Question 1

Manufacturers use purchase accounts; retailers use inventory accounts.

Accepted Answer

Manufacturers use inventory accounts (to track the cost of producing goods), while retailers use purchase accounts (to track the cost of acquiring inventory).

Question 2

Payment authorization only requires internal documents.

Accepted Answer

Payment authorization typically requires both internal documents (such as purchase orders or invoices) and external verification (such as bank authorizations or payment gateway approvals) to ensure the transaction is valid and funds are available.

Question 3

A receiving report documents receipt of goods.

Accepted Answer

A receiving report is a document that is used to record the receipt of goods. It includes information such as the date of receipt, the quantity received, and any discrepancies or issues with the shipment. This document is an important part of the receiving process and is used to verify that the goods have been received correctly.

Question 4

A manufacturer uses raw materials, labor, and overhead to create a finished good.

Accepted Answer

This is the basic principle of manufacturing. Raw materials are transformed into finished goods through the use of labor and overhead expenses.

Question 5

Pre-numbering purchase orders is a type of control.

Accepted Answer

Pre-numbering purchase orders helps in tracking them and ensures that no orders are missed or duplicated, thereby acting as a control measure.

Question 6

Cut-off determines the period in which the transaction is recorded.

Accepted Answer

Cut-off is the point at which transactions are recorded in a specified period. Therefore, cut-off determines the period in which the transaction is recorded.

Question 7

EDGAR is the name of the SEC database.

Accepted Answer

EDGAR stands for Electronic Data Gathering, Analysis, and Retrieval system, which is the official database of the U.S. Securities and Exchange Commission (SEC) that provides free public access to corporate information and securities filings.

Question 8

A purchase requisition usually precedes a purchase order.

Accepted Answer

A purchase requisition is a formal request made by an internal department or employee to the purchasing department to purchase goods or services. Once the purchase requisition is approved, a purchase order is then generated to the vendor or supplier. Therefore, a purchase requisition usually precedes a purchase order.

Question 9

Only payments made by paper check are posted in the cash disbursements journal.

Accepted Answer

Payments made by electronic transfer, credit card, or other methods are also recorded in the cash disbursements journal, along with paper check payments.

Question 10

Dual purpose tests allow the auditor to perform the audit in an efficient manner.

Accepted Answer

Dual purpose tests allow the auditor to test for both the effectiveness of internal controls and the accuracy of financial statements, thereby reducing the number of tests needed to be performed and increasing overall efficiency of the audit process.

Question 11

Segregation of duties is achieved in an electronic environment by limiting access to certain fields of a form.

Accepted Answer

Segregation of duties can be achieved in an electronic environment through various measures, including limiting access to certain fields of a form, implementing dual authentication measures, establishing appropriate authorization levels, and implementing audit trails to monitor activity. Limiting access to certain fields of a form is one way to ensure that individuals only have access to the data and functions that are relevant to their job responsibilities and that critical functions are performed by different individuals.

Question 12

The receiving department uses information supplied by the purchasing department when receiving raw materials.

Accepted Answer

The receiving department needs to know what materials have been ordered and the quantity expected in order to properly receive and check the delivery. This information is typically supplied by the purchasing department, so the receiving department can verify the delivery and reconcile it with the original purchase order.

Question 13

All supporting documentation should be separated from the invoice to prevent duplicate payment.

Accepted Answer

Supporting documentation should be attached or linked to the invoice to ensure proper verification and processing, not separated, to prevent duplicate payments and ensure all documents are reviewed together.

Question 14

A debit memo is used by the supplier to increase the amount due.

Accepted Answer

A debit memo is used by the supplier to decrease the amount due.

Question 15

Authorization and cut-off are two additional assertions.

Accepted Answer

Authorization and cut-off are two additional assertions that auditors test during an audit. Authorization refers to ensuring that all transactions and activities are authorized by the appropriate personnel, while cut-off refers to ensuring that transactions are recorded in the correct accounting period.

Question 16

SIC is used to classify companies into industries.

Accepted Answer

SIC (Standard Industrial Classification) is a system used to classify companies into industries based on their primary business activities.

Question 17

The purchase requisition, purchase order, and supplier invoice comprise a payment support package.

Accepted Answer

These documents are part of the procurement process, not specifically a payment support package. They facilitate purchasing and invoicing but do not directly constitute a payment support package.

Question 18

Blanket purchase orders usually are for an unlimited quantity.

Accepted Answer

Blanket purchase orders typically have a specified quantity limit, rather than being unlimited.

Question 19

Just-in-time inventory is usually only employed by large manufacturers.

Accepted Answer

Just-in-time inventory can be employed by any company, regardless of its size, as long as the company has the resources and the infrastructure to support it.

Question 20

Cash transactions should be tested prior to month end to allow for the receipt of appropriate evidence.

Accepted Answer

Cash transactions should be tested at or after month end to ensure all transactions within the period are captured and to allow for the receipt of complete and appropriate evidence. Testing prior to month end might miss transactions occurring between the testing date and the actual month end.

Quiz 12: The Acquisition and Payments Cycle and Related Accounts: Purchases, Cash Disbursements and Other Related Activities in the Automotive Industry