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Chapter 10: Transaction cycle - the expenditure cycle

True/False

F 1. Paying for the goods received is the sole objective of the


expenditure cycle.

T 2. EDI is mainly used among different organisations.

T 3. Inventory data and accounts payable data are both created and
updated by activities within the expenditure cycle.

T 4. The supplier is always represented as an external entity in any


logical expenditure cycle DFD.

F 5. Purchasing staff should order relevant goods as soon as


purchase requests are received.

F 6. Purchase requisitions can be created by the inventory control


department.

T 7. Purchase requisitions should be used as source documents for


creating purchase orders.

F 8. A blind copy of the purchase order should be sent to the warehouse


with the name of the shipping company obscured.

F 9. Both quality and quantity of the goods received should be


scrutinised regardless of the goods' volume and value.

F10. Accounts payable staff should always take advantage of any


payment discounts offered when establishing the date for payment.

F 11. The performance of the expenditure cycle is determined


by the proportional amount of discounts claimed.
Multiple choice

12. The overall objective of the purchasing phase in the expenditure


cycle is to:

a. Procure the right goods at the right amount and with the right
price
b. Procure the right goods at the right amount and with the right
supplier
c. Procure the right goods at the right amount, and to receive
those goods at the right time
d. Procure the right goods at the right amount, and to update the
accounts payable record

13. To achieve the overall objective of the purchasing phase in the


expenditure cycle, an organisation needs to

a. Approve and authorise initiated purchases properly


b. Obtain goods and services from authorised or pre-vetted
suppliers
c. Record all purchase commitments and obligations accurately
d. Ensure that accepted goods and services must meet quality and
delivery specifications.
e. All of the above

14. The overall objective of the accounts payable phase in the


expenditure cycle is to:

a. Maintain the accounts payable record


b. Pay the right people the right amount at the right time
c. Determine whether an invoice should be paid
d. Ensure suppliers are neither overpaid nor underpaid
15. To decide whether a payment should be made to the supplier, an
accounts payable clerk should:

a. Examine the receiving report


b. Be involved in the interaction with suppliers of the goods during
the purchasing phase
c. Ensure there are ongoing good relationships with suppliers
d. All of the above.

16. Which of the following statement is incorrect?

a. The accounts payable phase needs to ensure that payments are


made by authorised employees only.
b. The accounts payable phase needs to ensure that payments are
accurate and timely
c. The accounts payable phase needs to ensure that the accounts are
settled as soon as possible.
d. The accounts payable phase needs to ensure that all accounts
payable liabilities are recorded accurately and promptly.

17. Which of the following statement is incorrect?

a. A sound, well-controlled expenditure cycle can provide a


competitive advantage to the organisation.
b. A sound, well-controlled expenditure cycle can provide the
organisation with the opportunities for higher product pricing.
c. An efficient and effective expenditure cycle can enable the
organisation to provide goods and services at a level that undercuts
less efficient competitors.
d. None of the above
18. Which of the following technologies is not involved in the
expenditure cycle?

a. ERP
b. RFID
c. SCM
d. CRM

19. Which of the following technologies can provide accurate, timely


and cost-effective data sharing to the expenditure cycle?

a. RFID
b. SCM
c. EDI
d. CRM

20. What are the implications if an organisation is switching to an


electronic payment system from a manual payment system?

a. Access security
b. Timing
c. Cash flow
d. All of the above
21. Which of the following data is not required by the expenditure
cycle?
a. Inventory data and supplier data
b. Goods received data
c. Purchase order data
d. None of the above
22. When deciding which suppliers provide the best quality and service
at the best price:

a. There is often a trade-off between price, quality and service


b. The overall business strategy of the organisation is not a
concern.
c. The type of product being procured is not a concern.
d. None of the above.

23. Which of the following statements is NOT true?

a. Determining demand for goods involves collecting purchase


requests
b. Ordering goods involves the creation of the purchase
requisition
c. Receiving goods involves the preparation of a receiving report
d. Paying for goods involves the approval of the payment

24. Which of the following statements is NOT true?

a. Purchase requests are sometimes accumulated over a period of


time before an order is placed.
b. After purchase requests are collected and accumulated a
purchase requisition can be created
c. Purchase requisitions are sometimes accumulated over a
period of time before purchase orders are made.
d. Details of the purchase requisition are sent to the purchase clerk
so that a purchase order can be created
25. Normally, when the stock on hand drops down to the automatic
reorder point:
a. A purchase request is generated automatically
b. A purchase requisition is generated automatically
c. A purchase order is generated automatically
d. All of the above.

26. Accumulation of purchase requests should be done when

a. There is a potential to achieve a better price outcome by buying


in bulk
b. Transaction costs can be lower by a smaller number of larger
orders
c. Time is not critical for the items being purchased
d. All of the above.

27. Which of the following statement is NOT true?

a. The trigger for accumulating purchase requests could be


temporal
b. Purchase requests accumulation can be triggered by the receipt
of a similar purchase request
c. Accumulated purchase requests may be forgotten.
d. None of the above.
28. A blind copy of the purchase order, which is sent to the receiving
department, cannot:
a. help deterring employee theft of high-value income goods
b. help forcing the receiving clerk to actually count and examine
the incoming goods
c. expedite the preparation of receiving reports
d. be used for copying quantity and price information to the
receiving report

29. Typical risks encountered in the ordering process do not include:

a. purchasing from unauthorised suppliers


b. overpayment
c. buying poor quality goods
d. kickbacks
e. None of the above

30. To prevent employees from receiving kickbacks in the ordering


process, an organisation can do the following except:

a. enforce job rotation


b. enforce annual leave
c. enforce corporate gift policies
d. enforce the use of pre-approved suppliers
31. To check that there was a purchase order placed for the goods, goods
receiving staff should check the following except:
a. the purchase number is valid
b. the goods and supplier listed on the purchase order approximate
those on the delivery document
c. the goods listed on that purchase order have not been received
already
d. the price on the purchase order agrees with the price on the
delivery document
32. The types of counts and checks conducted during receiving goods
will vary depending on the ________.

a. availability of the receiving clerk


b. the corporate policy on how often incoming goods should be
checked
c. volume and value of goods received
d. All of the above

33. A discount should only be taken where:

a. cash flow is sufficient to support the early payment


b. the discount offered is a reasonable inducement
c. corporate policy allows to do so
d. All of the above

34. Which of the following statements is true?

a. All payments processed should be related to at least one


purchase order.
b. Purchasing staff need to decide whether to take advantage of any
payment discounts offered.
c. A significant risk in the area of accounts payable is the potential
to pay invoices twice.
d. All of the above.

35. When approving payments, and accounts payable clerk needs to


examine:

a. purchased order information


b. receiving report
c. supplier information
d. All of the above
36. Which of the following KPIs is not suitable for measuring the
timeliness and accuracy of payments made to suppliers:

a. financial delegations compliance


b. discounts claimed/overlooked
c. number of supplier complaints
d. number of invalid requests received