CHAPTER 8 c.

goods billed to customers were shipped

1 Within the revenue processes, a signed d. all prenumbered sales invoices were
approval of a sales order indicates all of accounted for
the following except
5 To ensure that all credit sales
a. date of delivery transactions of an entity are recorded,
which of the following controls would be
b. sale to an accepted customer
most effective?
c. approval of the customer’s credit
a. On a monthly basis, the accounting
d. correct sales price department supervisor reconciles the
accounts receivable subsidiary ledger to the
2 An example of an independent accounts receivable control account.
verification in the sales process is
b. The supervisor of the accounting
a. preparation of packing lists on department investigates any account balance
prenumbered forms differences reported by customers.
b. initialing the sales order c. The supervisor of the billing department
c. proof of recorded dates, quantities, and sends copies of approved sales orders to the
prices on an invoice credit department for comparison of
authorized credit limits and current customer
d. physical controls in record storage areas balances.
3 The purpose of tracing shipping d. The supervisor of the billing department
documents to prenumbered sales invoices matches prenumbered shipping documents
would be to provide evidence that with entries recorded in the sales journal.
a. shipments to customers were properly 6 Under a system of sound internal
invoiced controls, if a company sold defective
b. no duplicate shipments or billings goods, the return of those goods from the
occurred customer should be accepted by the

c. goods billed to customers were shipped a. receiving clerk

d. all prenumbered sales invoices were b. sales clerk

accounted for c. purchasing clerk
4 The purpose of tracing sales invoices to d. inventory control clerk
shipping documents would be to provide
evidence that 7 The source document that initiates the
recording of the return and the
a. shipments to customers were properly adjustment to the customer’s credit status
invoiced is the
b. no duplicate shipments or billings a. pick list
occurred
b. sales journal
c. credit memorandum d. bank for comparison with deposit slips
d. sales invoice 11 If a company does not prepare an
aging of accounts receivable, which of the
8 Which of the following is not a
following accounts is most likely to be
document that is part of the cash
misstated?
collection process?
a. Sales revenues
a. Remittance advice
b. Accounts receivable
b. Cash receipts journal
c. Sales returns and allowances
c. Bank deposit slip
d. Allowance for uncollectible accounts
d. Packing slip
12 When a company sells items over the
9 Which of the following would represent
Internet, it is usually called e‐commerce.
proper segregation of duties?
There are many IT risks related to
a. The employee who has custody of cash Internet sales. The risk of invalid data
also does accounts receivable record entered by a customer would be a(n)
keeping.
a. availability risk
b. The employee who has custody of cash
b. processing integrity risk
completes the bank reconciliation.
c. security risk
c. The employee who opens mail containing
checks prepares a list of checks received. d. confidentiality risk
d. The employee who opens mail containing 13 When a company sells items over the
checks records transactions in the general Internet, there are many IT risks. The
ledger. risk of hardware and software failures
that prevent website sales would be a(n)
10 Immediately upon receiving checks
from customers in the mail, a responsible a. availability risk
employee working in an environment of
b. processing integrity risk
adequate internal control should prepare
a listing of receipts and forward it to the c. security risk
company’s cashier. A copy of this cash
d. confidentiality risk
receipts listing should also be sent to the
company’s 14 The use of electronic data interchange
(EDI) to conduct sales electronically has
a. treasurer for comparison with the monthly
both risks and benefits. Which of the
bank statement
following is a benefit of EDI, rather than
b. internal auditor for investigation of any a risk?
unusual transactions
a. Incomplete audit trail
c. accounts receivable clerk for updating of
b. Repudiation of sales transactions
the accounts receivable subsidiary ledger
c. Unauthorized access d. preparing an invoice
d. Shorter inventory cycle time 3 Which of the given departments will
immediately adjust the vendor account
15 An IT system that uses touch screens,
for each purchase transaction so that the
bar‐coded products, and credit card
company will know the correct amount
authorization during the sale is called
owed to the vendor?
a(n)
a. Purchasing
a. electronic data interchange system
b. Receiving
b. e‐commerce system
c. Accounts payable
c. point of sale system
d. Shipping
d. e‐payables system
4 One of the most critical controls to
16 Which of the following is not a method
prevent theft of inventory purchased is to
of unethically inflating sales revenue?
a. require authorization of the purchase
a. Channel stuffing
requisition
b. Holding sales open
b. segregate inventory custody from
c. Premature recognition of contingent sales inventory record keeping

d. Promotional price discounts c. compare the PO, receiving report, and

invoice
CHAPTER 9
d. segregate the authorization of purchases
1 Within the purchasing processes, which from the inventory record keeping
of the following is the first document
prepared and thereby the one that 5 Internal control is strengthened by the
triggers the remaining purchasing use of a blind purchase order, upon which
processes? the quantity of goods ordered is
intentionally left blank. This blind copy is
a. The invoice used in which department?
b. The receiving report a. The department that initiated the purchase
c. The purchase order request

d. The purchase requisition b. The receiving department

2 Personnel who work in the receiving c. The purchasing department

area should complete all of the following d. The accounts payable department
processes except
6 Which of the following questions would
a. counting the goods received most likely be included in an internal
b. inspecting goods received for damage control questionnaire concerning the
completeness of purchase transactions?
c. preparing a receiving report
a. Is an authorized PO required before the a. debit memo
receiving department can accept a shipment
b. invoice
or the accounts payable department can
record a voucher? c. receiving report
b. Are prenumbered purchase requisitions d. sales journal
used, and are they subsequently matched
with vendor invoices? 10 Within cash disbursements, all of the
following should be true before a check is
c. Is there a regular reconciliation of the prepared, except that
inventory records with the file of unpaid
vouchers? a. The PO, receiving report, and invoice
have been matched
d. Are prenumbered POs, receiving reports,
and vouchers used, and are the entire b. The purchased goods have been used
sequences accounted for? c. Sufficient cash is available
7 Which of the following controls is not d. The invoice discount date or due date is
normally performed in the accounts imminent
payable department?
11 A manager suspects that certain
a. The vendor’s invoice is matched with the employees are ordering merchandise for
related receiving report. themselves over the Internet without
b. Vendor invoices are selected for payment. recording the purchase or receipt of the
merchandise. When vendors’ invoices
c. Asset and expense accounts to be arrive, one of the employees approves the
recorded are assigned. invoices for payment. After the invoices
are paid, the employee destroys the
d. Unused purchase orders and receiving
invoices and related vouchers. To trace
reports are accounted for.
whether this is actually happening, it
8 In a system of proper internal controls, would be best to begin tracing from the
the same employee should not be allowed
a. cash disbursements
to
b. approved vouchers
a. sign checks and cancel the supporting
voucher package c. receiving reports
b. receive goods and prepare the related d. vendors’ invoices
receiving report
12 Within accounts payable, to ensure
c. prepare voucher packages and sign checks that each voucher is submitted and paid
only once, each invoice approved to be
d. initiate purchase requisitions and inspect
paid should be
goods received
a. supported by a receiving report
9 The document prepared when
purchased items are returned is a(n) b. stamped “paid” by the check signer
c. prenumbered and accounted for 16 Which of the following IT systems is
designed to avoid the document matching
d. approved for authorized purchases
process and is an “invoiceless” system?
13 For proper segregation of duties in
a. Computer‐based matching system
cash disbursements, the person who signs
checks also b. Electronic data interchange
a. reviews the monthly bank reconciliation c. Evaluated receipt settlement
b. returns the checks to accounts payable d. Microsoft Dynamics GP
c. is denied access to the supporting 17 Input controls such as field check,
documents validity check, limit check, and
reasonableness check are useful in IT
d. is responsible for mailing the checks
systems of purchasing processes to lessen
14 Which of the following internal which of the following risks?
controls would help prevent overpayment
a. Unauthorized access
to a vendor or duplicate payment to a
vendor? b. Invalid data entered by vendors
a. Review and cancellation of supporting c. Repudiation of purchase transactions
documents after issuing payment
d. Virus and worm attacks
b. Requiring the check signer to mail the
18 Which of the following is most likely to
payment directly to the vendor
be effective in deterring fraud by upper‐
c. Review of the accounts where the level managers?
expenditure transaction has been recorded
a. Internal controls
d. Approving the purchase before the goods
b. An enforced code of ethics
are ordered from the vendor
c. Matching documents prior to payment
15 Which of the following is not an
independent verification related to cash d. Segregating custody of inventory from
disbursements? inventory record keeping
a. The cash disbursements journal is CHAPTER 10
reconciled to the general ledger.
1 Which of the following statements about
b. The stock of unused checks should be payroll and fixed asset processes is true?
adequately secured and controlled.
a. Both have only routine processes.
c. The bank statement is reconciled on a
monthly basis. b. Both have only nonroutine processes.

d. The accounts payable subsidiary ledger is c. Both have routine and nonroutine
reconciled to the general ledger. processes.
d. Payroll has only routine processes, while c. Paychecks are prepared on prenumbered
fixed asset has only nonroutine processes. checks.
2 For a given pay period, the complete d. The payroll register is reconciled with the
listing of paychecks for the pay period is a general ledger.
a. payroll register 6 An integrated IT system of payroll and
human resources may have extra risks
b. payroll ledger
above those of a manual system.
c. payroll journal Passwords and access logs are controls
that should be used in these integrated
d. paymaster systems to lessen the risk of
3 A payroll voucher a. hardware failures
a. authorizes an employee paycheck to be b. erroneous data input
written
c. payroll data that does not reconcile to
b. authorizes the transfer of cash from a time cards
main operating account to a payroll account
d. unauthorized access to payroll data
c. authorizes the transfer of cash from a
payroll account to a main operating account 7 Internal control problems would be
likely to result if
d. authorizes the paymaster to distribute
paychecks a company’s payroll department supervisor
was also responsible for
4 For proper segregation of duties, the
department that should authorize new a. reviewing authorization forms for new
employees for payroll would be employees

a. payroll b. comparing the payroll register with the

batch transmittal data
b. human resources
c. authorizing changes in employee pay rates
c. cash disbursement
d. hiring subordinates to work in the payroll
d. general ledger
department
5 Which of the following is not an
independent check within payroll 8 Which of the following procedures
processes? would be most useful in determining the
effectiveness of a company’s internal
a. Time sheets are reconciled with controls regarding the existence or
production occurrence of payroll transactions?
records. a. Observe the segregation of duties
b. Time sheets are reconciled with the concerning personnel responsibilities and
payroll register. payroll disbursement.
b. Inspect evidence of accounting for b. operational responsibility from the record-
prenumbered payroll checks. keeping responsibility
c. Recompute the payroll deductions for c. human resources function from the
employee fringe benefits. controllership function
d. Verify the preparation of the monthly d. administrative controls from the internal
payroll account bank reconciliation. accounting controls
9 In meeting the control objective of the 12 Which of the following departments or
safeguarding of assets, which positions most likely would approve
departments should be responsible for changes in pay rates and deductions from
distribution of paychecks and custody of employee salaries?
unclaimed paychecks, respectively?
a. Human resources
Distribution of Custody of
b. Treasurer
paychecks unclaimed paychecks
c. Controller
a. Treasurer Treasurer

b. Payroll Treasurer
d. Payroll

c. Treasurer Payroll 13 The purchase of fixed assets is likely to

require different authorization processes
d. Payroll Payroll
than the purchase of inventory. Which of
10 A company’s internal controls policies the following is not likely to be part of the
may mandate the distribution of authorization of fixed assets?
paychecks by an independent paymaster
a. Specific authorization
in order to determine that
b. Inclusion in the capital budget
a. payroll deductions are properly authorized
and computed c. An investment analysis or feasibility
analysis of the purchase
b. pay rates are properly authorized and
separate from the operating function d. Approval of the depreciation schedule
c. each employee’s paycheck is supported 14 Which of the following is not a part of
by an approved time sheet “adequate documents and records” for
fixed assets?
d. employees included in the period’s
payroll register actually exist and are a. Fixed asset journal
currently employed
b. Fixed asset subsidiary ledger
11 The purpose of segregating the duties
c. Purchase order
of hiring personnel and distributing
payroll checks is to separate the d. Fixed asset tags
a. authorization of transactions from the 15 Which of the following questions
custody of related assets would be least likely to appear on an
internal control questionnaire regarding 18 The term “ghost employee” means that
the initiation and execution of new
a. hours worked has been exaggerated by an
property, plant, and equipment
employee
purchases?
b. false sales have been claimed to boost
a. Are requests for repairs approved by
commission earned
someone higher than the department
initiating the request? c. overtime hours have been inflated
b. Are prenumbered purchase orders used d. someone who does not work for the
and accounted for? company receives a paycheck
c. Are purchase requisitions reviewed for CHAPTER 11
consideration of soliciting competitive bids?
1 Manufacturing has changed in recent
d. Is access to the assets restricted and years as a result of each of the following
monitored? factors except
16 Which of the following reviews would a. globalization
be most likely to indicate that a
company’s property, plant, and b. technological advances
equipment accounts are not understated? c. increased competition
a. Review of the company’s repairs and d. lack of economic prosperity
maintenance expense accounts
2 The term conversion processes is often
b. Review of supporting documentation for used synonymously with
recent equipment purchases
a. operations
c. Review and recomputation of the
company’s depreciation expense accounts b. production

d. Review of the company’s miscellaneous c. manufacturing

revenue account. d. all of the above
17 Which of the following is not an 3 Which of the following activities is not
advantage of fixed asset software systems part of the planning component of the
when compared with spreadsheets? logistics function?
a. Better ability to handle nonfinancial data a. Research and development
such as asset location
b. Capital budgeting
b. Easier to apply different depreciation
policies to different assets c. Human resource management

c. Manual processes to link to the general d. Scheduling

ledger 4 Which of the following activities is an
d. Expanded opportunities for customized inventory control activity?
reporting
a. Engineering b. Are signed checks for materials purchased
mailed promptly without being returned to
b. Maintenance
the department responsible for processing
c. Routing the disbursement?

d. Quality control c. Are approved requisitions required when

materials are released from the company’s
5 Which of the following statements warehouse into production?
concerning an operations list is true?
d. Are details of payments for materials
a. It is an engineering document that balanced to the total posted to the general
describes the chain of events within a ledger?
company’s conversion process.
8 When additional procedures are
b. It is an engineering document that necessary to bring a defective product up
specifies the descriptions and quantities of to its required specifications, this is
component parts within a product. referred to as
c. It is a capital budgeting document that a. rework
describes the chain of events within a
company’s conversion process. b. scrap

d. It is a capital budgeting document that c. work‐in‐process

specifies the descriptions and quantities of
d. variance reporting
component parts within a product.
9 A firm expects to sell 1,000 units of its
6 Which of the following terms relates to
best‐selling product in the coming year.
the control of materials being held for
Ordering costs for this product are $100
future production?
per order, and carrying costs are $2 per
a. Routing unit. Compute the optimum order size,
using the EOQ model.
b. Work‐in‐process
a. 10 units
c. Stores
b. 224 units
d. Warehousing
c. 317 units
7 Which of the following questions is most
likely to be found on an internal control d. 448 units
questionnaire concerning a company’s
10 Which of the following internal
conversion processes?
controls is typically associated with the
a. Are vendor invoices for materials maintenance of accurate inventory
purchases approved for payment by records?
someone who is independent of the cash
a. Performing regular comparisons of
disbursements function?
perpetual records with recent costs of
inventory items
b. Using a just‐in‐time system to keep 13 Which of the following is not
inventory levels at a minimum considered a benefit of using
computerized conversion systems?
c. Performing a match of the purchase
request, receiving report, and purchase order a. Automatic computation of materials
before payment is approved requirements
d. Using physical inventory counts as a basis b. Increased sales and cost of sales
for adjusting the perpetual records
c. Increased efficiency and flexibility
11 If a manufacturing company’s
d. Early error detection and increased
inventory of supplies consists of a large
accuracy
number of small items, which of the
following would be considered a weakness 14 Which of the following represents a
in internal controls? method of managing inventory designed
to minimize a company’s investment in
a. Supplies of relatively low value are
inventories by scheduling materials to
expensed when acquired.
arrive at the time they are needed for
b. Supplies are physically counted on a cycle production?
basis, whereby limited counts occur
a. The economic order quantity (EOQ)
quarterly and each item is counted at least
once annually. b. Material resource planning (MRP)
c. The stores function is responsible for c. First‐in, first‐out (FIFO)
updating perpetual records whenever
inventory items d. Just‐in‐time (JIT)

are moved. 15 For which of the following

computerized conversion systems is
d. Perpetual records are maintained for Walmart well known?
inventory items only if they are significant
in value. a. CAD/CAM

12 The goal of a physical inventory b. MRP‐II

reconciliation is to c. CIMs
a. determine the quantity of inventory sold d. JIT
b. compare the physical count with the CHAPTER 12
perpetual records
1 Which of the following is not part of an
c. compare the physical count with the administrative process?
periodic records
a. The sale of stock
d. determine the quantity of inventory in
process b. The sale of bonds
c. The write‐off of bad debts
d. The purchase of marketable securities 5 Which of the following statements is
true?
2 Which of the following statements is not
true regarding source of capital transactions? a. Routine transactions are recorded in the
a. These processes should not be initiated general journal.
unless there is specific authorization by
b. Nonroutine transactions are entered in the
management at a top level.
general journal.
b. Source of capital processes will result in
c. Nonroutine transactions are recorded in a
potential dividend or interest payments.
subsidiary ledger.
c. Retirement of debt is a source of capital
d. Nonroutine transactions are recorded in a
process.
special journal.
d. The fact that these transactions and
6 Regarding subsidiary ledgers and
processes cannot occur without oversight by
general ledger control accounts, which of
top management means other controls are
the following is not true?
not necessary.
a. Total balances in a subsidiary ledger
3 The officer within a corporation that
should always equal the balance in the
usually has oversight responsibility for
corresponding general ledger account.
investment processes is the
b. The general ledger maintains details of
a. controller
subaccounts.
b. treasurer
c. Control is enhanced by separating the
c. chief executive officer (CEO) subsidiary ledger from the general ledger.
d. chief accounting officer (CAO) d. Reconciling a subsidiary ledger to the
general ledger can help to detect errors or
4 Which of the following statements is not
fraud.
true regarding internal controls of capital
and investment processes? 7 Which of the following statements
regarding the authorization of general
a. Internal controls aimed at preventing and
ledger posting is not true?
detecting employee fraud in capital and
a. Posting to the general ledger always
investment processes are not as effective.
requires specific authorization.
b. Top management fraud, rather than
b. User IDs and passwords can serve as
employee fraud, is more likely to occur.
authorization to post transactions to the
c. Any fraud is likely to involve general ledger.
manipulating capital and investment
c. A journal voucher serves as authorization
processes.
for manual systems.
d. Because of top management oversight, the
auditor need not review these processes.
d. As IT systems become more automated, a. Data is interpreted information.
the authorization of general ledger posting is
b. Information is interpreted data.
moved to lower levels of employees.
c. Data is more useful than information in
8 In a manual system with proper
decision making.
segregation of duties, an employee in the
general ledger department should only d. Data and information are not related.
a. authorize posting to the general ledger 2 A character is to a field as
b. post transactions to the general ledger a. water is to a pool
c. reconcile the subsidiary ledger to the b. a pool is to a swimmer
general ledger
c. a pool is to water
d. post transactions to the subsidiary ledger
d. a glass is to water
9 Which of the following statements about
reporting is true? 3 Magnetic tape is a form of

a. External users need detailed, rather than a. direct access media

summarized, information. b. random access media
b. All reports, internal and external, are c. sequential access media
derived only from general ledger data.
d. alphabetical access media
c. All organizations need similar internal
reports. 4 Which of the following is not an
advantage of using real‐time data
d. Internal reports are tailored to the specific processing?
needs of each management level and
function. a. Quick response time to support timely
record keeping and customer satisfaction
10 Which of the following is not typically
an area of measure in a balanced b. Efficiency for use with large volumes of
scorecard? data

a. Vendor c. Provides for random access of data

b. Customer d. Improved accuracy due to the immediate

recording of transactions
c. Financial
5 If a company stores data in separate
d. Learning and growth files in its different departmental
CHAPTER 13 locations and is able to update all files
simultaneously, it would not have
1 Which of the following best describes problems with
the relationship between data and
information? a. attributes
b. data redundancy
c. industrial espionage d. Sequential
d. concurrency 9 Which of the following statements is not
true with regard to a relational database?
6 When the data contained in a database is
stored in large, two‐dimensional tables, the a. It is flexible and useful for unplanned, ad
database is referred to as a hoc queries.
a. flat file database b. It stores data in tables.
b. hierarchical database c. It stores data in a tree formation.
c. network database d. It is maintained on direct access devices.
d. relational database 10 A collection of several years’
nonvolatile data used to support strategic
7 Database management systems are
decision‐making is a(n)
categorized by the data structures they
support. In which type of database a. operational database
management system is the data arranged
b. data warehouse
in
c. data mine
a series of tables?
d. what‐if simulation
a. Network
11 Data mining would be useful in all of
b. Hierarchical
the following situations except
c. Relational
a. identifying hidden patterns in customers’
d. Sequential buying habits
8 A company’s database contains three b. assessing customer reactions to new
types of records: vendors, parts, and products
purchasing. The vendor records include
c. determining customers’ behavior patterns
the vendor number, name, address, and
terms. The parts records include part d. accessing customers’ payment histories
numbers, name, description, and
warehouse location. Purchasing records 12 A set of small databases where data is
include purchase numbers, vendor collected, processed, and stored on
numbers (which reference the vendor multiple computers within a network is a
record), part numbers (which reference a. centralized database
the parts record), and quantity. What
structure of database is being used? b. distributed database

a. Network c. flat file database

b. Hierarchical d. high‐impact process

c. Relational 13 Each of the following is an online

privacy practice recommended by the
AICPA Trust Services Principles Privacy 4 Which of the following is not a direct
Framework except advantage for the consumer from e-
commerce?
a. Redundant data should be eliminated from
the database. a. Access to a broader market
b. Notification of privacy policies should be b. More shopping convenience
given to customers.
c. Reduced order-processing cost
c. Private information should not be given to
d. Information sharing from the company
third parties without the customer’s consent.
5 Each of the following represents a
d. All of the above.
characteristic of B2B commerce except
CHAPTER 14
a. electronic data interchange
1 Which of the following statements is
b. electronic retailing
true?
c. data exchanges
a. E-business is a subset of e-commerce.
d. preexisting business relationships
b. E-commerce is a subset of e-business.
6 Each of the following represents an
c. E-business and e-commerce are exactly
application of B2C commerce except
the same thing.
a. software sales
d. E-business and e-commerce are not
related. b. electronic retailing
2 An electronic hardware device that is c. data exchanges
located at the gateway between two or
more networks is a d. stock trading

a. packet switch 7 Before forwarding customer data, an

organization should receive explicit or
b. URL implicit consent of the customer. This
describes which of the AICPA Trust
c. router
Services Principles online privacy
d. protocol practices?
3 The type of organization that serves as a. Consent
the main trunk line of the Internet is
b. Use and retention
called a
c. Access
a. local ISP
d. Onward transfer and disclosure
b. regional ISP
8 Which of the following processes within
c. global ISP
a supply chain can benefit from IT
d. backbone provider enablement?
a. All processes throughout the supply chain b. Password
b. Only internal processes within the supply c. Antivirus software
chain
d. Penetration testing
c. Only external processes within the supply
e. All of the above are important IT controls.
chain
13 A company’s computer network uses
d. Exchange processes between a company
Web servers, HTML, and XML to serve
and its suppliers
various user groups. Which type of
9 When a company has an e-business network best serves each of the following
transaction with a supplier, it could be users?
using
Employees Suppliers
a. the Internet
a. Intranet Extranet
b. an intranet
b. Intranet Internet
c. an extranet
c. Internet Extranet
d. either the Internet or an extranet
d. Internet Internet
10 Intranets are used for each of the
14 An extensible markup language
following except
designed specifically for financial
a. communication and collaboration reporting is
b. business operations and managerial a. Internet EDI
monitoring
b. XML
c. Web publishing
c. XBRL
d. customer self-service
d. XFRL
11 When there is no necessity for a
preexisting relationship between the
buyer and the seller, that transaction is
more likely to be classified as
a. B2B
b. B2C
c. B2E
d. either B2B or B2C
12 Which of the following IT controls
would not be important in an extranet?
a. Encryption