Question 1

The monthly review and reconciliation of vendor statements and accounts payable records minimizes the risk of all of the following except

Accepted Answer

The monthly review and reconciliation of vendor statements and accounts payable records can help detect if there are omissions or errors in recording vendor returns, incorrect recording of invoices, and issues with timing payments. However, it may not be effective in detecting invoices from a fictitious vendor, as these invoices would likely be completely fraudulent and not associated with a legitimate vendor statement. Preventing fictitious vendors would require establishing and implementing strong controls over vendor setup and approval processes.

Question 2

The internal control activities within the purchasing process, related to authorization of transactions, would include which of the following?

Accepted Answer

Specific individuals should be given authoritative responsibility for preparing purchase requisitions and purchase orders which would include which items to purchase, how many items, and which vendor. This ensures that the transactions are properly authorized and documented. A, B, and D are also important internal control activities within the purchasing process, but they relate to other aspects such as segregation of duties, custody of assets, and inventory accuracy.

Question 3

The internal control process of requiring physical controls in the warehouse and receiving areas, in order to limit access to inventory items, will help to minimize the risk of:

Accepted Answer

Requiring physical controls in the warehouse and receiving areas limits access to inventory items and helps prevent theft of goods. Therefore, the risk of stolen goods is minimized. This control process does not directly address incorrect posting, omitted purchases, or invalid vendors.

Question 4

When goods are received at the end of the accounting period, and the invoice is not received until after the start of the following period, a problem may arise as to when to record the liability.This is referred to as a(n):

Accepted Answer

This scenario is referred to as a cutoff issue, which occurs when there is uncertainty as to which accounting period a transaction should be recorded in. In this case, it is unclear whether the liability should be recorded in the current accounting period, when the goods were received, or in the following period, when the invoice was received. Proper cutoff procedures should be in place to ensure accurate recording of transactions. Option A, C, and D are not relevant to the scenario.

Question 5

A company may reject goods received due to a number of reasons.The process related to this is referred to as:

Accepted Answer

Purchase returns is the process related to rejecting goods received. Option A, purchases, refers to the process of acquiring goods or services. Option C, accounts payable, refers to the amount a company owes its creditors for goods and services purchased on credit. Option D, receiving, refers to the process of physically receiving and accepting goods into a company's inventory.

Question 6

Internal control activities within the purchasing process, identified as adequate records and documents, would include which of the following?

Accepted Answer

Adequate records and documents in the purchasing process would include maintaining files for purchase requisitions, purchase orders, receiving reports, and invoices. Choice B is a control activity for inventory management, not specifically for purchasing. Choice C is a general principle of internal control, not specific to purchasing. Choice D is a separation of duties control activity for inventory and accounting, not specific to purchasing.

Question 7

The document that identifies the items being returned, along with the relevant information regarding the vendor, quantity and price, is called:

Accepted Answer

A debit memo is used to document the return of goods to a vendor, including details such as the items being returned, vendor information, quantity, and price.

Question 8

The internal control process of separating the custody of inventory from the accounts payable record keeping will help to minimize the risk of:

Accepted Answer

Separating the custody of inventory from the accounts payable record keeping helps to prevent fictitious purchases by ensuring that only legitimate purchases are recorded and paid for. It also helps to prevent theft or unauthorized use of inventory by ensuring that only authorized personnel have access to it. While this process may also help to prevent other types of errors or fraud, such as invalid vendors or duplicate purchases, the primary risk that it addresses is the risk of fictitious purchases.

Question 9

The internal control process that requires the performance of end of period review to determine whether purchases are recorded in the proper period will help to minimize the risk of all of the following EXCEPT:

Accepted Answer

The end of period review for purchases would not directly address the risk of stolen goods. This is because stolen goods may not be recorded in the accounting system at all, and the review of purchase records will not necessarily identify any missing inventory or theft. Other internal control procedures, such as physical inventory counts and security measures, may be necessary to address the risk of stolen goods.

Question 10

The internal control process that requires the approval of the purchase return transaction take place before the preparation of the debit memo, will help to minimize the risk of:

Accepted Answer

Requiring approval before preparing a debit memo for a purchase return helps ensure that the return is valid, meaning it was actually authorized and the returned item is in the appropriate condition. This would help minimize the risk of invalid returns, as well as potentially reducing the risk of fictitious or omitted returns. However, this process may not necessarily address the risk of selecting the wrong vendor for the return.

Question 11

The date that is the end of the accounting period is referred to as the:

Accepted Answer

The term "cutoff" is commonly used in accounting to refer to the end of an accounting period, after which no further transactions or adjustments can be made to that period's financial statements. Therefore, the correct answer is D) Cutoff.

Question 12

Which of the following is the correct chronological order of events in the purchase return process?

Accepted Answer

The correct chronological order of events in the purchase return process is to first receive return authorization, then prepare a debit memo, have the goods returned, and finally receive credit or a check. Option C is the only one that follows this order.

Question 13

Goods received are unacceptable due to may different situations.Which of the following is not one of those situations?

Accepted Answer

Changes in the company needs regarding future sales or production is not a situation where goods received are unacceptable. It is a situation where the company may need to cancel or modify their original order, but it does not necessarily make the received goods unacceptable. The other options (damage/defects, errors in delivery or order, timing issues) are all situations where the goods received are not acceptable.

Question 14

The internal control process of having the receiving reports prepared on pre-numbered forms so that the sequence of receipts can be reviewed for proper recording will help to minimize the related risk of:

Accepted Answer

Having pre-numbered receiving reports can help ensure that all purchases are recorded and that none are omitted. It does not directly address issues of invalid vendors, fictitious purchases, or timing issues.

Question 15

A company should study risks common to its system prior to deciding the mix of controls needed.High-risk characteristics that might justify the need for extensive internal controls include all of the following, except:

Accepted Answer

Centralizing receiving and/or record-keeping can actually reduce risk by streamlining processes and improving oversight, making it easier to implement and monitor controls.

Question 16

Internal controls related to the purchase returns would include all of the following, except:

Accepted Answer

It is a violation of segregation of duties to have the same employee responsible for handling inventory and approving returns. The other options listed are all examples of internal controls related to purchase returns.

Question 17

This document, prepared by the vendor, is intended to show the quantities and descriptions of items included in the shipment.

Accepted Answer

A packing slip is a document that outlines the contents of a shipment, including quantities and descriptions of the items. It is typically prepared by the vendor/seller and included in the package or attached to the outside of the box.

Question 18

The internal control process that requires purchase records to be matched and verified for item descriptions, quantities, dates, authorized prices, and mathematical accuracy, will help to minimize the risk of:

Accepted Answer

This process ensures that purchases are valid and authorized, reducing the risk of invalid purchases by verifying the details of each transaction.

Question 19

Internal control activities within the purchasing process, identified as segregation of duties, would include all of the following, except:

Accepted Answer

Segregation of duties within internal control activities focuses on dividing responsibilities among different individuals or departments to prevent fraud or errors, particularly in authorization, custody, and record keeping. Protecting purchasing records and programs from unauthorized access, while important for internal control, does not directly relate to the segregation of duties principle.

Question 20

The accounting record that includes the details of amounts owed to each vendor is called the:

Accepted Answer

An accounts payable subsidiary ledger is a detailed record of the amounts owed to each vendor. The purchases journal records purchases made on credit, but it does not provide details of amounts owed to specific vendors. The accounts receivable subsidiary ledger is a record of amounts owed to the company by customers. The receiving log is a record of goods received, but it does not include information on amounts owed to vendors.

Quiz 9: Expenditures Processes and Controlspurchases