Deck 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Question 1

What is the key difference between the MRP and JIT inventory management approaches?

A) Only JIT reduces costs and improves efficiency.
B) MRP is especially useful for products such as fashion apparel.
C) JIT is more effectively used with products that have predictable patterns of demand.
D) MRP schedules production to meet estimated sales needs; JIT schedules production to meet customer demands.

Answer 1

D

Question 2

Materials requirements planning (MRP)

A) reduces the uncertainty about when materials are needed, thereby reducing the need to carry large levels of inventory.
B) is able to compute exactly the cost of purchasing by taking into account all costs associated with inventory carrying.
C) requires vendors to deliver inventory to the production site exactly when needed and in the correct quantities.
D) None of the above is correct.

Answer 2

A

Question 3

A receiving clerk notes that a delivery of 10 units has been received,but the purchase order specified 12 units.A debit memo will need to be prepared to adjust for the difference between the quantity ordered and received.Who should prepare this document?

A) the receiving clerk
B) the controller
C) the vendor
D) the purchasing department manager

Answer 3

D

Question 4

Identify in which of the following scenarios a company could adjust the balance due the vendor by issuing a debit memo.

A) quantity different from that ordered
B) damage to the goods
C) goods that fail inspection for quality
D) All of the above are possible scenarios.

Question 5

Duc An Incorporated provides free coffee to employees.Starbucks delivers coffee packages,sugar,creamer,and filters each week.Every month,Starbucks sends Duc An an invoice.This arrangement is best described as a

A) set purchase order.
B) fixed purchase order.
C) blanket purchase order.
D) standard purchase order.

Question 6

What is a key feature of materials requirements planning (MRP)?

A) minimize or entirely eliminate carrying and stockout costs
B) reduce required inventory levels by scheduling production rather than estimating needs
C) determine the optimal reorder point
D) determine the optimal order size

Question 7

Once a vendor is selected for a product,the vendor's identity is recorded in the

A) purchase requisition transaction file.
B) purchase requisition master file.
C) inventory transaction file.
D) inventory master file.

Question 8

A major cost in the purchasing function is the number of purchase orders processed.One technique that may reduce purchasing-related expenses is to have suppliers compete with each other to meet demand at the lowest price.The name of this technique is

A) an EDI auction.
B) a trading exchange.
C) a reverse auction.
D) a supplier consortium.

Question 9

________ attempts to minimize or eliminate carrying and stockout costs.

A) Just-in-time inventory
B) Materials requirements planning
C) Economic order quantity
D) Evaluated receipt settlement

Question 10

The ________ specifies the point at which inventory is needed.

A) company inventory policies
B) reorder point
C) economic order quantity
D) stockout point

Question 11

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

Question 12

The Gwallter Reece Chihuahua Sweater Co.(GRCCo)was established in 2013.It recently signed a large contract with PetCo pet stores.GRCCo will be required to track and forecast sweater sales by linking in to PetCo's sales database.GRCCo will then be responsible for shipping products to PetCo as needed.The relationship between GRCCo and PetCo is an example of

A) sales force automation.
B) electronic data interchange.
C) optical character recognition.
D) vendor-managed inventory.

Question 13

What is one of the best ways to improve the overall efficiency and effectiveness of the receipt and storage of ordered items?

A) requiring all suppliers to have the carrier verify quantities and item numbers before shipment
B) requiring all suppliers to include RFID tags on their items
C) requiring all suppliers to use EDI to expedite the receiving department function
D) requiring all delivery trucks to have satellite data terminals to expedite the receiving department function

Question 14

Which electronic files are either read or updated when goods are ordered from a vendor?

A) inventory, vendors, and accounts payable
B) vendors and accounts payable
C) inventory, vendors, and open purchase orders
D) open purchase orders and accounts payable

Question 15

When would an MRP inventory approach be a preferred to a JIT inventory approach?

A) when a product has a short life cycle
B) when demand for inventory is fairly predictable
C) when demand for inventory is very unpredictable
D) MRP is always a preferred method over JIT.

Question 16

Which of the following is generally not shown on a receiving report?

A) price of the items
B) quantity of the items
C) purchase order number
D) counted and inspected by

Question 17

Which of the following is least likely to be a major criterion in vendor selection?

A) prices of goods
B) credit rating of the vendor
C) quality of goods
D) ability to deliver on time

Question 18

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.

Question 19

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.

Question 20

Just-In-Time (JIT)inventory is best characterized by

A) frequent deliveries of large quantities to be held at the work centers.
B) frequent deliveries of smaller quantities of items to the work centers.
C) less frequent deliveries of large quantities of goods to central receiving.
D) infrequent bulk deliveries of items directly to work centers.

Question 21

When purchasing miscellaneous supplies,companies can reduce costs,improve efficiency,and combat employee fraud by

A) using procurement cards.
B) implementing a JIT inventory system.
C) requiring employees to personally purchase items then reimbursing employees at the end of each month.
D) paying amounts out of petty cash.

Question 22

The Gwallter Reece Chihuahua Sweater Co.(GRCCo)was established in 2013.It recently signed a large contract with PetCo pet stores.GRCCo will be required to track and forecast sweater sales.The technology that is used for communication between GRCCo and PetCo is

A) electronic data interchange.
B) vendor-managed inventory.
C) sales force automation.
D) optical character recognition.

Question 23

Procurement cards differ from corporate credit cards in which of the following ways?

A) Credit limits can be set for procurement cards, but not corporate credit cards.
B) Credit cards can be used to make purchases without an explicit sign off by supervisors, but procurement cards require a sign off.
C) Procurement cards can only be used with approved vendors, but credit cards can be used anywhere.
D) Procurement card invoices are sent separately for each card, whereas corporate credit cards are consolidated into a single invoice.

Question 24

A voucher package should include

A) a purchase requisition, vendor invoice, and receiving report.
B) a purchase order, vendor invoice, and receiving report.
C) a purchase requisition, purchase order, and receiving report.
D) a bill of lading and vendor invoice.

Question 25

If available,a 1% discount for payment within 10 days instead of 30 days represents an approximate savings of ________% annually.

A) 1
B) 12
C) 18
D) 36

Question 26

In the expenditure cycle,Financial Electronic Data Interchange (FEDI)increases efficiency by

A) eliminating the need for receiving reports.
B) eliminating the need for vendor invoices.
C) eliminating the need for purchase orders.
D) eliminating the need to prepare and mail checks.

Question 27

Ngai Nhung is the sales manager at Hung Technologies.At lunch with the company CEO,Ngai proudly announced that he had negotiated a(n)________ with a client that represented the customer's long-term commitment to buy components from Hung.

A) purchase order
B) evaluated receipt settlement
C) voucher
D) blanket purchase order

Question 28

Ngai Nhung is the sales manager at Hung Technologies.At lunch with the company CEO,Ngai proudly announced that he had received a ________ from a client.The client had just requested a large quantity of components from Hung.

A) blanket purchase order
B) voucher
C) purchase order
D) purchase requisition

Question 29

Evaluated receipt settlement increases efficiency by

A) eliminating the need for receiving reports.
B) eliminating the need for vendor invoices.
C) eliminating the need for purchase orders.
D) eliminating the need to prepare and mail checks.

Question 30

There is a symmetrical interdependence between a firm's expenditure cycle and its suppliers'

A) production cycle.
B) revenue cycle.
C) expenditure cycle.
D) general ledger and reporting system.

Question 31

One objective of accounts payable is to authorize payment only for goods or services actually ordered and received.The best way to process supplier invoices is to use

A) electronic funds transfer for small, occasional purchases from suppliers.
B) a nonvoucher system.
C) EDI for all small, occasional purchases from suppliers.
D) a disbursement voucher system.

Question 32

A disbursement voucher contains

A) a list of outstanding invoices.
B) the net payment amount after deducting applicable discounts and allowances.
C) the general ledger accounts to be debited.
D) All of the above are correct.

Question 33

What is not an advantage of using disbursement vouchers?

A) Disbursement vouchers reduce the number of checks written.
B) Disbursement vouchers can be prenumbered which simplifies the tracking of all payables.
C) Disbursement vouchers facilitate separating the time of invoice approval from the time of invoice payment.
D) There are no disadvantages to using disbursement vouchers.

Question 34

A(n)________ system posts an approved invoice to the vendor account and stores it in an open invoice file until payment is made by check.

A) nonvoucher
B) voucher
C) cycle
D) evaluated receipt settlement

Question 35

The disbursement voucher and supporting documents are sent to the ________ for payment prior to the due date.

A) cashier
B) treasurer
C) controller
D) accounts payable department

Question 36

Ngai Nhung is the sales manager at Hung Technologies.At lunch with the company CEO,Ngai complained that a recent shipment from a vendor had been unsatisfactory and was returned.As a result,Hung's purchasing manager needed to send a ________ to the supplier.

A) debit memo
B) purchase order
C) blanket purchase order
D) receiving report

Question 37

Which of the following is not an advantage of a voucher system?

A) Several invoices may be included on one voucher, reducing the number of checks.
B) Disbursement vouchers may be pre-numbered and tracked through the system.
C) The time of voucher approval and payment can be kept separate.
D) It is a less expensive and easier system to administer than other systems.

Question 38

To minimize the number of checks that need to be written to pay vendor invoices,a company should use

A) a voucher system.
B) a just-in-time inventory system.
C) a nonvoucher system.
D) an evaluated receipt settlement system.

Question 39

Vendor invoices are approved by the ________,which reports to the ________.

A) purchasing department; controller
B) accounts payable department; treasurer
C) purchasing department; treasurer
D) accounts payable department; controller

Question 40

Define and describe the EOQ approach to inventory management.

Question 41

MacDougalKids is a mid-sized manufacturer of organic baby food.MacDougalKids uses a JIT inventory management approach.Which of the following factors would likely be least important when selecting inventory suppliers?

A) product price
B) product quality
C) vendor delivery dependability
D) All would be equally important

Question 42

Which of the following factors is not of key importance when selecting inventory suppliers?

A) product price
B) vendor corporate structure
C) product quality
D) vendor delivery dependability

Question 43

Explain what is meant by the expenditure cycle as a "mirror image" of the revenue cycle.

Question 44

EFT payments are generally performed by

A) the treasurer.
B) a cashier.
C) an accounts payable clerk.
D) a credit manager.

Question 45

a)What is the major cost driver in the purchasing function? b)Describe how information technology can be used to control this cost driver.

Question 46

The EOQ approach to managing inventory has been gaining popularity in recent years.

Question 47

MacDougalKids is a mid-sized manufacturer of organic baby food.MacDougalKids uses the EOQ inventory management approach.Which of the following factors would likely be least important when selecting inventory suppliers?

A) product price
B) product quality
C) vendor delivery dependability
D) All would be equally important.

Question 48

Discuss the differences between EOQ,MRP,and JIT.

Question 49

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?

Question 50

Which of the following is not an activity performed in the expenditure cycle?

A) ordering
B) receiving
C) cash disbursement
D) shipping

Question 51

Ideally,inventory purchases occur in response to ________ in a JIT inventory system.

A) customer demand
B) optimal demand
C) forecast demand
D) supplier demand

Question 52

The first major business activity in the expenditure cycle is

A) ordering inventory, supplies, or services.
B) a customer sale.
C) shipping goods to customers.
D) receiving goods from vendors.

Question 53

The traditional approach to inventory management generally involves

A) high stockout costs.
B) minimizing item cost.
C) receiving goods or services just prior to the time they are needed.
D) maintaining inventory levels so that production can continue even if inventory use is greater than expected.

Question 54

Identify the department below that should not be able to submit a purchase requisition.

A) Marketing
B) Production
C) Inventory Control
D) None of the above

Question 55

Under what conditions is MRP more suitable than JIT and vice versa?

Question 56

Although there are some similarities between JIT and MRP,identify one major difference below.

A) production scheduling
B) reducing the opportunity for inventory theft
C) reducing inventory carrying costs
D) requires more analysis than EOQ

Question 57

Under the EOQ inventory approach,carrying costs are usually ignored for low-cost/low-usage items.

Question 58

Once a purchase request is approved,what is the next step?

A) The system creates a purchase order.
B) The accounts payable department approves the purchase request, creating a purchase order.
C) The inventory master file is accessed to find the preferred supplier(s).
D) The department that created the purchase request may buy the requested item(s).

Question 59

A JIT inventory system would be especially useful for a company that manufactures

A) toys associated with new movie releases.
B) toothpaste.
C) alarm clocks.
D) motor oil.

Question 60

How can information technology be used to improve the vendor invoice approval process?

Question 61

Which of the following threats is not specific to the purchase requisition process of the expenditure cycle?

A) stockouts
B) purchasing from unauthorized vendors
C) requisitioning goods not needed
D) All of the above are threats in the purchase requisition process.

Question 62

The management at Barks-a-Million is considering a new inventory control system.The current system is inadequate because it frequently causes stockouts that interrupt production and lead to excess stock of other materials - resulting in markdowns and high carrying costs.The new system will focus on reducing or completely eliminating carrying costs,most likely employing

A) a just-in-time inventory system.
B) a reorder point.
C) materials requirements planning.
D) the economic order quantity.

Question 63

If duties are properly segregated,the authorization function is performed by ________,the recording function is performed by ________,and cash handling is performed by the ________.

A) accounts payable; purchasing; cashier
B) purchasing; accounts payable; cashier
C) purchasing; cashier; accounts payable
D) purchasing; accounts payable; treasurer

Question 64

A surprise count of an imprest petty cash fund should find the total of ________ equal to the amount authorized for the fund.

A) cash and credit memos
B) cash and vouchers
C) cash
D) cash and checks

Question 65

What control would best mitigate the threat of paying an invoice twice?

A) never authorizing payment of a photocopy of an invoice
B) double-checking mathematical accuracy of invoices
C) approval of purchase orders
D) maintaining adequate perpetual inventory records

Question 66

Which control would best prevent payments made to fictitious vendors?

A) Allow payments only to approved vendors.
B) Restrict access to any payment or approval documents.
C) Have an independent bank reconciliation.
D) Make sure all documents are in order before approving payments.

Question 67

What is the best control to mitigate the threat of paying prices that are too high for goods ordered?

A) Require the receiving department to verify the existence of a valid purchase order.
B) Use only approved suppliers and solicit competitive bids.
C) Only pay invoices that are supported by the original voucher package.
D) Use bar-code technology to eliminate data entry errors.

Question 68

The management at Barks-a-Million is considering a new inventory control system.The current system is inadequate because it frequently causes stockouts that interrupt production and lead to excess stock of other materials - resulting in markdowns and high carrying costs.The new system will focus on ensuring that these costs are minimized.The new inventory control system will likely employ

A) a reorder point.
B) a just-in-time inventory system.
C) the economic order quantity.
D) materials requirements planning.

Question 69

In the expenditure cycle,good control dictates that expenditures should be paid by check.This may not be feasible when minor purchases are made.To facilitate quick payment for minor purchases,a(n)________ should be set up and maintained using ________.

A) special bank account; disbursement vouchers
B) imprest fund; vouchers
C) cash box; small denomination bills
D) petty cash fund; procurement cards

Question 70

Which of the following controls would be the least effective in preventing paying the same invoice twice?

A) Only pay from original invoices.
B) Cancel each document in the voucher package once the check is prepared and mailed.
C) Only pay vendor invoices that have been matched and reconciled to a purchase order and a receiving report.
D) 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.

Question 71

What types of decision-making and strategic information should the AIS provide in the expenditure cycle?

Question 72

Which of the following would probably be the least effective control to mitigate the risk of paying a phony invoice payable for inventory purchases that were never made?

A) Only pay from original invoices.
B) Require three-way match for all inventory purchase invoices.
C) Cancel all invoices and supporting documentation when paid.
D) Establish strict access and authorization controls for the approved vendor master file.

Question 73

The management at Barks-a-Million is considering a new inventory control system.The current system is inadequate because it frequently causes stockouts that interrupt production and lead to excess stock of other materials - resulting in markdowns and high carrying costs.The new system will focus on ensuring that orders are placed with sufficient lead time to prevent stockouts by using

A) a just-in-time inventory system.
B) the economic order quantity.
C) materials requirements planning.
D) a reorder point.

Question 74

What is the best way to prevent the acceptance of goods that were never ordered?

A) Order only from approved vendors.
B) Enforce an appropriate conflict of interest policy in place.
C) Match the packing slip to a purchase order before accepting delivery.
D) Require specific authorization from the purchasing manager before accepting any goods.

Question 75

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

Question 76

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.

Question 77

Evaluated receipt settlement approves payment of vendor invoices after reconciling the purchase order and the

A) receiving report.
B) vendor invoice.
C) sales invoice.
D) disbursement voucher.

Question 78

The management at Barks-a-Million is considering a new inventory control system.The current system is inadequate because it frequently causes stockouts that interrupt production and lead to excess stock of other materials - resulting in markdowns and high carrying costs.The new system,which will focus on forecasting demand for Sad Clown's products,will likely employ

A) a just-in-time inventory system.
B) the economic order quantity.
C) materials requirements planning.
D) a reorder point.

Question 79

Which of the following is not a common control for ensuring inventory is secure and inventory counts are accurate?

A) control of physical access to the inventory storage areas
B) transfers of inventory with proper documentation
C) sending "blind" copies of purchase orders to inventory control for data entry
D) making physical counts of inventory at least once per year

Question 80

What control should be put in place that assigns responsibility for EFT payments made to vendors?

A) Encrypt all EFT transmissions.
B) Time stamp all EFT transactions.
C) Establish a control group to monitor EFT transactions for validity and accuracy.
D) Number all EFT transactions.