties recorded before year-end
B. Creditors whose accounts appear on a subsidiary trial balance of accounts payable
C. Cash disbursements recorded in the period subsequent to year-end
D. Invoices dated a few days before and after year-end
11-11
52. Which of the following is a substantive procedure that an auditor most likely would
perform to verify the existence of recorded accounts payable?
A. Investigating the open purchase order file to ascertain that prenumbered purchase orders
are used and accounted for
B. Receiving the client's mail, unopened, for a reasonable period of time after the year-end to
search for unrecorded vendor's invoices
C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and
receiving reports
D. Confirming accounts payable balances with known suppliers who have zero balances
unrecorded liabilities?
A. Trace a sample of accounts payable entries recorded just before year-end to the unmatched
receiving report file
B. Compare a sample of purchase orders issued just after year-end with the year-end accounts
payable trial balance
C. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and
vendor invoices
D. Scan the cash disbursements entries recorded just before year-end for indications of
unusual transactions
54. Which of the following procedures would an auditor least likely perform before the
balance sheet date?
A. Assessment of inherent risk
B. Observation of merchandise inventory
C. Assessment of control risk
D. Identification of related parties
55. An examination of the balance in the accounts payable account is ordinarily not designed
to
A. Determine that the amounts represent obligations of the company
B. Verify that accounts payable were properly authorized
C. Ascertain the reasonableness of recorded liabilities
D. Determine that all existing liabilities at the balance sheet date have been recorded
11-12
56. Accounts payable confirmations are used to test

A. Both the existence and completeness audit assertions
B. Only the existence audit assertion
C. Only the completeness audit assertion
D. Either existence or completeness, depending upon the response rate
57. If completeness is a concern for accounts payable, auditors will send accounts payable
confirmations to
A. Primarily vendors with large accounts payable balances
B. Primarily vendors with small or zero accounts payable balances
C. All vendors
D. A random sample of all vendors
58. In auditing accounts payable, an auditor's procedures most likely would focus primarily
on management's assertion of
A. Existence
B. Rights and obligations
C. Completeness
D. Valuation and allocation
59. Budd, the purchasing agent for Lake Hardware Wholesalers, has a relative who owns a
retail hardware store. Budd arranged for hardware to be delivered by manufacturers to the
retail store on a C.O.D. basis, thereby enabling his relative to buy at Lake's wholesale prices.
Budd was probably able to accomplish this because of Lake's poor internal control over
A. Purchase requisitions
B. Cash receipts
C. Perpetual inventory records
D. Purchase orders
11-13
60. Which of the following control activities is not usually performed in the accounts payable
department?
A. Determining the mathematical accuracy of the vendor's invoice
B. Having an authorized person approve the voucher
C. Controlling the mailing of the check and remittance advice
D. Matching the receiving report with the purchase order
61. Which of the following is an internal control that would prevent a paid disbursement
voucher from being presented for payment a second time?
A. Vouchers should be prepared by individuals who are responsible for signing disbursement
checks
B. Disbursement vouchers should be approved by at least two responsible management
officials
C. The date on a disbursement voucher should be within a few days of the date the voucher is
presented for payment
D. The official signing the check should compare the check with the voucher and should
"cancel" the voucher documents by marking them "paid"
62. 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 vendors' invoices
D. Verified the mathematical accuracy of the vouchers and remittance advices
63. Assertions about classes of transactions and events for the period under audit include:
A. Existence, completeness, and accuracy.
B. Existence, completeness, and classification.
C. Occurrence, completeness, and cutoff.
D. Occurrence, completeness, and valuation and allocation.
11-14
64. Assertions about account balances at the period end include:

C. Existence, rights and obligations, and completeness.
D. Existence, rights and obligations, and classification.
65. The following test(s) of details of transactions can be used as a dual-purpose test in
conjunction with tests of controls:
A. Test a sample of purchase requisitions for proper authorization.
B. Obtain selected vendors' statements and reconcile to vendor accounts.
C. Obtain listing of accounts payable and compare total to general ledger.
D. Review results of confirmations of selected accounts payable.
66. Which of the following questions would most likely be included in an internal control
questionnaire concerning the completeness assertion for purchases?
A. Is an authorized purchase order required before the receiving department can accept a
shipment or the vouchers payable department can record a voucher?
B. Are purchase requisitions prenumbered and independently matched with vendor invoices?
C. Is the unpaid voucher file periodically reconciled with inventory records by an employee
who does not have access to purchase requisitions?
D. Are purchase orders, receiving reports, and vouchers prenumbered and periodically
accounted for?
67. If payables turnover has increased significantly since the prior year, this is an indication
that which of the following assertions for accounts payable might be violated?
A. Existence or occurrence
B. Completeness
C. Rights and obligations
11-15
68. Which of the following describes a temporary difference?

A. A difference that will be corrected in an amended tax return.
B. A difference arising from an uncertain tax position.
C. A fundamental difference in what constitutes revenue or expense for GAAP and tax
purposes.
D. A timing difference between the recognition of revenue or expense under GAAP and tax.
69. Which of the following describes a permanent difference?

purposes.
Short Answer Questions
70. Describe three categories of expenses outlined in FASB Concept Statement No. 5.
11-16
71. Listed below are six assertions regarding the financial presentations made in the
purchasing process. For each, give an example of how an auditor could use one of the typical
documents used in the purchasing process to test the assertion.
Occurrence -
Completeness -
Authorization -
Accuracy -
Cutoff -
Classification -
72. Identify the primary functions in the purchases cycle and describe each function.
73. Listed below are the major functions of the purchasing process.
1) Purchasing function.
2) General Ledger function.
3) Invoice-processing function.
4) Disbursement function.
5) Accounts Payable function.
6) Requisition and receiving function.
Name four pairs of functions that should be segregated from each other and explain why the
segregation is important.
11-17
74. The key inherent risk factors an auditor must consider when auditing the purchasing
process are industry factors. Which two are most important and why?
75. Match the test of controls described below to the appropriate assertion it is used to test:
Assertions
a) Occurrence
b) Completeness
c) Authorization
d) Accuracy
e) Cutoff
f) Classification
Test of Controls
1) Compare the dates on the receiving reports with the dates of the relevant vouchers
2) Review monthly bank reconciliations
3) Review client's competitive bidding procedures
4) Test a sample of vouchers for the presence of authorized purchase order and receiving
report
5) Review the cash disbursements journal for reasonableness of account distribution
6) Trace a sample of receiving reports to their respective vendor invoices and vouchers
11-18
76. Identify the types of substantive procedures used by the auditor to test accounts payable
and accrued expenses. Provide an example of how the auditor may use each substantive
procedure. Identify if any of the substantive procedures can be used as a test of controls or a
dual-purpose test.
77. Identify whether the following tests are substantive analytical procedures, tests of details
of transactions or tests of details of account balances:
1) Test a sample of purchase requisitions for proper authorization.
2) Test transactions around year-end to determine if they are recorded in the proper period.
3) Review results of confirmation of selected accounts payable.
4) Compare payables turnover to previous years' data.
5) Obtain selected vendors' statements and reconcile to vendor accounts.
6) Compare purchase returns and allowances as a percentage of revenue or cost of sales to
industry data.
78. There are several important disclosure items to consider when auditing the purchasing
process. Discuss what they are and why they are important.
11-19
79. Which type of confirmation is used more frequently by auditors - accounts receivable
confirmations or accounts payable confirmations? Why?
80. The auditor can often obtain sufficient appropriate evidence in the audit of a tax provision
without the use of a specialist. However, several situations may indicate a need for the auditor
to involve a tax specialist. Identify three of these situations.
11-20
Chapter 11 Auditing the Purchasing Process Answer Key
True / False Questions
1. Product costs should be matched directly with specific transactions and are recognized
upon recognition of revenue.
TRUE
AACSB: Communications
AICPA BB: Industry
AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 1
2. A purchase transaction usually begins with the preparation of a purchase order.

FALSE
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
3. A receiving report is used to document the ordering of goods.

FALSE
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
11-21
4. The purchase journal is referred to as a check register.

FALSE
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
5. The principal business objectives of the purchasing process are acquiring goods and
services and paying for those goods and services.
TRUE
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
6. The accounts payable department is responsible for ensuring that all vendor invoices, cash
disbursements, and adjustments are recorded in the accounts payable records.
TRUE
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
7. After the controls are tested, the auditor sets the level of control risk.
TRUE
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
11-22
8. Because of the low volume of purchase return transactions, the auditor normally does not
test the controls associated with these transactions.
TRUE
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
9. Analytical procedures can be used to examine the reasonableness of accounts payable and
accrued expenses.
TRUE
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
10. Account payable confirmations are used less frequently by auditors than accounts
receivable confirmations.
TRUE
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
Multiple Choice Questions
11-23
11. A product cost is

A. An expense allocated by a systematic procedure
B. Recognized during the period in which a liability is incurred
C. Recognized in the period during which related revenue is recognized
D. Recognized in the period in which cash is spent
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
12. Which of the following accounts is not affected by cash disbursement transactions?
A. Cash
B. Accounts payable
C. Purchase discounts
D. Purchase returns
AICPA BB: Industry
AICPA FN: Decision Making
Bloom's: Knowledge
Difficulty: Easy
13. A debit memo

A. Reduces the amount of accounts payable to a vendor
B. Reduces accounts payable when payment is made
C. Is used by vendors to record cash payments received
D. Authorizes a debit to purchases when goods are received
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
11-24
14. In assessing control risk for purchases, an auditor vouches a sample of entries in the
voucher register to the supporting documents. Which assertion would this test of controls
most likely support?
A. Completeness
B. Occurrence
C. Accuracy
D. Classification
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Risk Analysis
Bloom's: Comprehension
Difficulty: Easy
15. The occurrence assertion for accounts payable includes

statements
AICPA BB: Critical Thinking
Difficulty: Easy
11-25
16. The cutoff assertion for accounts payable includes

statements
Difficulty: Easy
17. The accounts payable department receives the purchase order form to accomplish all of
the following except to
A. Compare invoice price to purchase order price
B. Ensure that the purchase had been properly authorized
C. Ensure that the goods had been received by the party requesting the goods
D. Compare quantity ordered to quantity purchased
AICPA BB: Industry
Bloom's: Application
Difficulty: Easy
11-26
18. Unrecorded liabilities are most likely to be found during the review of which of the
following documents?
A. Unpaid bills
B. Shipping records
C. Bills of lading
D. Unmatched sales invoices
AICPA BB: Industry
Difficulty: Easy
19. To determine whether accounts payable are complete, an auditor performs a test to verify
that all merchandise received is recorded. The population of documents for this test consists
of all
A. Payment vouchers
B. Receiving reports
C. Purchase requisitions
D. Vendor's invoices
AICPA BB: Industry
Difficulty: Easy
11-27
20. The cash disbursements journal also is called the

A. Voucher register
B. Purchases journal
C. Check register
D. Accounts payable subsidiary ledger
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
21. An important primary purpose of the auditor's review of the client's procurement system
should be to determine the effectiveness of the activities to protect against
A. Improper materials handling
B. Unauthorized persons issuing purchase orders
C. Mispostings of purchase returns
D. Excessive shrinkage or spoilage
AICPA BB: Industry
Difficulty: Easy
22. A client erroneously recorded a large purchase twice. Which of the following internal
controls would be most likely to detect this error in a timely and efficient manner?
A. Footing the purchases journal
B. Reconciling vendors' 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
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
11-28
23. An auditor performs a test to determine whether all merchandise for which the client was
billed was received. The population for this test consists of all
A. Merchandise received
B. Vendors' invoices
C. Canceled checks
D. Receiving reports
AICPA BB: Industry
Difficulty: Moderate
24. An auditor compares information on canceled checks with information contained in the
cash disbursements journal. The objective of this test is to determine that
A. Recorded cash disbursement transactions are properly authorized
B. Proper cash purchase discounts have been recorded
C. Cash disbursements are for goods and services actually received
D. No discrepancies exist between the data on the checks and the data in the journal
AICPA BB: Industry
Difficulty: Easy
11-29
unrecorded payables?
A. Reconcile receiving reports with related cash payments made just prior to year-end
B. Contrast the ratio of accounts payable to purchases with the prior year's ratio
C. Vouch a sample of creditor balances to supporting invoices, receiving reports and purchase
orders
D. Compare cash payments occurring after the balance sheet date with the accounts payable
trial balance
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy
26. Tests designed to detect purchases made before the end of the year that have been
recorded in the subsequent year most likely would provide assurance about management's
assertion of
A. Accuracy
B. Occurrence
C. Cutoff
D. Classification
AICPA BB: Industry
Difficulty: Easy
11-30
27. The audit procedures used to verify accrued liabilities differ from those employed for the
verification of accounts payable because
A. Accrued liabilities usually pertain to services of a continuing nature, while accounts
payable are the result of completed transactions
B. Accrued liability balances are less material than accounts payable balances
C. Evidence supporting accrued liabilities is nonexistent, while evidence supporting accounts
payable is readily available
D. Accrued liabilities at year-end will become accounts payable during the following year
AICPA BB: Industry
Bloom's: Analysis
Difficulty: Easy
28. The auditor is most likely to verify accrued commissions payable in conjunction with the
A. Sales cutoff review
B. Verification of employees
C. Review of post balance sheet date disbursements
D. Examination of trade accounts payable
AACSB: Analytic
AICPA BB: Industry
Bloom's: Analysis
Difficulty: Easy
29. Which of the following procedures relating to the examination of accounts payable could
the auditor delegate entirely to the client's employees?
A. Test footings in the accounts payable ledger
B. Reconcile unpaid invoices to vendors' statements
C. Prepare a schedule of accounts payable
D. Mail confirmations for selected account balances
AICPA BB: Resource Management
Difficulty: Easy
11-31
30. Which of the following audit procedures is least likely to detect an unrecorded liability?
A. Analysis and recomputation of interest expense
B. Analysis and recomputation of depreciation expense
C. Mailing of standard bank confirmation forms
D. Reading of the minutes of meetings of the board of directors
AICPA BB: Industry
Bloom's: Analysis
Difficulty: Easy
31. A client's procurement system ends with the assumption of a liability and the eventual
payment of the liability. Which of the following best describes the auditor's primary concern
with respect to liabilities resulting from the procurement system?
A. Accounts payable are not materially understated
B. Authority to incur liabilities is restricted to one designated person
C. Acquisition of materials is not made from one vendor or one group of vendors
D. Commitments for all purchases are made only after established competitive bidding
procedures are followed
AICPA BB: Industry
11-32
32. For effective internal control, 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
AACSB: Analytic
AICPA BB: Industry
Bloom's: Knowledge
33. The authority to accept incoming goods in receiving should be based on a(an):
A. Vendor's invoice
B. Materials requisition
C. Bill of lading
D. Approved purchase order
AICPA BB: Industry
Bloom's: Knowledge
34. A voucher
A. Is a bill from the vendor
B. Is a document that records the receipt of goods
C. Is a document that requests goods from an authorized individual in the entity
D. Serves as the basis for recording a vendor's invoice in the purchases journal
AICPA BB: Industry
Bloom's: Knowledge
11-33
35. Operating control over the check signature plate normally should be the responsibility of
the
A. Secretary
B. Chief accountant
C. Vice president of finance
D. Treasurer
AICPA BB: Industry
36. In testing controls over cash disbursements, an auditor most likely would determine that
the person who signs the checks also
A. Reviews the monthly bank reconciliation
B. Returns the checks to accounts payable
C. Is denied access to the supporting documents
D. Is responsible for mailing the checks
AICPA BB: Industry
Bloom's: Knowledge
11-34
37. With respect to a small company's system of purchasing supplies, an auditor's primary
concern should be to obtain satisfaction that supplies ordered and paid for have been
A. Requested and approved by authorized individuals who have no incompatible duties
B. Received, counted, and checked to quantities and amounts on purchase orders and invoices
C. Properly recorded as assets and systematically amortized over the estimated useful life of
the supplies
D. Used in the course of business and solely for business purposes during the year under audit
AICPA BB: Industry
Bloom's: Knowledge
38. As an in-charge auditor, you are reviewing a summary of control weaknesses in cash
disbursement procedures. Which one of the following weaknesses, standing alone, 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. Treasurer fails to establish validity of names and addresses of check payees
D. Cash disbursements are made directly out of cash receipts
AICPA BB: Industry
11-35
39. Tests of controls for the occurrence assertion for purchases include all of the following
except
A. Evaluating proper segregation of duties
B. Testing a sample of vouchers for an authorized purchase order
C. Testing a sample of vouchers for matching receiving reports
D. Tracing a sample of vouchers to purchases journal
AICPA BB: Industry
40. An internal control questionnaire indicates that an approved receiving report is required to
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 reports
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
AICPA BB: Industry
11-36
41. An auditor wishes to perform tests of controls on a client's cash disbursements procedures.
If the control activities leave no audit trail of documentary evidence, the auditor most likely
will test the procedures by
A. Inquiry and analytical procedures
B. Confirmation and observation
C. Observation and inquiry
D. Analytical procedures and confirmation
AACSB: Analytic
AICPA BB: Industry
42. An entity's internal control requires that for every check request 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
A. Purchase orders
B. Canceled checks
C. Receiving reports
D. Approved vouchers
AACSB: Analytic
AICPA BB: Industry
11-37
43. 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
A. Supported by a vendor's invoice
B. Stamped "paid" by the check signer
C. Prenumbered and accounted for
D. Approved for authorized purchases
AACSB: Analytic
AICPA BB: Industry
44. Which of the following is the most effective control activity to detect vouchers prepared
for the payment of goods that were not received?
A. Counting of goods upon receipt in the storeroom
B. Matching of purchase order, receiving report, and vendor invoice for each voucher in the
accounts payable department
C. Comparison of goods received with goods requisitioned in the receiving department
D. Verification of vouchers for accuracy and approval in the internal audit department
AACSB: Analytic
AICPA BB: Industry
11-38
45. When an auditor selects a sample of items from the vouchers payable register for the last
month of the period under audit and traces these items to underlying documents, the auditor is
gathering evidence primarily in support of the assertion that
A. Recorded obligations were paid
B. Incurred obligations were recorded in the correct period
C. Recorded obligations were valid
D. Cash disbursements were recorded as incurred obligations
AACSB: Analytic
AICPA BB: Industry
46. An auditor traced a sample of purchase orders and the related receiving reports to the
purchases journal and the cash disbursements journal. The purpose of this substantive
procedure most likely was to
A. Identify unusually large purchases that should be investigated further
B. Verify that cash disbursements were for goods actually received
C. Determine that purchases were properly recorded
D. Test whether payments were for goods actually ordered
AACSB: Analytic
AICPA BB: Industry
47. Substantive procedures to examine the occurrence assertion for accounts payable include
AACSB: Analytic
AICPA BB: Industry
11-39
48. Substantive procedures to examine the completeness assertion for accounts payable
include
AACSB: Analytic
AICPA BB: Industry
49. Substantive procedures to examine the cutoff assertion for accounts payable include
B. Selecting a sample of vouchers and agreeing them to the purchases journal
C. Selecting a sample of receiving reports around year-end and comparing dates on related
vouchers to dates in the purchases journal
AACSB: Analytic
AICPA BB: Industry
50. Purchase cutoff procedures should be designed to test whether or not all inventory
A. Purchased and received before the year-end was recorded before year-end
B. On the year-end balance sheet was carried at lower of cost or market
C. On the year-end balance sheet was paid for by the company
D. Owned by the company is in the possession of the company
AACSB: Analytic
AICPA BB: Industry
11-40
51. When searching for unrecorded liabilities at year-end, the population identified for
sampling would be
A. Cash receipts from related parties recorded before year-end
B. Creditors whose accounts appear on a subsidiary trial balance of accounts payable
C. Cash disbursements recorded in the period subsequent to year-end
D. Invoices dated a few days before and after year-end
AACSB: Analytic
AICPA BB: Industry
52. Which of the following is a substantive procedure that an auditor most likely would
perform to verify the existence of recorded accounts payable?
A. Investigating the open purchase order file to ascertain that prenumbered purchase orders
are used and accounted for
B. Receiving the client's mail, unopened, for a reasonable period of time after the year-end to
search for unrecorded vendor's invoices
C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and
receiving reports
D. Confirming accounts payable balances with known suppliers who have zero balances
AACSB: Analytic
AICPA BB: Industry
11-41
unrecorded liabilities?
A. Trace a sample of accounts payable entries recorded just before year-end to the unmatched
receiving report file
B. Compare a sample of purchase orders issued just after year-end with the year-end accounts
payable trial balance
C. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and
vendor invoices
D. Scan the cash disbursements entries recorded just before year-end for indications of
unusual transactions
AACSB: Analytic
AICPA BB: Industry
54. Which of the following procedures would an auditor least likely perform before the
balance sheet date?
A. Assessment of inherent risk
B. Observation of merchandise inventory
C. Assessment of control risk
D. Identification of related parties
AACSB: Analytic
AICPA BB: Industry
11-42
55. An examination of the balance in the accounts payable account is ordinarily not designed
to
A. Determine that the amounts represent obligations of the company
B. Verify that accounts payable were properly authorized
C. Ascertain the reasonableness of recorded liabilities
D. Determine that all existing liabilities at the balance sheet date have been recorded
56. Accounts payable confirmations are used to test

A. Both the existence and completeness audit assertions
B. Only the existence audit assertion
C. Only the completeness audit assertion
D. Either existence or completeness, depending upon the response rate
AICPA BB: Industry
57. If completeness is a concern for accounts payable, auditors will send accounts payable
confirmations to
A. Primarily vendors with large accounts payable balances
B. Primarily vendors with small or zero accounts payable balances
C. All vendors
D. A random sample of all vendors
AICPA BB: Industry
11-43
58. In auditing accounts payable, an auditor's procedures most likely would focus primarily
on management's assertion of
A. Existence
B. Rights and obligations
C. Completeness
AICPA BB: Industry
59. Budd, the purchasing agent for Lake Hardware Wholesalers, has a relative who owns a
retail hardware store. Budd arranged for hardware to be delivered by manufacturers to the
retail store on a C.O.D. basis, thereby enabling his relative to buy at Lake's wholesale prices.
Budd was probably able to accomplish this because of Lake's poor internal control over
A. Purchase requisitions
B. Cash receipts
C. Perpetual inventory records
D. Purchase orders
AICPA BB: Industry
Difficulty: Hard
11-44
60. Which of the following control activities is not usually performed in the accounts payable
department?
A. Determining the mathematical accuracy of the vendor's invoice
B. Having an authorized person approve the voucher
C. Controlling the mailing of the check and remittance advice
D. Matching the receiving report with the purchase order
AICPA BB: Industry
Difficulty: Hard
61. Which of the following is an internal control that would prevent a paid disbursement
voucher from being presented for payment a second time?
A. Vouchers should be prepared by individuals who are responsible for signing disbursement
checks
B. Disbursement vouchers should be approved by at least two responsible management
officials
C. The date on a disbursement voucher should be within a few days of the date the voucher is
presented for payment
D. The official signing the check should compare the check with the voucher and should
"cancel" the voucher documents by marking them "paid"
AICPA BB: Industry
Difficulty: Hard
11-45
62. 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 vendors' invoices
D. Verified the mathematical accuracy of the vouchers and remittance advices
AICPA BB: Industry
Difficulty: Hard
63. Assertions about classes of transactions and events for the period under audit include:
C. Occurrence, completeness, and cutoff.
D. Occurrence, completeness, and valuation and allocation.
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
64. Assertions about account balances at the period end include:

C. Existence, rights and obligations, and completeness.
D. Existence, rights and obligations, and classification.
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
11-46
65. The following test(s) of details of transactions can be used as a dual-purpose test in
conjunction with tests of controls:
A. Test a sample of purchase requisitions for proper authorization.
B. Obtain selected vendors' statements and reconcile to vendor accounts.
C. Obtain listing of accounts payable and compare total to general ledger.
D. Review results of confirmations of selected accounts payable.
AICPA BB: Industry
Difficulty: Easy
66. Which of the following questions would most likely be included in an internal control
questionnaire concerning the completeness assertion for purchases?
A. Is an authorized purchase order required before the receiving department can accept a
shipment or the vouchers payable department can record a voucher?
B. Are purchase requisitions prenumbered and independently matched with vendor invoices?
C. Is the unpaid voucher file periodically reconciled with inventory records by an employee
who does not have access to purchase requisitions?
D. Are purchase orders, receiving reports, and vouchers prenumbered and periodically
accounted for?
AICPA BB: Industry
Difficulty: Hard
11-47
67. If payables turnover has increased significantly since the prior year, this is an indication
that which of the following assertions for accounts payable might be violated?
A. Existence or occurrence
B. Completeness
C. Rights and obligations
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
68. Which of the following describes a temporary difference?

purposes.
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
69. Which of the following describes a permanent difference?

purposes.
AICPA BB: Industry
Bloom's: Knowledge
Difficulty: Easy
11-48
Short Answer Questions
70. Describe three categories of expenses outlined in FASB Concept Statement No. 5.
1. The first type of expense is a product cost. These costs can be directly matched to specific
transactions or events and are recognized upon recognition of revenue.
2. The second type is a period cost. These are expenses recognized during the period in which
cash is spent or liabilities are incurred for goods and services to be used up within a short
amount of time.
3. The last type includes expenses that are allocated systematically and rationally to the period
during which the related assets are expected to provide benefits.
AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
11-49
71. Listed below are six assertions regarding the financial presentations made in the
purchasing process. For each, give an example of how an auditor could use one of the typical
documents used in the purchasing process to test the assertion.
Occurrence -
Completeness -
Authorization -
Accuracy -
Cutoff -
Classification -
Occurrence - The receiving report provides evidence regarding the occurrence assertion. This
document records the receipt of goods. The auditor can test vouchers for the presence of an
authorized receiving report to ensure that goods were actually received.
Completeness - The auditor can use the client's vouchers and vendor invoices to test for
completeness. In this case, the auditor will start with these documents and trace them to the
purchases journal. This will provide assurance that all purchased items have been recorded.
Authorization - One example of a document used to test authorization is the purchase
requisition form. This form is used to request goods or services for an authorized individual.
The auditor can check that all purchase requisitions have been properly approved by
reviewing these documents for authorization. This can be an important step in testing controls.
Accuracy - To test accuracy, an auditor can recalculate the amounts listed on the vendor
invoice. This will help ensure that the proper amounts were paid and recorded in the journals.
Cutoff - The dates on the receiving reports and the dates on the vouchers can be compared
with the dates in the purchases journal to test that the purchase transactions were recorded in
the proper period.
Classification - The purchases journal is used to test for proper classification through an
auditor's review of the journal. The journal provides details about each of the transactions
made and to which accounts the transactions were posted.
11-50
72. Identify the primary functions in the purchases cycle and describe each function.
Functions in the purchasing process include:
Requisitioning. Initiation and approval of request for goods and services by authorized
individuals consistent with management criteria.
Purchasing. Approval of purchase orders and proper execution as to price, quantity, quality,
and vendor.
Receiving. Receipt of properly authorized goods or services.
Invoice Processing. Processing of vendor invoices for goods and services received; also,
processing of adjustments for allowances, discounts, and returns.
Disbursements. Processing of payment to vendors.
Accounts Payable. Recording of all vendor invoices, cash disbursements, and adjustments in
individual vendor accounts.
General Ledger. Proper accumulation, classification and summarization of purchases, cash

Disbursements, and payables in the general ledger.
Bloom's: Knowledge
11-51
73. Listed below are the major functions of the purchasing process.
1) Purchasing function.
2) General Ledger function.
3) Invoice-processing function.
4) Disbursement function.
5) Accounts Payable function.
6) Requisition and receiving function.
Name four pairs of functions that should be segregated from each other and explain why the
segregation is important.
1 should be separated from 6 - An individual who performs both of these duties can easily
make fictitious purchases and steal cash.
3 should be separated from 5 - This segregation prevents an individual from overpaying for
goods received and stealing cash.
4 should be separated from 5 - Unauthorized transactions can be made by an individual with

control over both of these functions. This can lead to unauthorized checks being written and
the individual stealing cash.
5 should be separate from 2 - The segregation of these duties makes it difficult to cover up
defalcation of the company's records.
11-52
74. The key inherent risk factors an auditor must consider when auditing the purchasing
process are industry factors. Which two are most important and why?
The adequacy of the supply of raw materials is important to consider. If there is a shortage of
key materials, it could significantly affect the financial performance of the organization.
The stability of the price of raw materials is also important. An increase in the price of
materials increases the cost to make the product. If the company cannot raise their prices to
match the increase, the company's earnings will suffer.
AICPA BB: Industry
Difficulty: Easy
75. Match the test of controls described below to the appropriate assertion it is used to test:
Assertions
a) Occurrence
b) Completeness
c) Authorization
d) Accuracy
e) Cutoff
f) Classification
Test of Controls
1) Compare the dates on the receiving reports with the dates of the relevant vouchers
2) Review monthly bank reconciliations
3) Review client's competitive bidding procedures
4) Test a sample of vouchers for the presence of authorized purchase order and receiving
report
5) Review the cash disbursements journal for reasonableness of account distribution
6) Trace a sample of receiving reports to their respective vendor invoices and vouchers
1) e; 2) d; 3) c; 4) a; 5) f; 6) b
AICPA BB: Industry
Difficulty: Easy
11-53
76. Identify the types of substantive procedures used by the auditor to test accounts payable
and accrued expenses. Provide an example of how the auditor may use each substantive
procedure. Identify if any of the substantive procedures can be used as a test of controls or a
dual-purpose test.
The auditor uses substantive procedures to detect material misstatements in accounts payable
and related accounts. There are two categories of substantive procedures: (1) substantive
analytical procedures and (2) tests of details of classes of transactions, account balances, and
disclosures.
1. Substantive analytical procedures are used to examine plausible relationships among
accounts payable and related accounts.
Example: The auditor might compare payables turnover and days outstanding in accounts
payable to previous years' and industry data or purchase returns or amounts owed to
individual vendors in the current year's accounts payable listing to amounts owed in prior
years.
2. Tests of details focus on transactions, account balances, or disclosures.
In the purchasing cycle, tests of details of transactions (also called substantive tests of
transactions) focus mainly on the purchases and cash disbursement transactions.
Examples: To test the occurrence assertion about a purchase, the auditor can test a sample of
vouchers for the presence of an authorized purchase order and receiving report. To test the
completeness assertion, the auditor can trace a sample of vouchers to the purchases journal.
Tests of details of account balances concentrate on the detailed amounts or estimates that
make up the ending balance for accounts payable and accrued expenses.
Example: To test the existence assertion about purchases, the auditor can vouch selected
amounts from the accounts payable listing and schedules for accruals to voucher packets or
other supporting documentation.
Tests of details of disclosures are concerned with the presentation and disclosures related to
accounts payable and accrued expenses.
Example: To test the completeness assertions about accounts payable and accrued expenses,
the auditor can complete a financial reporting checklist to ensure that all financial statement
disclosures related to accounts payable and accrued expenses have been appropriately
disclosed.
Tests of details of transactions (substantive tests of transactions) can be used as a test of

controls or a dual-purpose test. However, if the tests of controls indicate that the controls are
not operating effectively, the auditor may need to test transactions at the date the account
balance is tested.
11-54
AICPA BB: Industry
Difficulty: Easy
77. Identify whether the following tests are substantive analytical procedures, tests of details
of transactions or tests of details of account balances:
1) Test a sample of purchase requisitions for proper authorization.
2) Test transactions around year-end to determine if they are recorded in the proper period.
3) Review results of confirmation of selected accounts payable.
4) Compare payables turnover to previous years' data.
5) Obtain selected vendors' statements and reconcile to vendor accounts.
6) Compare purchase returns and allowances as a percentage of revenue or cost of sales to
industry data.
1) Tests of details of transactions

2) Tests of details of transactions
3) Tests of details of account balances
4) Substantive analytical procedures
5) Tests of details of account balances
6) Substantive analytical procedures
Difficulty: Hard
11-55
78. There are several important disclosure items to consider when auditing the purchasing
process. Discuss what they are and why they are important.
1. Payables by type. This allows the user to determine how much of the payables relate to the
normal trade or business compared to other payables (i.e. employees)
2. Short and long-term payables. For purposes of a classified balance sheet.
3. Long-term purchase contracts, including any unusual purchase commitments. This

requirement is to inform the users of what the agreement entails and can help them make
decisions about the company.
4. Related-party transactions. These transactions must be identified separately on the financial

statements, since they are not made at arms-length and are considered differently by potential
users of the financial statements.
5. Dependence on a single vendor or a small number of vendors. This is to inform the users
how much exposure the company would have if a significant vendor were to become
unavailable for some reason.
6. Costs by reportable segment of the business. This would allow the users to evaluate
separate segments of the entity individually.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
11-56
79. Which type of confirmation is used more frequently by auditors - accounts receivable
confirmations or accounts payable confirmations? Why?
Auditors typically use confirmations for accounts receivable rather than accounts payable
because of the reliability of other evidence. To test accounts payable, the auditor can examine
vendor invoices and vendor statements. These documents originate from sources outside of
the entity being audited and are therefore considered very reliable. Documentation for
accounts receivable is normally generated within the entity, so confirmations provide a more
reliable way of testing the account.
AICPA BB: Industry
Difficulty: Easy
80. The auditor can often obtain sufficient appropriate evidence in the audit of a tax provision
without the use of a specialist. However, several situations may indicate a need for the auditor
to involve a tax specialist. Identify three of these situations.
Answers should include three of the following:

1. Multiple locations with foreign operations and related foreign tax issues
2. Business combinations
3. Subsidiary dispositions
4. Material uncertain tax positions (FIN48)
5. Significant changes in ownership
6. Significant changes in business operations
7. Significant changes in tax status
11-57

CH 11

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Chapter 11 - Auditing the Purchasing Process

True / False Questions

2. A purchase transaction usually begins with the preparation of a purchase order.

3. A receiving report is used to document the ordering of goods.

4. The purchase journal is referred to as a check register.

Multiple Choice Questions

11. A product cost is

13. A debit memo

15. The occurrence assertion for accounts payable includes

16. The cutoff assertion for accounts payable includes

20. The cash disbursements journal also is called the

56. Accounts payable confirmations are used to test

64. Assertions about account balances at the period end include:

68. Which of the following describes a temporary difference?

69. Which of the following describes a permanent difference?

Short Answer Questions

Chapter 11 Auditing the Purchasing Process Answer Key

True / False Questions

2. A purchase transaction usually begins with the preparation of a purchase order.

3. A receiving report is used to document the ordering of goods.

4. The purchase journal is referred to as a check register.

Multiple Choice Questions

11. A product cost is

13. A debit memo

15. The occurrence assertion for accounts payable includes

16. The cutoff assertion for accounts payable includes

20. The cash disbursements journal also is called the

56. Accounts payable confirmations are used to test

64. Assertions about account balances at the period end include:

68. Which of the following describes a temporary difference?

69. Which of the following describes a permanent difference?

Short Answer Questions

Functions in the purchasing process include:

Receiving. Receipt of properly authorized goods or services.

Disbursements. Processing of payment to vendors.

General Ledger. Proper accumulation, classification and summarization of purchases, cash

4 should be separated from 5 - Unauthorized transactions can be made by an individual with

2. Tests of details focus on transactions, account balances, or disclosures.

Tests of details of transactions (substantive tests of transactions) can be used as a test of

1) Tests of details of transactions

2. Short and long-term payables. For purposes of a classified balance sheet.

3. Long-term purchase contracts, including any unusual purchase commitments. This

4. Related-party transactions. These transactions must be identified separately on the financial

Answers should include three of the following:

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