Chapter 13 The Expenditure Cycle: Purchasing to Cash Disbursements

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 13 The Expenditure Cycle: Purchasing to Cash Disbursements

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
A) vendor-managed inventory.
B) sales force automation.
C) electronic data interchange.
D) optical character recognition.
Answer: A
Page Ref: 382
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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?
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.
Answer: A
Page Ref: 386
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

3) 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
Answer: A
Page Ref: 386
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking




1
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

,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?
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.
Answer: A
Page Ref: 387
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

5) 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.
Answer: A
Page Ref: 391
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

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?
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?
Answer: D
Page Ref: 372
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic




2
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

, 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?
A) sales order entry process
B) shipping function
C) cash collection activity
D) cash payments activity
Answer: B
Page Ref: 373
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

8) 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.
Answer: C
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

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
A) ordering costs.
B) carrying costs.
C) the reorder point.
D) stockout costs.
Answer: B
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

10) 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.
Answer: D
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic




3
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall