Chapter 4—The Revenue Cycle

TRUE/FALSE

1. The packing slip is also known as the shipping notice.

2. The bill of lading is a legal contract between the buyer and the seller.

3. Another name for the stock release form is the picking ticket. ANS: T

4. Warehouse stock records are the formal accounting records for inventory.

5. The purpose of the invoice is to bill the customer. ANS: T

6. In most large organizations, the journal voucher file has replaced the formal general journal. ANS: T

7. The cash receipts journal is a special journal. ANS: T

8. In the revenue cycle, the internal control “limit access” applies to physical assets only.

9. In real-time processing systems, routine credit authorizations are automated. ANS: T

10. In a computerized accounting system, segregation of functions refers to inventory control,

accounts receivable, billing, and general ledger tasks.

11. A written customer purchase order is required to trigger the sales order system.

12. Inventory control has physical custody of inventory.

13. The principal source document in the sales order system is the sales order. ANS: T

14. Sales orders should be prenumbered documents. ANS: T

15. Integrated accounting systems automatically transfer data between modules. ANS: T

16. If a customer submits a written purchase order, there is no need to prepare a sales order

17. Sales return involves receiving, sales, credit, and billing departments, but not accounts receivable.

18. A remittance advice is a form of turn-around document. ANS: T

19. A bill of lading is a request for payment for shipping charges.

20. In point of sale systems, authorization takes the form of validation of credit card charges. ANS: T

Chapter 5—The Expenditure Cycle Part I: Purchases and Cash Disbursements Procedures

TRUE/FALSE

1. Purchasing decisions are authorized by inventory control. ANS: T

2. The blind copy of the purchase order that goes to the receiving department contains no item
descriptions.
3. Firms that wish to improve control over cash disbursements use a voucher system. ANS: T

4. In a voucher system, the sum of all unpaid vouchers in the voucher register equals the firm’s total
voucher payable balance. ANS: T

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

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

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

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

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

10. Authorization of purchases in a merchandising firm occurs in the inventory control department.
ANS: T

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

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

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

14. Permitting warehouse staff to maintain the only inventory records violates separation of duties.
ANS: T

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

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.

18. One reason for authorizing purchases is to enable efficient inventory management. ANS: T

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

20. Supervision in receiving is intended to reduce the theft of assets. ANS: T

Chapter 6桾he Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures

TRUE/FALSE

1. Time cards are used by cost accounting to allocate direct labor charges to work in process.
2. The personnel department authorizes changes in employee pay rates. ANS: T

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

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

5. Employee paychecks should be drawn against a special checking account. ANS: T

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

7. Inventory control performs the formal record keeping function for fixed assets.

8. The depreciation schedule shows when assets are fully depreciated. ANS: T

9. Authorization to dispose of fixed assets should be issued by the user of the asset.

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

11. Ideally, payroll checks are written on a special bank account used only for payroll. ANS: T

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

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

14. Timekeeping is part of the personnel function.

15. Fixed asset accounting systems include cost allocation and matching procedures that are not part of
routine expenditure systems. ANS: T

16. Asset maintenance involves only the recording of depreciation charges. Physical improvements
are always expensed.

17. Fixed Asset Systems must keep track of the physical location of each asset to promote
accountability. ANS: T

18. Time cards capture the total time an individual worker spends on each production job.

19. Accounting conventions and IRS rules sometime specify the depreciation parameters to be used.
ANS: T

20. The fixed asset disposal report authorizes the user department to dispose of a fixed asset.

Chapter 7—The Conversion Cycle

TRUE/FALSE

1. The philosophy of customer satisfaction permeates the world-class firm. ANS: T

2. Reports generated by the cost accounting system include performance reports and budget reports.
ANS: T
3. The cost accounting system authorizes the release of raw materials into production.

4. Batch processing creates a homogeneous product through a continuous series of standard

procedures.

5. The bill of materials specifies the types and quantities of the raw materials and subassemblies used in
producing a single unit of finished product. ANS: T

6. A purchase requisition authorizes the storekeeper to release materials to individuals or work

centers in the production process.

7. The SAP R/3 system organizes business processes into four categories: financial, logistics, human
resources, and business process support. ANS: T

8. The objective of the Economic Order Quantity model is to reduce total inventory costs by minimizing
carrying costs and ordering costs. ANS: T

9. The work-in-process file is the subsidiary ledger for the work-in-process control account. ANS: T

10. Move tickets authorize the storekeeper to release materials to work centers.

11. An operating characteristic of modern manufacturing firms is that labor is replaced with capital so
that the firm can be more efficient and therefore more competitive. ANS: T

12. Computer Integrated Manufacturing focuses on reducing the complexity of the physical
manufacturing layout of the shop floor.

13. The only objective of the Just-In-Time philosophy is to reduce inventory levels.

14. Accounting in a world-class manufacturing environment emphasizes standard cost and variance
analysis.

15. Identifying cost drivers is an essential step in implementing the Just-In-Time philosophy.

16. A world class information system produces very little paper. ANS: T

17. Internal control procedures are virtually identical in a world-class manufacturing environment and
in a traditional manufacturing environment.

18. In a world-class company, all activities, from acquisition of raw materials to selling the final product,
form a “chain of customers.” ANS: T

19. The two subsystems of a traditional conversion cycle are the production system and the delivery
system.

20. Manufacturing resources planning (MRP II) has evolved into electronic resource planning (ERP).