Deck 11: The Expenditure Cycle: Purchasing and Cash Disbursements

Question 1

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.This name of this technique is

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

Answer 1

C

Question 2

The inventory management approach that attempts to minimize,if not eliminate,carrying and stockout costs is

A)the materials requirements planning.
B)the economic order quantity.
C)a just-in-time inventory system.
D)There is no such inventory management approach.

Answer 2

C

Question 3

One alternative approach to managing inventory is materials requirements planning (MRP).What is a key feature of this approach?

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

Answer 3

B

Question 4

A purchase order is

A)a document formally requesting a vendor to sell a certain product at a certain price.
B)a request for delivery of certain items and quantities.
C)a contract between the buyer and vendor once accepted by the vendor.
D)All of the above are true.

Question 5

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.

Question 6

MRP will be a preferred method over JIT when the

A)demand for inventory is fairly predictable.
B)demand for inventory is mostly unpredictable.
C)product has a short life cycle.
D)None of the above are correct.

Question 7

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 8

The decision of when to place an order in a traditional inventory system is specified by the

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

Question 9

The first major business activity in the expenditure cycle is ordering inventory and supplies.The traditional approach to management of inventory to ensure sufficient inventory to maintain production is known as

A)safety stock.
B)just-in-time production.
C)economic order quantity.
D)optimal inventory quantity.

Question 10

There are three basic activities in the expenditure cycle.One of the basic activities is the receiving and storage of goods,supplies,and services.What is the counterpart of this activity in the revenue cycle?

A)the sales order entry process
B)the shipping function
C)the cash collection activity
D)the cash payments activity

Question 11

The major advantage of an MRP inventory system is that it reduces inventory levels.This is because

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

Question 12

A standing order to purchase specified items at a designated price,from a particular supplier for a set period of time,is called a

A)set order.
B)blanket purchase order.
C)purchase order.
D)commodity order.

Question 13

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 14

A key decision in ordering is selecting a suitable vendor.Which of the following would not be a major criterion in vendor selection?

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

Question 15

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

A)general ledger.
B)purchase requisition file.
C)product inventory transaction file.
D)product inventory master record.

Question 16

The paper document or electronic form that formally requests a supplier to sell and deliver specified products at designated prices is called

A)a purchase order.
B)a materials requisition.
C)a sales invoice.
D)a receiving report.

Question 17

In the expenditure cycle,the primary external exchange of information occurs with

A)customers.
B)suppliers.
C)management.
D)the audit committee.

Question 18

Within the expenditure cycle,internal information flows

A)from the production cycle to the expenditure cycle.
B)from the revenue cycle to the expenditure cycle.
C)to the general ledger from the expenditure cycle.
D)All of the above are correct.

Question 19

When goods are being ordered from a vendor,which electronic files are either read or updated?

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

Question 20

What aspect below best characterizes a JIT inventory system?

A)frequent deliveries of smaller quantities of items to the work centers
B)frequent deliveries of large quantities to be held at 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

The evaluated receipt settlement (ERS)replaces the more traditional 3-way matching process with a 2-way match of the purchase order and the

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

Question 22

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

A)the receiving clerk
B)management
C)the sales department
D)the purchasing department

Question 23

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 24

In a typical cash disbursement procedure,who usually handles the checks and may even be able to sign checks up to a certain dollar limit?

A)the accounts payable supervisor
B)the controller
C)the cashier
D)the treasurer

Question 25

A legal obligation arises at the time goods are received from a supplier.The 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 26

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 27

What may be the biggest opportunity to improve the efficiency of accounts payable?

A)convert a manual AIS system to EDI and EFT
B)streamline noninventory purchases
C)use ERS
D)use disbursement vouchers

Question 28

The receiving department has two major responsibilities in connection with the expenditure cycle.Identify one of these responsibilities.

A)shipping products most efficiently and at the lowest cost
B)deciding if the delivery should be accepted
C)verifying any purchase discounts for the delivery
D)deciding on the location where the delivery will be stored until used

Question 29

All of the following technologies could be useful aids in the receiving process except

A)bar coding.
B)radio frequency identification tags.
C)EFT.
D)satellite technology.

Question 30

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 31

What is not an advantage to 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 32

A __________ system is a system in which an approved invoice is posted to the vendor account and is stored in an open invoice file until payment is made by check.

A)voucher
B)nonvoucher
C)cycle
D)blanket invoice

Question 33

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 34

Duties in the expenditure cycle should be properly segregated to promote internal control.This means that the authorization function is performed by __________,the recording function is performed by __________,and the cash disbursement function 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 35

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 36

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 a second party verify quantities purchased before shipment
B)requiring all suppliers to have bar-codes on their items to allow electronic scanning upon delivery by the receiving department
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 37

From a legal standpoint,when does the obligation to pay a vendor arise?

A)when the goods are requisitioned
B)when the goods are ordered
C)when the goods are received by the purchaser
D)when the goods are billed

Question 38

What is the final activity in the expenditure cycle?

A)ordering goods
B)receipt and storage of goods
C)approving vendor invoices for payment
D)the payment of approved invoices

Question 39

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 40

Identify which of the following scenarios the buyer could adjust by using a debit memo document.

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 41

The management at Sad Clown Pajamas,an Internet-based wholesaler,is considering a new inventory control system.The current system is inadequate because it results in stockouts that interrupt production and excess stocks of some materials that result in markdowns and high carrying costs.The new system,which will focus on ensuring that the amounts purchased minimize these costs,will employ

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

Question 42

The management at Sad Clown Pajamas,an Internet-based wholesaler,is considering a new inventory control system.The current system is inadequate because it results in stockouts that interrupt production and excess stocks of some materials that result in markdowns and high carrying costs.The new system,which will focus on ensuring that orders are placed with sufficient lead time to prevent stockouts,will employ

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

Question 43

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 44

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 45

When a legacy system is replaced with an integrated Enterprise Resource Planning (ERP)system,many benefits are realized for the organization.What is a key improvement in the record keeping function?

A)Any department can now submit a request to purchase items.
B)The system tracks the exact time of delivery.
C)Major suppliers send electronic notification of incoming deliveries.
D)Inventory records are more accurate and timely.

Question 46

What is probably the most effective control for the prevention of kickbacks to purchasing agents?

A)purchasing from approved vendors
B)good supervision in the purchasing area
C)a corporate policy to prohibit purchasing agents from accepting kickbacks
D)reviews of vendor performance

Question 47

There are several threats that are associated with the process and activity of receiving and storing goods.Identify one of these threats below.

A)errors in counting
B)kickbacks
C)requests for unnecessary items
D)errors in vendor invoices

Question 48

The threat of paying prices that are too high for goods ordered can pose a problem in the expenditure cycle.What is an appropriate control that would be applicable to help mitigate this threat?

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

Question 49

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 50

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 51

A surprise count of petty cash by the auditor should find the total of __________ equal to the amount authorized for the fund.

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

Question 52

There is a threat of paying an invoice twice.What is an applicable control that may help mitigate this threat?

A)payment should never be authorized for a photocopy of an invoice
B)double-check invoice accuracy
C)approval of a purchase order
D)adequate perpetual inventory records

Question 53

Which control would be best to 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 54

There is a symmetrical interdependence between a firm's revenue cycle and its customers'

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

Question 55

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 56

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

A)procurement cards.
B)a JIT inventory system.
C)credit cards.
D)debit cards.

Question 57

Double-checking the accuracy of an invoice is an applicable control that can help to neutralize a threat in the expenditure cycle.What process or activity would specifically be associated with this control?

A)order goods
B)receive and store goods
C)pay for goods and services
D)general issues

Question 58

Special care should be taken when EFT payments are made to vendors.What control should be put in place that assigns responsibility for EFT payments?

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

Question 59

Inbound logistics is part of the

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

Question 60

What is the easiest way to prevent the acceptance of unordered goods?

A)order only from approved vendors
B)always require that a valid purchase order exists before goods can be accepted at the time of delivery
C)have an appropriate conflict of interest policy in place
D)require receiving personnel to call the vendor before accepting any goods

Question 61

In the expenditure cycle,financial data electronic interchange 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 62

Bob Chum is the sales manager at Folding Squid Technologies.At lunch with the company CEO,he proudly announced that he had received a ______ from a client to buy a large quantity of components from Folding Squid.

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

Question 63

The receiving clerk at Folding Squid Technologies examines incoming shipments and checks their purchase order numbers.A receiving report is then sent to accounts payable,where it is reconciled with the relevant purchase orders and invoices and payment is authorized.Which of the following would correct control weaknesses,if any,related to these activities?

A)Vendor invoices should be approved for payment by the shipping clerk after the purchase order and receiving report are reconciled.
B)Vendor invoices should be approved for payment by the purchasing manager.
C)Purchase orders and receiving reports should be reconciled by the purchasing manager.
D)Controls are adequate under the current system.

Question 64

Define just-in-time (JIT)inventory methods.

Question 65

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 66

The receiving clerk at Folding Squid Technologies examines incoming shipments and reconciles their contents with the relevant purchase orders.A receiving report is then sent to accounts receivable and the vendor's invoice is approved for payment.Which of the following would correct control weaknesses,if any,related to these activities?

A)The invoice should be approved for payment by the shipping clerk after the purchase order and receiving report are reconciled.
B)Accounts payable should reconcile the purchase order and the receiving report.
C)Invoices,purchase orders,and receiving reports should be reconciled by the receiving clerk.
D)Controls are adequate under the current system.

Question 67

Define the materials requirement planning (MRP)

Question 68

Bob Chum is the sales manager at Folding Squid Technologies.At lunch with the company CEO,he proudly announced that he had negotiated a ______ with a client that defined a long-term commitment to buy components from Folding Squid.

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

Question 69

The purchasing manager at Folding Squid Technologies has responsibility for reviewing and authorizing purchase orders.He also reviews receiving reports,approves or corrects them,and authorizes the cashier to pay vendor invoices.Which of the following would correct control weaknesses,if any,related to these activities?

A)Vendor invoices should be reviewed by the purchasing manager to ensure that they are correct.
B)Accounts payable should reconcile purchase orders,receiving reports,and invoices.
C)Vendor invoices should be reviewed by accounts receivable and then cancelled when paid.
D)Controls are adequate under the current system.

Question 70

In the expenditure cycle,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 71

The management at Sad Clown Pajamas,an Internet-based wholesaler,is considering a new inventory control system.The current system is inadequate because it results in stockouts that interrupt production and excess stocks of some materials that result in markdowns and high carrying costs.The new system,which will focus on forecasting demand for Sad Clown's products,will employ

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

Question 72

Bob Chum is the sales manager at Folding Squid Technologies.At lunch with the company CEO,he pulled out a ______ that showed that recent deliveries had raised inventory levels enough to meet current sales quotas.

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

Question 73

Bob Chum is the sales manager at Folding Squid Technologies.At lunch with the company CEO,he complained that a recent shipment from a vendor had been unsatisfactory and so had to be returned.That required the purchasing manager to send a _______ to the supplier.

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

Question 74

The purchasing manager at Folding Squid Technologies has responsibility for reviewing and authorizing purchase orders.Receiving reports are prepared by shipping and receiving based on the relevant purchase order(s).Purchase orders,receiving reports,and vendor invoices are reconciled by accounts payable,which authorizes payment.Which of the following would correct control weaknesses,if any,related to these activities?

A)Vendor invoices should be reviewed by the purchasing manager to ensure that they are correct.
B)Accounts payable should authorize purchase orders.
C)Receiving reports should be reviewed and corrected by the purchasing manager.
D)Controls are adequate under the current system.

Question 75

What is the EOQ approach? What are the components of EOQ?

Question 76

a)Define expenditure cycle.
b)What are the basic expenditure cycle activities?

Question 77

Bob Chum is the sales manager at Folding Squid Technologies.At lunch with the company CEO,he complained that a recent shipment from a vendor had been unsatisfactory and so had to be returned.That required the purchasing manager to request a _______ from the supplier.

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

Question 78

The management at Sad Clown Pajamas,an Internet-based wholesaler,is considering a new inventory control system.The current system is inadequate because it results in stockouts that interrupt production and excess stocks of some materials that result in markdowns and high carrying costs.The new system,which will focus on reducing or completely eliminating carrying costs,will employ

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

Question 79

Briefly discuss the differences among EOQ,MRP,and JIT.

Question 80

The best system to use when the objective is to minimize the number of checks that need to be written to pay vendor invoices is

A)a voucher system.
B)a just-in-time inventory system.
C)a nonvoucher system
D)a fail-safe system.