Acct Ch 13 Answers – Flashcards
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A) vendor-managed inventory.
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1) The Squishy Things Toy Company was established in 1948. It recently signed a large contract with a chain of retail toy stores. As a condition of the contract, the Squishy will be required to track and forecast product sales by linking in to the chain's sales database. Squishy will then be responsible for shipping products to the chain's regional warehouses as needed. The relationship between Squishy and the chain is an example of
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A) A supplier delivers more inventory than ordered at the end of the year and sends an invoice for the total quantity delivered.
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2) Requiring all packing slips be reconciled to purchase orders before accepting a delivery of inventory would be most likely to prevent which of the following situations?
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A) Receiving and accepting inventory not ordered
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3) Comparing quantities on a vendor invoice to quantities on the receiving report would not prevent or detect which of the following situations?
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A) Only pay from original invoices.
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4) Which of the following would probably be the least effective control to mitigate the risk of paying an invoice payable to a phony vendor for inventory purchases, mailed to the company by an employee attempting to commit fraud?
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A) Allow only the accounts payable department to authorize payment for vendor invoices and allow only the cash disbursements department to cut and mail checks to vendors.
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5) Which of the following would be the least effective control to prevent paying the same vendor invoice twice? =
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D) What are the optimal prices for each product or service?
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6) To accomplish the objectives set forth in the expenditure cycle, a number of key management decisions must be addressed. Which of the decisions below is not ordinarily found as part of the expenditure cycle?
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B) shipping function
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7) One of the basic activities in the expenditure cycle is the receiving and storage of goods, supplies, and services. What is the counterpart of this activity in the revenue cycle?
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C) economic order quantity.
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8) The traditional approach to inventory management to ensure sufficient quantity on hand to maintain production is known as
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B) carrying costs.
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9) Economic Order Quantity (EOQ) includes several variables that must be taken into consideration when calculating the optimal order size. One variable, the costs associated with holding inventory, is referred to as 9) Economic Order Quantity (EOQ) includes several variables that must be taken into consideration when calculating the optimal order size. One variable, the costs associated with holding inventory, is referred to as
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D) reorder point.
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10) The need to place an order for inventory is specified by the
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D) inventory, vendors, and open purchase orders
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11) When goods are being ordered from a vendor, which electronic files are either read or updated?
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B) reduce required inventory levels by scheduling production rather than estimating needs
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12) What is a key feature of materials requirements planning (MRP)?
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A) reduces the uncertainty about when materials are needed, thereby reducing the need to carry large levels of inventory.
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13) Materials requirements planning (MRP)
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C) just-in-time inventory.
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14) The inventory management approach that attempts to minimize, if not eliminate, carrying and stockout costs is
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A) frequent deliveries of smaller quantities of items to the work centers
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15) What aspect below best characterizes a Just-In-Time (JIT) inventory system?
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D) MRP schedules production to meet estimated sales needs; JIT schedules production to meet customer demands.
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16) What is the key difference between the MRP and JIT inventory management approaches?
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A) demand for inventory is fairly predictable.
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17) MRP will be a preferred method over JIT when the
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C) credit rating of the vendor
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18) A key decision in ordering is selecting a suitable vendor. Which of the following would not be a major criterion in vendor selection?
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D) inventory master file.
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19) Once a vendor is selected for a product, the vendor's identity is recorded in the
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D) All of the above are true.
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20) A purchase order is
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A) blanket purchase order.
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21) Stepanek Sales and Service provides free coffee to employees. Stepanek arranged with Ingebrigtson's Joe to deliver as many coffee packages, sugar, creamer, and filters as needed each week. Ingebrigtson's sends a monthly invoice for Stepanek to pay. This arrangement is best described as a
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C) a reverse auction.
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22) A major cost in the purchasing function is the number of purchase orders processed. One technique that may reduce purchasing-related expenses is to have suppliers compete with each other to meet demand at the lowest price. This name of this technique is
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A) deciding if the delivery should be accepted.
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23) One of the major responsibilities of the receiving department is
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A) price of the items
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24) Which of the following is generally not shown on a receiving report?
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D) the purchasing department manager
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25) A receiving clerk notes that a delivery of 10 units has been received, but the purchase order specified 12 units. A debit memo will need to be prepared to adjust for the difference between the quantity ordered and received. Who should prepare this document?
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D) All of the above are possible scenarios.
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26) Identify in which of the following scenarios a company could adjust the balance due the vendor by issuing a debit memo.
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B) requiring all suppliers to include RFID tags on their items
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27) What is one of the best ways to improve the overall efficiency and effectiveness of the receipt and storage of ordered items?
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D) accounts payable department; controller
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28) Vendor invoices are approved by the ________, which reports to the ________.
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A) cashier
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29) The disbursement voucher and supporting documents are sent to the ________ for payment prior to the due date.
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A) nonvoucher
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30) A(n) ________ system posts an approved invoice to the vendor account and stores it in an open invoice file until payment is made by check.
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D) All of the above are correct.
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31) A disbursement voucher contains
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D) a disbursement voucher system.
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32) One objective of accounts payable is to authorize payment only for goods or services actually ordered and received. The best way to process supplier invoices is to use
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D) There are no disadvantages to using disbursement vouchers.
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33) What is not an advantage of using disbursement vouchers?
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D) It is a less expensive and easier system to administer than other systems.
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34) Which of the following is not an advantage of a voucher system?
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B) purchasing; accounts payable; cashier
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35) Duties in the expenditure cycle should be properly segregated to promote internal control. This means that the authorization function is performed by ________, the recording function is performed by ________, and cash handling is performed by the ________.
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B) a purchase order, vendor invoice, and receiving report.
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36) A voucher package should include
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C) receiving report.
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37) Evaluated receipt settlement (ERS) approves payment of vendor invoices after reconciling the purchase order and the
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A) use blanket purchase orders.
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38) All of the following are opportunities to improve efficiency of the accounts payable function except
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A) using procurement cards.
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39) When purchasing miscellaneous supplies, companies can reduce costs, improve efficiency, and combat employee fraud by
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C) 18
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40) If available, a 1% discount for payment within 10 days instead of 30 days represents an approximate savings of ________ % annually.
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B) use only approved suppliers and solicit competitive bids
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41) What is the best control to mitigate the threat of paying prices that are too high for goods ordered?
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C) a corporate policy to prohibit purchasing agents from accepting kickbacks
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42) What is probably the most effective control for the prevention of kickbacks to purchasing agents?
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A) errors in counting.
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43) One of the threats associated with the process and activity of receiving and storing goods is
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B) Match the packing slip to a purchase order before accepting delivery.
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44) What is the best way to prevent the acceptance of unordered goods?
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C) sending "blind" copies of purchase orders to inventory control for data entry
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45) Which of the following is not a common control for ensuring inventory is secure and inventory counts are accurate?
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C) paying for goods and services
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46) Double-checking the accuracy of an invoice is a control that can help to neutralize a threat in the expenditure cycle. What activity would specifically be associated with this control?
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A) never authorize payment of a photocopy of an invoice
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47) What control would best mitigate the threat of paying an invoice twice?
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A) Allow payments only to approved vendors.
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48) Which control would best prevent payments made to fictitious vendors?
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B) imprest fund; vouchers
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49) In the expenditure cycle, good control dictates that expenditures should be paid by check. This may not be feasible when minor purchases are made. To facilitate quick payment for minor purchases, a(n) ________ should be set up and maintained using ________.
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B) cash and vouchers
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50) A surprise count of an imprest petty cash fund should find the total of ________ equal to the amount authorized for the fund.
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C) Establish a control group to monitor EFT transactions for validity and accuracy.
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51) What control should be put in place that assigns responsibility for EFT payments made to vendors?
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B) purchasing from unauthorized vendors
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52) Which of the following threats is not specific to the purchase requisition process of the expenditure cycle?
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B) revenue cycle.
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53) There is a symmetrical interdependence between a firm's expenditure cycle and its suppliers'
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C) electronic data interchange.
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54) The Squishy Things Toy Company was established in 1948. It recently signed a large contract with a chain of retail toy stores. As a condition of the contract, the Squishy will be required to track and forecast product sales by linking in to the chain's sales database. Squishy will then be responsible for shipping products to the chain's regional warehouses as needed. The technology that is used for communication between Squishy and the chain is
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B) the economic order quantity.
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55) The management at Sad Clown Pajamas, an Internet-based wholesaler, is considering a new inventory control system. The current system is inadequate because it results in stockouts that interrupt production and excess stocks of some materials that result in markdowns and high carrying costs. The new system, which will focus on ensuring that the amounts purchased minimize these costs, will employ
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C) a reorder point.
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56) The management at Sad Clown Pajamas, an Internet-based wholesaler, is considering a new inventory control system. The current system is inadequate because it results in stockouts that interrupt production and excess stocks of some materials that result in markdowns and high carrying costs. The new system, which will focus on ensuring that orders are placed with sufficient lead time to prevent stockouts, will employ
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D) materials requirements planning.
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57) The management at Sad Clown Pajamas, an Internet-based wholesaler, is considering a new inventory control system. The current system is inadequate because it results in stockouts that interrupt production and excess stocks of some materials that result in markdowns and high carrying costs. The new system, which will focus on forecasting demand for Sad Clown's products, will employ
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A) a just-in-time inventory system.
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58) The management at Sad Clown Pajamas, an Internet-based wholesaler, is considering a new inventory control system. The current system is inadequate because it results in stockouts that interrupt production and excess stocks of some materials that result in markdowns and high carrying costs. The new system, which will focus on reducing or completely eliminating carrying costs, will employ
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B) blanket purchase order
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59) Bob Chum is the sales manager at Folding Squid Technologies. At lunch with the company CEO, he proudly announced that he had negotiated a(n) ________ with a client that defined a long-term commitment to buy components from Folding Squid.
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A) purchase order
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60) Bob Chum is the sales manager at Folding Squid Technologies. At lunch with the company CEO, he proudly announced that he had received a ________ from a client to buy a large quantity of components from Folding Squid.
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D) debit memo
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61) Bob Chum is the sales manager at Folding Squid Technologies. At lunch with the company CEO, he complained that a recent shipment from a vendor had been unsatisfactory and so had to be returned. That required the purchasing manager to send a ________ to the supplier.
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A) voucher system.
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62) To minimize the number of checks that need to be written to pay vendor invoices a company should use a
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B) eliminating the need for vendor invoices.
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63) Evaluated receipt settlement increases efficiency by
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D) eliminating the need to prepare and mail checks.
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64) In the expenditure cycle, Financial Electronic Data Interchange (FEDI) increases efficiency by
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C) Procurement cards can only be used with approved vendors, but credit cards can be used anywhere.
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65) Procurement cards differ from corporate credit cards in which of the following ways?
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B) Accounts payable should reconcile purchase orders, receiving reports, and invoices.
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66) The purchasing manager at Folding Squid Technologies has responsibility for reviewing and authorizing purchase orders. He also reviews receiving reports, approves or corrects them, and authorizes the cashier to pay vendor invoices. Which of the following would correct control weaknesses, if any, related to these activities?
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D) Controls are adequate under the current system.
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67) The purchasing manager at Folding Squid Technologies has responsibility for reviewing and authorizing purchase orders. Receiving reports are prepared by shipping and receiving based on the relevant purchase order(s). Purchase orders, receiving reports, and vendor invoices are reconciled by accounts payable, which authorizes payment. Which of the following would correct control weaknesses, if any, related to these activities?
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B) Accounts payable should reconcile the purchase order and the receiving report.
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68) The receiving clerk at Folding Squid Technologies examines incoming shipments and reconciles their contents with the relevant purchase orders. A receiving report is then sent to accounts receivable and the vendor's invoice is approved for payment. Which of the following would correct control weaknesses, if any, related to these activities?
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D) Controls are adequate under the current system.
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69) The receiving clerk at Folding Squid Technologies examines incoming shipments and checks their purchase order numbers. A receiving report is then sent to accounts payable, where it is reconciled with the relevant purchase orders and invoices and payment is authorized. Which of the following would correct control weaknesses, if any, related to these activities?
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A) Variance analysis of actual expenses to budgeted expenses
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70) Which of the controls below would be least effective to prevent ordering goods at higher than market prices?
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A) Receiving report
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71) The document below would be known as what by Alpha Omega Electronics? Alpha Omega Electronics No.31113 Vendor: Best Office Supply Date Received: 7/13/2009 Shipped via:UPS Purchase Order Number: 2463 Item Number Quantity Descr. 32057 15 Xerox 4200 Paper, 20 wt., 10 ream box 80170 5 Moore 2600 continuous, form, 20 lb 81756 20 Box CD cases, 10 per box 10407 100 700 MB CDs, 1 box of 100 Remarks: Two boxes of Moore 2600 paper received with water damage on outside, but the paper appears to be okay Received by: Nathan Hale Inspected by: Nathan Hale Delivered to: Harold Brown
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A) Reconcile quantity on packing slip to physical count when accepting delivery.
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72) Which of the following would be the best control to prevent receiving department employees from stealing inventory and claiming the ordered quantity wasn't received from the vendor?
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Answer: EOQ (economic order quantity) is the traditional inventory control method to maintain sufficient inventory levels so production can continue without interruption. EOQ should take into account a situation where inventory use is greater than expected. EOQ calculates the optimal order size to minimize the sum of ordering, carrying, and stockout costs. Ordering costs all expenses associated with processing purchasing transactions. Carrying costs costs associated with holding inventory. Stockout costs costs from inventory shortages, such as lost sales or production costs.
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73) Define and describe the EOQ approach to inventory management.
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Answer: Economic Order Quantity (EOQ) is the traditional approach to managing inventory. EOQ is used to find the optimal order size. Ordering costs, carrying costs, and stockout costs are considered in finding the EOQ. The MRP (Materials Requirements Planning) inventory method seeks to reduce inventory levels by scheduling production, based on estimated sales, rather than by estimating needs (which EOQ does). A just-in-time inventory system (or JIT) attempts to minimize, if not totally eliminate, both carrying and stockout costs through the frequent delivery of small amounts of materials, parts, and supplies when they are needed. JIT does not attempt to estimate needs or schedule production based on estimated sales, as it is based on customer demand at a given time. A JIT system almost eliminates finished goods inventory.
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74) Discuss the differences between EOQ, MRP, and JIT
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Answer: a) The major cost driver in the purchasing function is the number of purchase orders processed. b) The number of purchase orders can be reduced or streamlined by: Electronic data interchange (EDI) for transmitting purchase orders to vendors. Use procurement cards for small dollar and small quantity purchases of non-inventory items. Reduce clerical costs by using the Internet to perform certain purchasing functions. Use vendor-managed inventory programs to reduce purchasing and inventory costs. Implement reverse auctions and pre-award audits.
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75) a) What is the major cost driver in the purchasing function? b) Describe how information technology can be used to control this cost driver.
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Answer: The expenditure cycle has been called a "mirror image" of the revenue cycle because the activities of the expenditure cycle are the opposite, or "reflection" of several activities found in the revenue cycle. For example, the order goods activity generates a purchase order, which serves as customer input to the sales order entry process. The receive goods activity handles the goods sent via the supplier's shipping function. The pay for goods activity generates the payments that are processed by the supplier's cash collection activity. This mirror image also means that major technological improvements in the expenditure cycle may bring about complementary improvements in suppliers' revenue cycle as well.
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76) Explain what is meant by the expenditure cycle as a "mirror image" of the revenue cycle.
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Answer: When a shipment of goods arrives, the quantity of goods received may not be the same as the quantity ordered; the goods may have been damaged in shipment and therefore are not suitable for use; and, goods may be received that are inferior in quality and fail an inspection. Whenever any of these problems occur, the purchasing department should deal with the vendor and issue a debit memo to record an adjustment to the order. The vendor should then issue a credit memo in acknowledgment of the problem and the pending adjustment.
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77) Identify possible problems associated with receiving goods and appropriate actions in response to the problems.
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Answer: EDI eliminates the need to enter invoice data and the matching of payment documents all of this can be done using computers and network technologies. Technology can eliminate the need for vendor invoices by approving payment upon receipt of the goods. Imaging systems can eliminate paper flow, and universal languages such as XML can provide a paperless means of receiving and storing vendor invoices. Use of procurement cards, credit cards, and electronic expense forms can improve the efficiency of non-inventory purchases. ERS, which is invoiceless, is a means to replace the traditional three-matching process (vendor invoice, receiving report and purchase order) with a two-way match of the purchase order and receiving report.
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78) How can information technology be used to improve the vendor invoice approval process?
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Answer: MRP systems schedule production based on estimated sales, and JIT systems schedule production based on customer demand. The choice between these two systems is based on the types of products a company sells. For example, products that have predictable patterns of demand and a long life cycle are more suitable for MRP systems. In this case, sales can be forecast with greater accuracy. Conversely, if the product has an unpredictable pattern of demand and a shorter life cycle, then a JIT system is more suitable. JIT is able to adapt better to continuously changing production levels.
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79) Under what conditions is MRP more suitable than JIT and vice versa?
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Answer: Key control problems in the area of payment by check can give rise to fraudulent activity. Fraudulent disbursements made by check to fictitious suppliers are one of the most common types of fraud. Control over checks can be strengthened in a number of ways. First, all checks should be sequentially pre-numbered and kept under lock and key until use. The internal auditor should randomly audit the supply of unused checks and verify that none are missing. Use of the voucher system will also provide control over paying a "phantom" supplier, since several supporting documents must be present in the voucher packet in order to have a check issued. The cashier and/or treasurer should be the only parties authorized to sign checks. Two signatures should be required on all checks in excess of a predetermined dollar amount to provide independent review of large expenditures. Also, signed checks should not be returned to accounts payable, but should be mailed by the cashier or treasurer. When a check is issued, all documents in the voucher package should be cancelled so that the voucher cannot be resubmitted for payment. To provide another independent review of checking account activity, someone not connected with either accounts payable or the treasurer's office should reconcile all bank accounts. To help circumvent check alteration and forgery, check protection machines should be used to write the dollar amount of the check as well as the date. The paper the check is printed on should have some special watermark or identifying mark that is readable at a certain angle as well.
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80) In the expenditure cycle, the majority of payments made are by check. What are some control issues related to payment of vendors by check?
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Answer: Answers can include the following information: 1: Stock-outs Controls: Inventory control system; accurate perpetual inventory; and vendor performance analysis is needed to prevent this problem 2: Requesting goods not needed Controls: Review and approval by supervisors; use of pre-numbered requisition forms; and restricted access to blank purchase orders 3: Purchasing goods at inflated prices Controls: Competitive bidding and proper supervision; approved purchase orders; and price list consultations are needed to prevent this problem 4: Purchasing goods of inferior quality Controls: Use experienced buyers who know good vendors; review purchase orders; and incorporate approved vendor list into formal procedures 5: Purchasing from unauthorized vendors Control: Pre-numbered purchase orders should be approved; restrict access to approved vendor list and have procedures in place for any change to the list 6: Kickbacks paid to buyers to influence their decisions Controls: Clear conflict of interest policy prohibiting the acceptance of any gift from vendors; disclosure of financial interest policy for purchasing agents; and vendor audits 7: Receiving unordered goods Controls: Receiving department must reject any goods for which there is no approved purchase order 8: Errors in counting goods received Controls: Use "blind" P.O. copies to force receiving personnel to actually count goods; provide incentives for counting goods 9: Theft of inventory Controls: Secure inventory storage locations; make transfers of inventory with proper approval and documentation; do periodic physical count and reconciliation with recorded amounts 10: Errors in vendor invoices Controls: Invoice accuracy should be verified and compared to P.O.s and receiving report data 11: Paying for goods not received Controls: Voucher package and original invoice should be necessary for payments 12: Failure to take available purchase discounts Controls: File approved invoices by due date; track invoices by due date; use a cash budget to plan for cash needs 13: Paying same invoice twice Controls: Invoices should be approved only with a full voucher package and paid ones should be canceled so they cannot be used again; do not pay invoices marked "Duplicate" or "Copy" 14: Recording and posting errors for purchases and payments Controls: Data entry controls, and periodic reconciliation of subsidiary ledger with general ledger control account 15: Misappropriation of cash by paying fictitious vendors and alteration of checks Controls: Restrict access to cash, blank checks, and check signing machine; use check protection, pre-numbered checks, and imprinted amounts on checks to cut down on forgery and fraud; use petty cash fund for small expenditures only; have proper segregation of duties and independent bank reconciliation function 16: Theft associated with EFT use Controls: Access controls to the system; encryption of transmissions; time-stamp and number transmissions; control group should monitor all EFT activity 17: Loss of data Controls: Use file labels, back up of all data files regularly; and, use access controls 18: Poor performance Controls: Preparation and review of performance reports
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81) Identify ten threats and applicable control procedures in the expenditure cycle.
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Answer: The AIS should provide decision making information to: Determine when and how much additional inventory to order. Select the appropriate vendors from whom to order. Verify the accuracy of vendor invoices. Decide whether purchase discounts should be taken. Monitor cash flow needs to pay outstanding obligations. AIS should also provide the following strategic and performance evaluation information on: Efficiency and effectiveness of the purchasing department. Analysis of vendor performance such as on-time delivery, quality, etc. Time taken to move goods from the receiving dock into production. Percentage of purchase discounts taken.
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82) What types of decision-making and strategic information should the AIS provide in the expenditure cycle?
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Answer: RFID tags and bar codes can significantly improve the process of receiving goods from suppliers for several reasons. First, they can easily be scanned electronically. Electronically capturing the unique number of a product not only provides identification and quantity data about the product; it can also provide specific production information such as date and time of manufacture, production run information, etc. Electronically encoding such information into an integrated AIS provides up-to-the-minute inventory counts, as well as counts of units sold, and returns for use in a perpetual inventory system. Also, both vendor and customers can read tags and bar codes, and certain formats are universal in nature. This allows goods to be sold virtually anywhere in the world, allowing for easier global marketing efforts to be made by businesses. It also eliminates the need for human data entry and reduces the risk of stockouts.
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83) How can using RFID tags or bar codes on goods or products provide significant benefit in the expenditure cycle?
