Question 1

One reason for authorizing purchases is to enable efficient inventory management.

Accepted Answer

By authorizing purchases, inventory managers can keep track of what goods are being bought and when, allowing for better control over stock levels and preventing overstocking or stockouts.

Question 2

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

Accepted Answer

False

Question 3

The blind copy of the purchase order that goes to the receiving department contains no item descriptions.

Accepted Answer

The blind copy of the purchase order that goes to the receiving department usually contains item descriptions. The purpose of the blind copy is to enable the receiving department to check the items received against the items ordered.

Question 4

Permitting warehouse staff to maintain the only inventory records violates separation of duties.

Accepted Answer

Separation of duties is a key internal control principle that helps prevent fraud and errors. Allowing warehouse staff to maintain the only inventory records could lead to inaccuracies or intentional manipulation of records without any oversight. It is recommended to have different staff accountable for different aspects of inventory control, such as receiving, storing, issuing, and recording inventory transactions.

Question 5

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

Accepted Answer

A purchasing system that employs electronic data interchange still uses a purchase order, but it is transmitted electronically rather than being printed on paper. Electronic data interchange (EDI) allows for the electronic exchange of business documents, including purchase orders, between trading partners. While the format and transmission method of the purchase order may be different with EDI, the importance of having a clear and complete purchase order remains the same for effective procurement management.

Question 6

Authorization of purchases in a merchandising firm occurs in the inventory control department.

Accepted Answer

The answer of Authorization of purchases in a merchandising firm...

Question 7

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

Accepted Answer

The answer of The accounts payable department reconciles the accounts...

Question 8

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

Accepted Answer

When a trading partner agreement is in place, there is a mutual understanding between the buyer and the supplier regarding the goods and services being provided. This may allow for the elimination of the traditional three way match process of matching the purchase order, receipt, and invoice, as the supplier's invoice may be considered sufficient evidence of the transaction.

Question 9

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

Accepted Answer

Authorization for a cash disbursement typically occurs in the accounts payable department or a similar financial oversight department, not the cash disbursement department. The cash disbursement department is responsible for processing the payment after it has been authorized.

Question 10

In a voucher system, the sum of all unpaid vouchers in the voucher register equals the firm's total voucher payable balance.

Accepted Answer

This is true in a voucher system. The voucher register keeps track of all vouchers issued but not yet paid and the total of these unpaid vouchers equals the firm's total voucher payable balance.

Question 11

Inspection of shipments in the receiving department would be improved if the documentation showed the value of the inventory.

Accepted Answer

The value of the inventory is not relevant to the inspection of the shipments in the receiving department. The documentation should provide details such as the quantity, description, and condition of the items received.

Question 12

The inventory procurement process begins with the purchasing clerk preparing a purchase order.

Accepted Answer

The answer of The inventory procurement process begins with the...

Question 13

Firms that wish to improve control over cash disbursements use a voucher system.

Accepted Answer

A voucher system is a method of controlling cash disbursements by requiring supporting documentation, such as invoices or receipts, for any payment made. This helps to prevent unauthorized or fraudulent payments and provides a record of all transactions for accounting purposes.

Question 14

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

Accepted Answer

This is because the responsibility of approving a payment and posting to the cash disbursements journal are both important tasks in the payment process and should be performed by different individuals to prevent fraud, errors, or misuse of funds.

Question 15

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

Accepted Answer

Accounts payable should always reconcile the invoice received from the supplier with the corresponding purchase order and receiving report to ensure accuracy and prevent any discrepancies.

Question 16

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

Accepted Answer

The use of inventory reorder points does not suggest the need to obtain specific authorization. However, the establishment of reorder points may be subject to approval from management or purchasing departments.

Question 17

In non-manufacturing firms, purchasing decisions are authorized by inventory control.

Accepted Answer

The answer of In non-manufacturing firms, purchasing decisions are authorized...

Question 18

Supervision in receiving is intended to reduce the theft of assets.

Accepted Answer

Supervision in receiving helps to ensure that all incoming assets are properly documented and accounted for, reducing the likelihood of theft or loss.

Question 19

Inventory control should be located in the warehouse.

Accepted Answer

Inventory control is a broader function that involves managing and overseeing the inventory levels, orders, and stock across various locations, not just limited to the physical space of a warehouse. It often involves coordination between multiple departments such as purchasing, supply chain, and sales, and utilizes software systems for tracking.

Question 20

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

Accepted Answer

A three-way match involves a purchase order, a receiving report, and an invoice.

Quiz 10: Auditing the Expenditure Cycle