Harvard University

AIS 101

Chapter 8-General Ledger, Financial Reporting, and Management Reporting Systems

TRUE/FALSE

1)The most common means of making entries in the general ledger is via the journal voucher.

2. Individuals with access authority to general ledger accounts should not prepare journal vouchers.

3. The journal voucher is the document that authorizes entries to be made to the general ledger.

4. Each account in the chart of accounts has a separate record in the general ledger master file.

5. The responsibility center file is primarily used by the Financial Reporting System.

6. Management reporting is often called discretionary reporting because it is not mandated as is financial reporting.

7. Primary recipients of financial statement information are internal management.

8. The Management Reporting System is a nondiscretionary system.

9. When evaluating decision alternatives, one option is to take no action.

10. In most cases intangible decision criteria can be quantified.

11. One benefit of the Management Reporting System is that it can alert management to delays in project implementation.

12. Responsibility refers to an individual’s obligation to achieve desired results.

13. A firm with a wide span of control tends to have relatively more layers of management.

14. The control function entails evaluating a process against a standard and, if necessary, taking corrective action.

15. Standards are the basis for evaluating actual performance.

16. A report is said to have information content if it eliminates uncertainty associated with a problem facing the decision maker.

17. An inventory out-of-stock report is an example of a programmed, on-demand report.

18. A principle of responsibility accounting is that managers are responsible for controllable and uncontrollable costs.

19. The manager of a cost center is responsible for cost control and revenue generation.

20. Designing an effective management reporting system does not require an understanding of the information managers need to deal with the problems they face.

21. The formalization of tasks principle suggests that management should structure the firm around the unique skills sets of key individuals.

22. If a manager delegates responsibility to a subordinate, he or she must also grant the subordinate authority to make decisions.

23. Operational control involves motivating managers at all levels to use resources, including materials, personnel, and financial assets, as productively as possible.

24. The block code is the coding scheme most appropriate for a chart of accounts.

MULTIPLE CHOICE

1. The coding scheme most appropriate for a chart of accounts is
   1. sequential code
   2. block code
   3. group code
   4. mnemonic code
2. A common use for sequential coding is
   1. creating the chart of accounts
   2. identifying inventory items
   3. identifying documents
   4. identifying fixed assets
3. The most important advantage of sequential coding is that
   1. missing or unrecorded documents can be identified
   2. the code itself lacks informational content
   3. items cannot be inserted
   4. deletions affect the sequence
4. When a firm wants its coding system to convey meaning without reference to any other document, it would choose
   1. an alphabetic code
   2. a mnemonic code
   3. a group code
   4. a block code
5. The most important advantage of an alphabetic code is that
   1. meaning is readily conveyed to users
   2. sorting is simplified
   3. the capacity to represent items is increased
   4. missing documents can be identified
6. Entries into the General Ledger System (GLS) can be made using information from
   1. the general journal
   2. a journal voucher which represents a summary of similar transactions
   3. a journal voucher which represents a single, unusual transaction
   4. all of the above

7. Which statement is not correct? The general ledger master file
   1. is based on the firm’s chart of account
   2. contains a record for control accounts
   3. is an output of the Financial Reporting System (FRS)
   4. supplies information for management decision making
8. What type of data is found in the general ledger master file?
   1. a chronological record of all transactions
   2. the balance of each account in the chart of accounts
   3. budget records for each account in the chart of accounts
   4. subsidiary details supporting a control account
9. Which report is not an output of the Financial Reporting System (FRS)?
   1. variance analysis report
   2. statement of cash flows
   3. tax return
   4. comparative balance sheet
10. Which steps in the Financial Accounting Process are in the correct sequence?
    1. record the transaction, post to the ledger, prepare the adjusted trial balance, enter adjusting entries, prepare financial statements
    2. record the transaction, prepare the unadjusted trial balance, record adjusting journal entries, record closing entries, prepare financial statements
    3. record the transaction, post to the ledger, record adjusting entries, prepare the unadjusted trial balance, prepare financial statements
    4. record the transaction, post to the ledger, prepare the adjusted trial balance, prepare financial statements, record closing entries

11. Which statement is not correct?
    1. the post-closing trial balance reports the ending balance of each account in the general ledger
    2. one purpose of preparing the unadjusted trial balance is to ensure that debits equal credits
    3. financial statements are prepared based on the unadjusted trial balance
    4. the unadjusted trial balance reports control account balances but omits subsidiary ledger detail

12. What account appears on the postclosing trial balance?
    1. income summary
    2. machinery
    3. rent expense
    4. interest income
13. Financial statements are prepared from the
    1. trial balance

13. 2. adjusted trial balance
    3. general ledger
    4. general journal
14. Risk exposures in the General Ledger and Financial Reporting Systems include all of the following except
    1. loss of the audit trail
    2. unauthorized access to the general ledger
    3. loss of physical assets
    4. general ledger account out of balance with the subsidiary account
15. Which situation indicates an internal control risk in the General Ledger/Financial Reporting Systems (GL/FRS)?
    1. the employee who maintains the cash journal computes depreciation expense
    2. the cash receipts journal voucher is approved by the Treasurer
    3. the cash receipts journal vouchers are prenumbered and stored in a locked safe
    4. the employee who maintains the cash receipts journal records transactions in the accounts receivable subsidiary ledger

16. With a limited work force and a desire to maintain strong internal control, which combination of duties performed by a single individual presents the least risk exposure?
    1. maintaining the inventory ledger and recording the inventory journal voucher in the general ledger
    2. recording the inventory journal voucher in the general ledger and maintaining custody of inventory
    3. maintaining the cash disbursements journal and recording direct labor costs applied to specific jobs
    4. preparing the accounts payable journal voucher and recording it in the general ledger
17. The audit trail fulfills all of the following purposes except
    1. provides the ability to answer inquiries
    2. ensures the accuracy of the application software
    3. fulfills governmental regulations
    4. offers a means for preventing, detecting, and correcting errors
18. Which best describes a batch process General Ledger System (GLS)
    1. paper documents are eliminated
    2. the general ledger master file is updated each night
    3. there is a time lag between transaction processing and posting to the general ledger
    4. no direct access or querying of the General Ledger is possible
19. An advantage of a batch General Ledger System (GLS) is that
    1. separation between authorization and transaction processing is strictly enforced
    2. the general ledger master file is recreated with each update

19. 3. updates and reconciliation of transactions occur as a step within the transaction cycle
    4. errors and out-of-balance conditions are identified at the end of the month
20. A characteristic of the Management Reporting System (MRS) is
    1. the MRS operates in conformity with generally accepted accounting principles
    2. it is a legal requirement that the MRS be installed and functioning properly
    3. the MRS is developed by implementing SEC requirements
    4. the MRS focuses on internal decision-making information
21. Which statement is not true?
    1. authority refers to an individual’s obligation to achieve desired results
    2. if an employee is given the responsibility for a task, that employee should be given authority to make decisions within the limits of that task
    3. the level of detail provided to an employee is a function of the employee’s position with the firm
    4. all of the above are true
22. Which statement is not true? The manager’s span of control
    1. is narrow for routine and repetitive tasks
    2. is related to the number of layers of management
    3. affects the amount of detail provided to a manager
    4. can affect employee morale and motivation
23. Short-range planning involves
    1. setting goals and objectives of the firm
    2. planning the production schedule for the next quarter
    3. planning the growth of the firm
    4. deciding on the degree of diversification among the firm’s products
24. Long-range planning involves
    1. planning the marketing and promotion for a product
    2. presenting department heads with budgetary goals for the next year
    3. preparing a work force utilization budget for the next quarter
    4. deciding the optimum size of the firm
25. The level of management that makes tactical planning decisions is
    1. top management
    2. middle management
    3. operations management
    4. front-line management
26. The decision to enter a new market is an example of

26. 1. strategic planning
    2. tactical planning
    3. management control
    4. operational control
27. All of the following are elements of operational control decisions except
    1. determining the scope of the activity
    2. setting operating standards
    3. evaluating performance
    4. taking corrective action when necessary
28. In contrast to tactical planning decisions, management control decisions, and operational control decisions, strategic planning decisions usually
    1. are more focused
    2. have a shorter time frame
    3. are unstructured
    4. have a high degree of certainty
29. Which of the following management principles affects the management reporting system?
    1. formalization of tasks
    2. authorization
    3. span of control
    4. all of the above
30. All of the following are elements of problem structure except
    1. certainty
    2. data
    3. procedures
    4. objectives
31. All of the following are examples of programmed reports except
    1. cash flow reports for Division B
    2. year-to-date local income tax payments made by all employees living in City X and working in City Y
    3. inventory exception reports for Division G
    4. equipment utilization reports for Plant M
32. A fundamental principle of responsibility accounting is that
    1. managers are accountable only for items they control
    2. a manager’s span of control should not exceed eight people
    3. structured reports should be prepared weekly
    4. the information flow is in one direction, top-down

33. Which statement is not true? Responsibility accounting
    1. involves both a top-down and bottom-up flow of information
    2. acknowledges that some economic events cannot be traced to any manager
    3. creates a budget
    4. compares actual performance with budget
34. What mechanism is used to convey to managers the standards by which their performance will be measured?
    1. the responsibility report
    2. the scheduled report
    3. the budget
    4. all of the above
35. All of the following concepts encourage goal congruence except
    1. detailed information reporting at all management levels
    2. authority and responsibility
    3. formalization of tasks
    4. responsibility accounting
36. Which of the following statements is NOT true?
    1. Sorting records that are coded alphabetically tends to be more difficult for users than sorting numeric sequences.
    2. Mnemonic coding requires the user to memorize codes.
    3. Sequential codes carry no information content beyond their order in the sequence.
    4. Mnemonic codes are limited in their ability to represent items within a class.
37. Which file has as its primary purpose to present comparative financial reports on a historic basis?
    1. journal voucher history file
    2. budget master file
    3. responsibility file
    4. general ledger history file
38. All of the following are characteristics of the strategic planning process except the
    1. emphasis on both the short and long run.
    2. review of the attributes and behavior of the organization’s competition.
    3. analysis of external economic factors.
    4. analysis of consumer demand.
39. Which of the following performance measures can not result in dysfunctional behavior?
    1. price variance
    2. quotas
    3. ROI
    4. net income

39. 5. all of the above can result in dysfunctional behavior ANS: E
40. Which of the following best describes a profit center:
    1. authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply.
    2. authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply, and significant control over the amount of invested capital.
    3. authority to make decisions over the most significant costs of operations, including the power to choose the sources of supply.
    4. authority to provide specialized support to other units within the organization.
    5. responsibility for combining the raw materials, direct labor, and other factors of production into a final product.

SHORT ANSWER

1. List, in order, the steps in the Financial Accounting Process.

1.                                                                                                                    

2.                                                                                                                    

3.                                                                                                                    

4.                                                                                                                    

5.                                                                                                                    

6.                                                                                                                    

7.                                                                                                                    

8.                                                                                                                    

9.                                                                                                                    

10.                                                                                                                    

11.                                                                                                                    

2. List two duties that the general ledger clerk should not perform.

3. Explain the purpose and contents of the general ledger master file.

4. Explain two types of coding schemes and give examples of their use.

5. Why do many firms no longer use a general journal? What has taken its place?

6. What are the major exposures in the general ledger/financial reporting system?

7. Why is the audit trail necessary?

8. The                                                                              principle suggests that management should structure the firm around the work it performs rather than around individuals with unique skills.