Chapter 13 AIS – Flashcards
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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 A) vendor-managed inventory. B) sales force automation. C) electronic data interchange. D) optical character recognition.
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Answer: A
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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? A) A supplier delivers more inventory than ordered at the end of the year and sends an invoice for the total quantity delivered. B) An employee mails a fake invoice to the company, which is then paid. C) The inventory records are incorrectly updated when a receiving department employee enters the wrong product number on the receiving report. D) Receiving department employees steal inventory and then claim the inventory was received and delivered to the warehouse.
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Answer: A
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Comparing quantities on a vendor invoice to quantities on the receiving report would not prevent or detect which of the following situations? A) Receiving and accepting inventory not ordered B) Theft of inventory by receiving department employees C) Update of wrong inventory items due to data entry error D) Order for an excessive quantity of inventory
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Answer: A
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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? A) Only pay from original invoices. B) Cancel all invoices and supporting documentation when paid. C) Strict access and authorization controls for the approved vendor master file. D) Require three-way match for all inventory purchase invoices.
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Answer: A
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Which of the following would be the least effective control to prevent paying the same vendor invoice twice? 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. B) Only pay from original invoices. C) Cancel each document in the voucher package once the check is prepared and mailed. D) Only pay vendor invoices that have been matched and reconciled to a purchase order and a receiving report.
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Answer: A
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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? A) How can cash payments to vendors be managed to maximize cash flow? B) What is the optimal level of inventory and supplies to carry on hand? C) Where should inventories and supplies be held? D) What are the optimal prices for each product or service?
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Answer: D
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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? A) sales order entry process B) shipping function C) cash collection activity D) cash payments activity
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Answer: B
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The traditional approach to inventory management to ensure sufficient quantity on hand to maintain production is known as A) safety stock. B) just-in-time production. C) economic order quantity. D) optimal inventory quantity.
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Answer: C
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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 A) ordering costs. B) carrying costs. C) the reorder point. D) stockout costs.
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Answer: B
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The need to place an order for inventory is specified by the A) company inventory policies. B) economic order quantity. C) stockout point. D) reorder point.
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Answer: D
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When goods are being ordered from a vendor, which electronic files are either read or updated? A) inventory, vendors, and accounts payable B) vendors and accounts payable C) open purchase orders and accounts payable D) inventory, vendors, and open purchase orders
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Answer: D
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What is a key feature of materials requirements planning (MRP)? A) minimize or entirely eliminate carrying and stockout costs B) reduce required inventory levels by scheduling production rather than estimating needs C) determine the optimal reorder point D) determine the optimal order size
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Answer: B
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Materials requirements planning (MRP) A) reduces the uncertainty about when materials are needed, thereby reducing the need to carry large levels of inventory. B) is able to compute exactly the cost of purchasing by taking into account all costs associated with inventory carrying. C) requires vendors to deliver inventory to the production site exactly when needed and in the correct quantities. D) None of the above are correct.
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Answer: A
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The inventory management approach that attempts to minimize, if not eliminate, carrying and stockout costs is A) materials requirements planning. B) economic order quantity. C) just-in-time inventory. D) evaluated receipt settlement.
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Answer: C
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What aspect below best characterizes a Just-In-Time (JIT) inventory system? A) frequent deliveries of smaller quantities of items to the work centers B) frequent deliveries of large quantities to be held at the work centers C) less frequent deliveries of large quantities of goods to central receiving D) infrequent bulk deliveries of items directly to work centers
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Answer: A
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What is the key difference between the MRP and JIT inventory management approaches? A) Only JIT reduces costs and improves efficiency. B) MRP is especially useful for products such as fashion apparel. C) JIT is more effectively used with products that have predictable patterns of demand. D) MRP schedules production to meet estimated sales needs; JIT schedules production to meet customer demands.
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Answer: D
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MRP will be a preferred method over JIT when the A) demand for inventory is fairly predictable. B) demand for inventory is mostly unpredictable. C) product has a short life cycle. D) MRP is always a preferred method over JIT.
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Answer: A
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A key decision in ordering is selecting a suitable vendor. Which of the following would not be a major criterion in vendor selection? A) prices of goods B) quality of goods C) credit rating of the vendor D) ability to deliver on time
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Answer: C
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Once a vendor is selected for a product, the vendor's identity is recorded in the A) purchase requisition transaction file. B) purchase requisition master file. C) inventory transaction file. D) inventory master file.
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Answer: D
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A purchase order is A) a document formally requesting a vendor to sell a certain product at a certain price. B) a request for delivery of certain items and quantities. C) a contract between the buyer and vendor once accepted by the vendor. D) All of the above are true.
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Answer: D
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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 A) blanket purchase order. B) set purchase order. C) fixed purchase order. D) standard purchase order.
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Answer: A
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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 A) an EDI auction. B) a trading exchange. C) a reverse auction. D) a supplier consortium.
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Answer: C
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One of the major responsibilities of the receiving department is A) deciding if the delivery should be accepted. B) verifying any purchase discounts for the delivery. C) deciding on the location where the delivery will be stored until used. D) updating inventory subsidiary ledgers.
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Answer: A
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Which of the following is generally not shown on a receiving report? A) price of the items B) quantity of the items C) purchase order number D) counted and inspected by
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Answer: A
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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? A) the receiving clerk B) the controller C) the vendor D) the purchasing department manager
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Answer: D
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Identify in which of the following scenarios a company could adjust the balance due the vendor by issuing a debit memo. A) quantity different from that ordered B) damage to the goods C) goods that fail inspection for quality D) All of the above are possible scenarios.
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Answer: D
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What is one of the best ways to improve the overall efficiency and effectiveness of the receipt and storage of ordered items? A) requiring all suppliers to have the carrier verify quantities and item numbers before shipment B) requiring all suppliers to include RFID tags on their items C) requiring all suppliers to use EDI to expedite the receiving department function D) requiring all delivery trucks to have satellite data terminals to expedite the receiving department function
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Answer: B
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Vendor invoices are approved by the ________, which reports to the ________. A) purchasing department; controller B) accounts payable department; treasurer C) purchasing department; treasurer D) accounts payable department; controller
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Answer: D
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The disbursement voucher and supporting documents are sent to the ________ for payment prior to the due date. A) cashier B) treasurer C) controller D) accounts payable department
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Answer: A
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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. A) nonvoucher B) voucher C) cycle D) evaluated receipt settlement
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Answer: A
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A disbursement voucher contains A) a list of outstanding invoices. B) the net payment amount after deducting applicable discounts and allowances. C) the general ledger accounts to be debited. D) All of the above are correct.
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Answer: D
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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 A) electronic funds transfer for small, occasional purchases from suppliers. B) a nonvoucher system. C) EDI for all small, occasional purchases from suppliers. D) a disbursement voucher system.
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Answer: D
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What is not an advantage of using disbursement vouchers? A) Disbursement vouchers reduce the number of checks written. B) Disbursement vouchers can be prenumbered which simplifies the tracking of all payables. C) Disbursement vouchers facilitate separating the time of invoice approval from the time of invoice payment. D) There are no disadvantages to using disbursement vouchers.
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Answer: D
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Which of the following is not an advantage of a voucher system? A) Several invoices may be included on one voucher, reducing the number of checks. B) Disbursement vouchers may be pre-numbered and tracked through the system. C) The time of voucher approval and payment can be kept separate. D) It is a less expensive and easier system to administer than other systems.
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Answer: D
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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 ________. A) accounts payable; purchasing; cashier B) purchasing; accounts payable; cashier C) purchasing; cashier; accounts payable D) purchasing; accounts payable; treasurer
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Answer: B
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A voucher package should include A) a purchase requisition, vendor invoice, and receiving report. B) a purchase order, vendor invoice, and receiving report. C) a purchase requisition, purchase order, and receiving report. D) a bill of lading and vendor invoice.
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Answer: B
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Evaluated receipt settlement (ERS) approves payment of vendor invoices after reconciling the purchase order and the A) vendor invoice. B) sales invoice. C) receiving report. D) disbursement voucher.
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Answer: C
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All of the following are opportunities to improve efficiency of the accounts payable function except A) use blanket purchase orders. B) convert a manual AIS system to EDI and EFT. C) streamline noninventory purchases. D) use evaluated receipt settlement.
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Answer: A
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When purchasing miscellaneous supplies, companies can reduce costs, improve efficiency, and combat employee fraud by A) using procurement cards. B) implementing a JIT inventory system. C) requiring employees to personally purchase items then reimbursing employees at the end of each month. D) paying amounts out of petty cash.
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Answer: A
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If available, a 1% discount for payment within 10 days instead of 30 days represents an approximate savings of ________ % annually. A) 1 B) 12 C) 18 D) 36
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Answer: C
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What is the best control to mitigate the threat of paying prices that are too high for goods ordered? A) require the receiving department to verify the existence of a valid purchase order B) use only approved suppliers and solicit competitive bids C) only pay invoices that are supported by the original voucher package D) use bar-code technology to eliminate data entry errors
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Answer: B
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What is probably the most effective control for the prevention of kickbacks to purchasing agents? A) purchasing from approved vendors B) diligent supervision in the purchasing department C) a corporate policy to prohibit purchasing agents from accepting kickbacks D) reviews of vendor performance
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Answer: C
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One of the threats associated with the process and activity of receiving and storing goods is A) errors in counting. B) kickbacks. C) requests for unnecessary items. D) errors in vendor invoices.
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Answer: A
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What is the best way to prevent the acceptance of unordered goods? A) Order only from approved vendors. B) Match the packing slip to a purchase order before accepting delivery. C) Enforce an appropriate conflict of interest policy in place. D) Require specific authorization from the purchasing manager before accepting any goods.
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Answer: B
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Which of the following is not a common control for ensuring inventory is secure and inventory counts are accurate? A) control of physical access to the inventory storage areas B) transfers of inventory with proper documentation C) sending "blind" copies of purchase orders to inventory control for data entry D) making physical counts of inventory at least once per year
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Answer: C
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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? A) ordering goods B) receiving and storing goods C) paying for goods and services D) requesting goods be ordered
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Answer: C
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What control would best mitigate the threat of paying an invoice twice? A) never authorize payment of a photocopy of an invoice B) double-check mathematical accuracy of invoices C) approval of purchase orders D) maintaining adequate perpetual inventory records
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Answer: A
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Which control would best prevent payments made to fictitious vendors? A) Allow payments only to approved vendors. B) Restrict access to any payment or approval documents. C) Have an independent bank reconciliation. D) Make sure all documents are in order before approving payments.
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Answer: A
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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 ________. A) special bank account; disbursement vouchers B) imprest fund; vouchers C) cash box; small denomination bills D) petty cash fund; procurement cards
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Answer: B
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A surprise count of an imprest petty cash fund should find the total of ________ equal to the amount authorized for the fund. A) cash and credit memos B) cash and vouchers C) cash D) cash and checks
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Answer: B
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What control should be put in place that assigns responsibility for EFT payments made to vendors? A) Encrypt all EFT transmissions. B) Time stamp all EFT transactions. C) Establish a control group to monitor EFT transactions for validity and accuracy. D) Number all EFT transactions.
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Answer: C
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Which of the following threats is not specific to the purchase requisition process of the expenditure cycle? A) stockouts B) purchasing from unauthorized vendors C) requisitioning goods not needed D) All of the above are threats in the purchase requisition process.
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Answer: B
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There is a symmetrical interdependence between a firm's expenditure cycle and its suppliers' A) production cycle. B) revenue cycle. C) expenditure cycle. D) general ledger and reporting system.
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Answer: B
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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 A) vendor-managed inventory. B) sales force automation. C) electronic data interchange. D) optical character recognition.
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Answer: C
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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 A) a just-in-time inventory system. B) the economic order quantity. C) a reorder point. D) materials requirements planning.
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Answer: B
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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 A) a just-in-time inventory system. B) the economic order quantity. C) a reorder point. D) materials requirements planning.
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Answer: C
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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 A) a just-in-time inventory system. B) the economic order quantity. C) a reorder point. D) materials requirements planning.
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Answer: D
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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 A) a just-in-time inventory system. B) the economic order quantity. C) a reorder point. D) materials requirements planning.
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Answer: A
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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. A) purchase order B) blanket purchase order C) evaluated receipt settlement D) voucher
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Answer: B
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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. A) purchase order B) blanket purchase order C) voucher D) purchase requisition
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Answer: A
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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. A) purchase order B) blanket purchase order C) receiving report D) debit memo
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Answer: D
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To minimize the number of checks that need to be written to pay vendor invoices a company should use a A) voucher system. B) just-in-time inventory system. C) nonvoucher system. D) evaluated receipt settlement system.
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Answer: A
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Evaluated receipt settlement increases efficiency by A) eliminating the need for receiving reports. B) eliminating the need for vendor invoices. C) eliminating the need for purchase orders. D) eliminating the need to prepare and mail checks.
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Answer: B
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In the expenditure cycle, Financial Electronic Data Interchange (FEDI) increases efficiency by A) eliminating the need for receiving reports. B) eliminating the need for vendor invoices. C) eliminating the need for purchase orders. D) eliminating the need to prepare and mail checks.
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Answer: D
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Procurement cards differ from corporate credit cards in which of the following ways? A) Credit limits can be set for procurement cards, but not corporate credit cards. B) Credit cards can be used to make purchases without an explicit sign off by supervisors, but procurement cards require a sign off. C) Procurement cards can only be used with approved vendors, but credit cards can be used anywhere. D) Procurement card invoices are sent separately for each card, whereas corporate credit cards are consolidated into a single invoice.
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Answer: C
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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? A) Vendor invoices should be reviewed by the purchasing manager to ensure that they are correct. B) Accounts payable should reconcile purchase orders, receiving reports, and invoices. C) Vendor invoices should be reviewed by accounts receivable and then cancelled when paid. D) Controls are adequate under the current system.
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Answer: B
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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? A) Vendor invoices should be reviewed by the purchasing manager to ensure that they are correct. B) Accounts payable should authorize purchase orders. C) Receiving reports should be reviewed and corrected by the purchasing manager. D) Controls are adequate under the current system.
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Answer: D
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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? A) The invoice should be approved for payment by the shipping clerk after the purchase order and receiving report are reconciled. B) Accounts payable should reconcile the purchase order and the receiving report. C) Invoices, purchase orders, and receiving reports should be reconciled by the receiving clerk. D) Controls are adequate under the current system.
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Answer: B
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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? A) Vendor invoices should be approved for payment by the shipping clerk after the purchase order and receiving report are reconciled. B) Vendor invoices should be approved for payment by the purchasing manager. C) Purchase orders and receiving reports should be reconciled by the purchasing manager. D) Controls are adequate under the current system.
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Answer: D
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Which of the controls below would be least effective to prevent ordering goods at higher than market prices? A) Variance analysis of actual expenses to budgeted expenses B) For high-dollar goods, solicit competitive bids from possible vendors C) Only place orders with vendors on an approved vendor list D) Frequent review of, and update to, vendor price lists stored in the AIS
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Answer: A
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Answer: A
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A) Receiving report B) Purchase order C) Purchase requisition D) Packing slip
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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? A) Reconcile quantity on packing slip to physical count when accepting delivery. B) Restrict physical access to the receiving area. C) Require all deliveries be made at the receiving area. D) Require dual signatures on the move ticket when receiving delivers the inventory to the warehouse.
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Answer: A
