Homework answers / question archive / Harvard University AUDIT 111 Chapter 10-Auditing the Expenditure Cycle TRUE/FALSE 1)In non-manufacturing firms, purchasing decisions are authorized by inventory control

Harvard University AUDIT 111 Chapter 10-Auditing the Expenditure Cycle TRUE/FALSE 1)In non-manufacturing firms, purchasing decisions are authorized by inventory control

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AUDIT 111

Chapter 10-Auditing the Expenditure Cycle

TRUE/FALSE

1)In non-manufacturing firms, purchasing decisions are authorized by inventory control.

The blind copy of the purchase order that goes to the receiving department contains no item descriptions.

Firms that wish to improve control over cash disbursements use a voucher system.

In a voucher system, the sum of all unpaid vouchers in the voucher register equals the firm’s total voucher payable balance.

The accounts payable department reconciles the accounts payable subsidiary ledger to the control account.

The use of inventory reorder points suggests the need to obtain specific authorization.

Proper segregation of duties requires that the responsibility approving a payment be separated from posting to the cash disbursements journal.

A major risk exposure in the expenditure cycle is that accounts payable may be overstated at the end of the accounting year.

When a trading partner agreement is in place, the traditional three way match may be eliminated.

Authorization of purchases in a merchandising firm occurs in the inventory control department.

A three way match involves a purchase order, a purchase requisition, and an invoice.

Authorization for a cash disbursement occurs in the cash disbursement department upon receipt of the supplier’s invoice.

An automated cash disbursements system can yield better cash management since payments are made on time.

Permitting warehouse staff to maintain the only inventory records violates separation of duties.


order.	15.	A purchasing system that employs electronic data interchange does not use a purchase

	16.	Inventory control should be located in the warehouse.

	17.	Inspection of shipments in the receiving department would be improved if the

documentation showed the value of the inventory.

One reason for authorizing purchases is to enable efficient inventory management.

If accounts payable receives an invoice directly from the supplier it needs to be reconciled with the purchase order and receiving report.

Supervision in receiving is intended to reduce the theft of assets.

The inventory procurement process begins with the purchasing clerk preparing a purchase order.

The warehouse is responsible for updating the inventory subsidiary ledger.

The receiving report is prepared by the vendor to provide evidence that the purchase order was received.

The accounts payable clerk is responsible for updating the AP Control accounts to reflect each vendor liability.

When goods are received, the receiving clerk sends copies of the receiving report to the inventory control clerk and the AP clerk.

Time cards are used by cost accounting to allocate direct labor charges to work in

process.

The personnel department authorizes changes in employee pay rates.

Most payroll systems for mid-size firms use real-time data processing.

To improve internal control, paychecks should be distributed by the employee's supervisor.

Employee paychecks should be drawn against a special checking account.

Because a time clock is used, no supervision is required when employees enter and leave the work place.

Work-in-process records are updated by payroll personnel.

Ideally, payroll checks are written on a special bank account used only for payroll.

The supervisor is the best person to determine the existence of a “phantom employee” and should distribute paychecks.

Payroll processing can be automated easily because accounting for payroll is very

simple.

Timekeeping is part of the personnel function.

The payroll department is responsible for both updating the employee records and writing paychecks.

The paymaster distributes paychecks to work center supervisors.

MULTIPLE CHOICE

1. The purpose of the purchase requisition is to

a.	order goods from vendors
b.	record receipt of goods from vendors
c.	authorize the purchasing department to order goods
d.	bill for goods delivered

1. The purpose of the receiving report is to

a.	order goods from vendors
b.	record receipt of goods from vendors
c.	authorize the purchasing department to order goods
d.	bill for goods delivered

1. All of the following departments have a copy of the purchase order except

a.	the purchasing department
b.	the receiving department
c.	accounts payable
d.	general ledger

1. The purpose of the purchase order is to

a.	order goods from vendors
b.	record receipt of goods from vendors
c.	authorize the purchasing department to order goods
d.	approve payment for goods received

1. The open purchase order file in the purchasing department is used to determine

a.	the quality of items a vendor ships

b.	the best vendor for a specific item
c.	the orders that have not been received
d.	the quantity of items received

1. The purchase order

a.	is the source document to make an entry into the accounting records
b.	indicates item description, quantity, and price
c.	is prepared by the inventory control department
d.	is approved by the end-user department

1. The reason that a blind copy of the purchase order is sent to receiving is to

a.	inform receiving when a shipment is due
b.	force a count of the items delivered
c.	inform receiving of the type, quantity, and price of items to be delivered
d.	require that the goods delivered are inspected

1. The receiving report is used to

a.	accompany physical inventories to the storeroom or warehouse
b.	advise the purchasing department of the dollar value of the goods delivered
c.	advise general ledger of the accounting entry to be made
d.	advise the vendor that the goods arrived safely

1. When a copy of the receiving report arrives in the purchasing department, it is used to

a.	adjust perpetual inventory records
b.	record the physical transfer of inventory from receiving to the warehouse
c.	analyze the receiving department’s process
d.	recognize the purchase order as closed

1. The financial value of a purchase is determined by reviewing the

a.	packing slip
b.	purchase requisition
c.	receiving report
d.	supplier’s invoice

1. Which document is least important in determining the financial value of a purchase?

a.	purchase requisition
b.	purchase order
c.	receiving report
d.	supplier’s invoice

1. In a merchandising firm, authorization for the payment of inventory is the responsibil-

ity of

a.	inventory control
b.	purchasing
c.	accounts payable
d.	cash disbursements

1. In a merchandising firm, authorization for the purchase of inventory is the responsibil-

ity of

a.	inventory control
b.	purchasing
c.	accounts payable
d.	cash disbursements

1. When purchasing inventory, which document usually triggers the recording of a liability?

a.	purchase requisition
b.	purchase order
c.	receiving report
d.	supplier’s invoice

1. Because of time delays between receiving inventory and making the journal entry

a.	liabilities are usually understated
b.	liabilities are usually overstated
c.	liabilities are usually correctly stated
d.	none of the above

1. Usually the open voucher payable file is organized by

a.	vendor
b.	payment due date
c.	purchase order number
d.	transaction date

1. Which of the following statements is not correct?

a.	the voucher system is used to improve control over cash disbursements
b.	the sum of the paid vouchers represents the voucher payable liability of the firm
c.	the voucher system permits the firm to consolidate payments of several invoices on one voucher
d.	many firms replace accounts payable with a voucher payable system

1. In the expenditure cycle, general ledger does not

a.	post the journal voucher from the accounts payable department
b.	post the account summary from inventory control
c.	post the journal voucher from the purchasing department
d.	reconcile the inventory control account with the inventory subsidiary summary

1. The documents in a voucher packet include all of the following except

a.	a check
b.	a purchase order
c.	a receiving report
d.	a supplier’s invoice

1. To maintain a good credit rating and to optimize cash management, cash disburse- ments should arrive at the vendor’s place of business

a.	as soon as possible
b.	on the due date
c.	on the discount date
d.	by the end of the month

1. The cash disbursement clerk performs all of the following tasks except

a.	reviews the supporting documents for completeness and accuracy
b.	prepares checks
c.	signs checks
d.	marks the supporting documents paid

1. When a cash disbursement in payment of an accounts payable is recorded

a.	the liability account is increased
b.	the income statement is changed
c.	the cash account is unchanged
d.	the liability account is decreased

1. Authorization for payment of an accounts payable liability is the responsibility of

a.	inventory control
b.	purchasing
c.	accounts payable
d.	cash disbursements

1. Of the following duties, it is most important to separate

a.	warehouse from stores
b.	warehouse from inventory control
c.	accounts payable and accounts receivable
d.	purchasing and accounts receivable

1. In a firm with proper segregation of duties, adequate supervision is most critical in

a.	purchasing
b.	receiving
c.	accounts payable
d.	general ledger

1. The receiving department is not responsible to

a.	inspect shipments received
b.	count items received from vendors
c.	order goods from vendors
d.	safeguard goods until they are transferred to the warehouse

1. The major risk exposures associated with the receiving department include all of the following except

a.	goods are accepted without a physical count
b.	there is no inspection for goods damaged in shipment
c.	inventories are not secured on the receiving dock
d.	the audit trail is destroyed

1. When searching for unrecorded liabilities at the end of an accounting period, the accountant would search all of the files except

a.	the purchase requisition file
b.	the cash receipts file
c.	the purchase order file
d.	the receiving report file

1. In regards to the accounts payable department, which statement is not true?

a.	the purchase requisition shows that the transaction was authorized
b.	the purchase order proves that the purchase was required
c.	the receiving report provides evidence of the physical receipt of the goods
d.	the supplier’s invoice indicates the financial value of the transaction

1. In a computerized system that uses an economic order quantity (EOQ) model and the perpetual inventory method, who determines when to reorder inventory?

a.	the inventory control clerk
b.	the purchasing department
c.	the vendor
d.	the computer system

1. Firms can expect that proper use of a valid vendor file will result in all of the following benefits except

a.	purchasing agents will be discouraged from improperly ordering inventory from related parties
b.	purchases from fictitious vendors will be detected
c.	the most competitive price will be obtained
d.	the risk of purchasing agents receiving kickbacks and bribes will be reduced

1. In a real-time processing system with a high number of transactions, the best and most practical control over cash disbursements is to have

a.	all checks manually signed by the treasurer
b.	all checks signed by check-signing equipment
c.	checks over a certain dollar amount manually signed by the treasurer
d.	checks over a certain dollar amount manually signed by the cash disbursements clerk

1. The document which will close the open purchase requisition file is the

a.	purchase order
b.	vendor invoice
c.	receiving report
d.	none of the above

1. Goods received are inspected and counted to

a.	determine that the goods are in good condition
b.	determine the quantity of goods received

c.	preclude payment for goods not received or received in poor condition
d.	all of the above

1. If a company uses a standard cost system, inventory records can be updated from the

a.	vendor invoice
b.	purchase order
c.	receiving report
d.	purchase requisition

1. If a company uses an actual cost system, inventory records can first be updated from

the

a.	vendor invoice
b.	purchase order
c.	receiving report
d.	purchase requisition

1. Copies of a purchase order are sent to all of the following except

a.	inventory control
b.	receiving
c.	general ledger
d.	accounts payable

1. The receiving report

a.	is used to update the actual cost inventory ledger
b.	accompanies the goods to the storeroom
c.	is sent to general ledger
d.	is returned to the vendor to acknowledge receipt of the goods

1. A supplier invoice

a.	is included with the goods
b.	shows what was ordered even if all was not shipped
c.	is sent by vendor to accounts payable
d.	none of the above

1. The cash disbursement function is

a.	part of accounts payable
b.	an independent accounting function
c.	a treasury function
d.	part of the general ledger department

1. The document that captures the total amount of time that individual workers spend on each production job is called a

a.	time card
b.	job ticket
c.	personnel action form
d.	labor distribution form

1. An important reconciliation in the payroll system is

a.	general ledger compares the labor distribution summary from cost accounting to the disbursement voucher from accounts payable
b.	personnel compares the number of employees authorized to receive a paycheck to the number of paychecks prepared
c.	production compares the number of hours reported on job tickets to the number of hours reported on time cards
d.	payroll compares the labor distribution summary to the hours reported on time cards

1. Which internal control is not an important part of the payroll system?

a.	Supervisors verify the accuracy of employee time cards.
b.	Paychecks are distributed by an independent paymaster.
c.	Accounts payable verifies the accuracy of the payroll register before transferring payroll funds to the general checking accounting.
d.	General ledger reconciles the labor distribution summary and the payroll disbursement voucher.

1. In the payroll subsystem, which function should distribute paychecks?

a.	personnel
b.	timekeeping
c.	paymaster
d.	payroll

1. Where does the responsibility lie for reconciling the labor distribution summary and the payroll disbursement voucher?

a.	cash disbursements
b.	cost accounting
c.	personnel
d.	general ledger

1. Which of the following statements is not true?

a.	Routine payroll processing begins with the submission of time cards.
b.	Payroll clerks must verify the hours reported on the time cards.
c.	Payroll reconciles personnel action forms with time cards and prepares paychecks.
d.	Cash disbursements signs paychecks and forwards them to the paymaster for distribution.

1. In a manufacturing firm, employees use time cards and job tickets. Which of the

following statements is not correct?

a.	Job tickets are prepared by employees for each job worked on, so an employee may have more that one job ticket on a given day.
b.	An individual employee will have only one time card.
c.	The time reported on job tickets should reconcile with the time reported on time cards.
d.	Paychecks should be prepared from the job tickets.

1. Which department is responsible for approving changes in pay rates for employees?

a.	payroll
b.	treasurer
c.	personnel
d.	cash disbursements

1. Which of the following situations represents a serious control weakness?

a.	Timekeeping is independent of the payroll department.
b.	Paychecks are distributed by the employees immediate supervisor.
c.	Time cards are reconciled with job tickets.
d.	Personnel is responsible for updating employee records, including creation of records for new hires.

1. Why would an organization require the paymaster to deliver all unclaimed paychecks to the internal audit department?

a.	to detect a “phantom employee” for whom a check was produced
b.	to prevent an absent employee’s check from being lost
c.	to avoid paying absent employees for payday
d.	to prevent the paymaster from cashing unclaimed checks

1. Payroll uses time card data to do all of the following except

a.	prepare the payroll register
b.	update employee payroll records
c.	prepare the labor distribution summary
d.	prepare paychecks

1. Payroll checks are typically drawn on

a.	the regular checking account
b.	a payroll imprest account
c.	a wages payable account
d.	petty cash

1. The personnel action form provides authorization control by

a.	preventing paychecks for terminated employees
b.	verifying pay rates for employees
c.	informing payroll of new hires

d.	all of the above

1. Accounting records that provide the audit trail for payroll include all of the following

except

a.	time cards
b.	job tickets
c.	payroll register
d.	accounts payable register

1. Personnel actions forms are used to do all of the following except

a.	activate new employees
b.	terminate employees
c.	record hours worked
d.	change pay rates

1. The payroll department performs all of the following except

a.	prepares the payroll register
b.	distributes paychecks
c.	updates employee payroll records
d.	prepares paychecks

1. The document that records the total amount of time spent on a production job is the

a.	time card
b.	job ticket
c.	labor distribution summary
d.	personnel action form

SHORT ANSWER

Which internally generated document should be compared to the supplier’s invoice to verify the price of an item?

Which internally generated document should be compared to the supplier’s invoice to verify the quantity being billed for?

List specific jobs that should be segregated in the purchases processing system.

List specific jobs that should be segregated in the cash disbursements system.

Describe an internal control procedure that would detect that a vendor overcharged for goods delivered.

Describe an internal control procedure that would prevent payment of a invoice for goods that were never delivered.

Describe an internal control procedure that would prevent issuing two checks in payment of the same invoice.

Explain why supervision is so important in the receiving department.

What type of error or fraud might happen if the accounts payable ledger is not periodically reconciled to the control account in the general ledger?

What type of error or fraud might happen if suppliers’ invoices are not compared to purchase orders or to receiving reports before payment?

What internal accounting control(s) would be the most effective in preventing a storekeeper from taking inventory home at night? When shortages become apparent, he claims the goods were never received.

Why should the copy of a purchase order, which is sent to receiving, be a “blind”

copy?

What is(are) the purpose(s) of maintaining a valid vendor file?

Name two major benefits of automating the purchasing effort.

What function or department typically initiates a purchase in a merchandising business?

Where is access control exercised in the purchasing/cash disbursement functions?

Explain why a three way match may not be required for transactions covered by a trading partner agreement.

Name the key tasks associated with purchases procedures.

What is the purpose of the purchase requisition?

What is the purpose of the purchase order?

What is a blind copy of a purchase order and what is its purpose?

What is the purpose of a receiving report?

What is the purpose of the suppliers invoice?

What is the principle objective of the cash disbursement system?

What is a vouchers payable system and why is it used?

Describe an internal control procedure that would prevent an employee from punching the time clock for another, absent employee.

Why should the employee’s supervisor not distribute paychecks?

Describe an internal control procedure that would prevent a supervisor from stealing the unclaimed paychecks of employees who have been terminated.

Why should employee paychecks be drawn against a special checking account?

Why should employees clocking on and off the job be supervised.

What is a personnel action form?

In a manufacturing firm, employees typically fill out two different documents regarding their time worked. What are they? Why are there two?

Explain the purpose of each of the following documents used in the payroll system: the personnel action form, the job ticket, the time card.

Which department authorizes changes to employee pay rates?

ESSAY

Differentiate between a purchase requisition and a purchase order.

What general ledger journal entries are triggered by the purchases system? From which departments do these journal entries arise?

The Soap Manufacturing Company has three employees who work in the warehouse. All of the warehouse workers are authorized to order inventory when it falls below the reorder level. The workers complete a purchase order and mail it to the supplier of their choice. The inventory is delivered directly to the warehouse. The workers send a memo to accounts payable reporting the receipt of inventory.

Accounts payable compares the warehouse memo to the supplier’s invoice. Accounts payable prepares a check which the treasurer signs.

Describe at least five needed internal control improvements.

How does a voucher payable system work? What documents are reconciled? Who prepares the voucher? How is the A/P balance determined? How does the voucher payable system improve control over cash?

Before authorizing payment for goods purchased, accounts payable reconciles three documents related to the purchase. Name them and explain what each indicates. What control area of SAS 78 is being addressed?

What are the steps taken in the cash disbursement system?

How does the procedure for determining inventory requirements differ between a basic batch processing system and batch processing with real-time data input of sales and receipts of inventory? What about for the procedures used by the receiving department?

What are the key segregation of duties issues in purchasing and cash disbursements?

Supervision is extremely important in the receiving department. Two main reasons were given. What were they? Why are these important?

Why do companies devote resources to a purchasing department? Could not individual departments make their own purchases more efficiently?

What are the key authorization issues in purchasing and cash disbursements?

Outline the key steps taken in the purchasing system?

13. The Golf Club Company makes custom golf clubs. The manufacturing supervisor interviews people who have specialized manufacturing skills, and he informs payroll when an employee is hired. The employees use a time clock to record the hours they work. The employees are also required to keep a record of the time they spend working on each order. The supervisor approves all time cards.

The accountant analyzes the job tickets and prepares a labor distribution summary. Payroll prepares the payroll register and paychecks. The supervisor distributes the paychecks to the employees. Payroll informs cash disbursement of the funds required to cover the entire payroll amount. The cash disbursements clerk ensures that there are adequate funds in the company's regular checking account to cover the payroll.

Describe at least three internal control weaknesses; for each weakness suggest an improvement to internal control.

14. Why does the payroll process lend itself to batch processing?

15. Outline the key steps taken in a payroll system that deals with hourly workers who are paid once each week?

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Harvard University AUDIT 111 Chapter 10-Auditing the Expenditure Cycle TRUE/FALSE 1)In non-manufacturing firms, purchasing decisions are authorized by inventory control

Marketing

MULTIPLE CHOICE

SHORT ANSWER