Deck 10: The Purchasing Process

Question 1

What is a common flow of data in the purchasing process?

A) Sales order processing, shipping, invoicing, and receiving cash
B) Receiving inventory, storing inventory, and shipping inventory
C) Ordering goods, receiving, invoicing, and disbursing cash
D) Ordering goods, shipping, and disbursing cash

Answer 1

C

Question 2

Which of the following is true about retainages?

A) Most organizations, with the exception of construction contractors, must have retainages.
B) Most organizations have this feature in its payables module.
C) Retainages are more applicable to payables than to receivables.
D) Retainages provide additional assurance that an agreed upon task will be completed.

Answer 2

D

Question 3

An organization must have a regular schedule for making payments of invoices. Which are criteria for selection of invoices for payment?

A) Select all invoices coming due on or before a specified date
B) Select all invoices with a specified vendor
C) All of the above
D) None of the above

Answer 3

C

Question 4

When is purchasing initiated?

A) When inventory records indicate that the quantity on hand has reached the average order size
B) When an order has been placed with the vendor
C) When a manager authorizes a purchase requisition and forwards it to the purchasing department
D) When a manager approves a purchase order

Question 5

"Resources" in the purchasing process refer to what?

A) To tangible goods and to intangible services
B) To tangible and intangible goods and to services
C) To intangible goods and to tangible services
D) To intangible goods and to services

Question 6

Where is there rarely a deficiency in the audit trail between?

A) Purchases journal and cash disbursements
B) Purchases journal and vendor accounts
C) Vendor accounts and cash disbursements
D) Cash disbursements and vendor accounts

Question 7

Which of the following are principal reports required for effective management of the purchasing process?

A) Vendor performance; outstanding purchase orders
B) Vendor invoices; discounts lost
C) All of the above
D) B only

Question 8

What are alternative names for the purchasing process?

A) Expenditure, receiving, procurement
B) Receiving, expenditure, acquisition
C) Ordering, receiving, procurement
D) Expenditure, procurement, acquisition

Question 9

Where are purchase order data stored?

A) Completed purchase order file
B) Open invoice file
C) Inventory order file
D) Open purchase order file

Question 10

Why are audit trails for the purchasing process somewhat more complicated than those for the revenue process?

A) The revenue process involves the revenue recognition principle.
B) The purchasing process usually includes only a single journal entry and, therefore, provides inadequate support.
C) The purchasing process may involve two journal entries often made at difference times.
D) The revenue process is vulnerable to errors when posting from the cash receipts journal.

Question 11

What is the most voluminous task in the purchasing process?

A) Accounts payable data entry
B) Purchase order data entry
C) Cash payments data entry
D) Receiving data entry

Question 12

What is a unique aspect of vendor maintenance?

A) Add a new vendor
B) 1099 tasks
C) Deactivate a vendor
D) Tax Form 1099

Question 13

Which of the following is not correct with regard to goods and services?

A) Goods and services do not include services provided by the organization's employees as these are not external goods or services.
B) Goods and services are purchased to meet an organization's needs.
C) In recent years, considerable debate has brewed over how much competition organizations should foster among their vendors.
D) While organizations commonly use only one accounting firm, they have traditionally dealt with larger numbers of raw materials and merchandise vendors.

Question 14

Which is an example of an acquired good?

A) Patents and janitorial services
B) Computer programs and consultants
C) Fixed assets and raw materials
D) Catering company and accounting firms

Question 15

Which of the following initiates a bidding situation among suppliers?

A) Request for quotation; request for proposal
B) Request for bid response; request for quotation
C) Request for deliverables; request for quotation
D) Request for proposal; request for bid response

Question 16

What are the two major data entry processes?

A) Creation and issuance of purchase orders; recording of cash disbursements
B) Creation and issuance of purchase orders; recording of merchandise received and services rendered
C) Recording of merchandise received and services rendered; recording of cash disbursements
D) Creation and issuance of purchase orders; recording of accounts payable

Question 17

What should disbursement records include?

A) Date, name of payee, amount of check, and description of good or service
B) Date, name of payee, amount of check, and vendor's invoice number
C) Date, name and number of payee, amount of check and vendor's invoice number
D) Date, name of payee, amount, description of good or service, and vendor's invoice number

Question 18

Which of the following statements is false?

A) Payment for goods and services typically makes the largest demand on an organization's cash.
B) Most commonly, after a purchase order has been approved, a manager will then deal with vendors directly.
C) The order for goods and services has traditionally been in the form of a paper purchase order that is mailed to a vendor.
D) Purchasing personnel are responsible for periodically reviewing the file records and following up on unfilled orders.

Question 19

Which of the following statements is true?

A) Petty cash limits tend to smaller in small organizations and higher in larger organizations.
B) Actual disbursement of cash is the responsibility of the accounts payable department.
C) Cash disbursements to a vendor may not be made from petty cash.
D) It is not wise to "net out" a payable to and a receivable from a trading partner.

Question 20

Why is the automatic distribution entry useful in the accounts payable module?

A) An invoice must be channeled through several check points before approval for payment is made.
B) There are many invoices that run through an organization's accounts payable cycle.
C) Any manager can pull up invoices in the form of exception or periodic reports to determine any "red flags."
D) It permits the specification of a master account to which entries will be made.

Question 21

What documents the receipt of goods?

A) Receipt verification
B) Ticket
C) Purchase validation
D) Invoice

Question 22

Which of the following is effected through the Purchase Order module?

A) Issuance of purchase orders
B) Monitoring of outstanding purchase orders
C) Reporting on outstanding purchase orders
D) All of the above

Question 23

Which of the following describes the best physical control(s) over cash disbursements?

A) All disbursements to vendors over $50 are made with prenumbered checks.
B) Cash can be disbursed to vendors when approved by the purchasing manager.
C) Access to inventory is limited to authorized personnel only.
D) All of the above are good physical controls over cash disbursements.

Question 24

Which of the following is TRUE regarding the segregation of duties in the purchasing process?

A) The authority to approve disbursement vouchers should be separate from the authority to sign checks.
B) Segregation of computerized functions can be attained through the use of passwords, file/record locks, and designated terminal access.
C) The password system allows a receiving clerk to read, but not write to, an open purchase order.
D) All of the above are true regarding the segregation of duties in the purchasing process.

Question 25

Which of the following modules would you expect to find in the purchasing function?

A) Sales Order Processing, Accounts Payable, Vendor Invoicing, Disbursements.
B) Purchase Order Processing, Accounts Receivable, Receiving, Vendor Invoicing.
C) Purchase Order Processing, Accounts Payable, Vendor Invoicing, Disbursements.
D) Sales Order Processing, Accounts Payable, Vendor Invoicing, Receiving, Cash Receipts.

Question 26

Which of the following control activities ensure that the hours worked by a contractor are valid?

A) The contractor provides a weekly printout of time charged per job from his company's system.
B) All employee time should be positive and bear a reasonable relationship to the standard 40-hour work week.
C) Claims for large hours or excessive wage rates are reviewed quarterly by the Vice President of Human Resources.
D) The contracting office provides the names and tax identification numbers of all contractors prior to the processing of payroll.

Question 27

Which of the following is false regarding the accounts payable module?

A) Single checks issued by a company are referred to as manual checks.
B) A batch of checks may be posted after a proof list is prepared.
C) Printing batches of checks is an efficient way of issuing checks.
D) Posting may be invoked several times a day.

Question 28

Which of the following represent batch controls for the processing of purchase orders?

A) Control totals.
B) Record counts.
C) Hash totals.
D) All of the above are batch controls that would be used in the processing of purchase orders.

Question 29

Which of the following are the principal reports required for the effective management of the purchasing process?

A) Vendor performance.
B) Outstanding sales orders.
C) Discounts taken.
D) All of the above.

Question 30

What are listings of the cash disbursements transaction file are referred to?

A) Accounts payable master file
B) Check register
C) Invoice register
D) Vendor master file

Question 31

When do disbursement activities begin?

A) Upon receipt of goods
B) After validation of receipt of goods
C) Upon approval of the invoice
D) After data has been keyed into the open invoice file

Question 32

After an organization compares the vendor invoice with the purchase order data and the receiving data, the invoice data are then keyed into which file?

A) Open purchase order file.
B) Open vendor invoice file.
C) Open accounts transaction file.
D) Open customer invoice file.

Question 33

Which of the following is NOT a reason why a company would be motivated to use an EDI system for purchase orders?

A) With an EDI system, purchase orders can be sent through the computer to a vendor.
B) An EDI system is inexpensive to purchase and easy to implement.
C) EDI systems reduce the possibility of human data entry error.
D) With the computerized EDI system, there is less paperwork involved.

Question 34

What are two major data entry processes (think of the processes that require the most entry items per transaction)?

A) Creation and issuance of purchase orders; recording of cash disbursements.
B) Creation and issuance of purchase orders; recording of merchandise received and services rendered.
C) Recording of merchandise received and services rendered; recording of cash disbursements.
D) Creation and issuance of purchase orders; recording of accounts payable.

Question 35

Recording a payable after the invoice is matched with other documents requires which journal entry?

A) Debit to cash; credit to accounts payable
B) Debit to accounts payable; credit to unbilled payables
C) Debit to unbilled payables; credit to cash
D) Debit to unbilled payables; credit to accounts payable

Question 36

What is a major source of purchasing errors?

A) Data entry errors
B) Not setting budgets for managers
C) Not validating the purchase order
D) EDI errors

Question 37

After an organization compares the vendor invoice with the purchase order data and the receiving data, the invoice data are then keyed into what file?

A) Purchase order file
B) Open invoice file
C) Accounts payable file
D) Receiving transaction file

Question 38

When is a cash requirements forecast prepared?

A) After invoices have been approved for payment
B) After a schedule of aged accounts payable has been prepared
C) Before a schedule of aged accounts payable has been prepared
D) At regular intervals

Question 39

What has replaced the traditional paper purchase order?

A) Electronic Data Exchange
B) Facsimile
C) Optical scanners
D) Graphical user interfaces

Question 40

Which of the following are actions that result from the receipt of a properly authorized purchase requisition?

A) Issuance of a purchase order.
B) Adding the record to the open purchase order file.
C) Both a and b.
D) Neither a nor b.

Question 41

While a budget is important for planning and control, it does not have any special purpose in the purchasing process.

Question 42

Which of the following is/are the principal report(s) required for the effective management of the purchasing process?

A) Vendor performance.
B) Outstanding sales orders.
C) Discounts taken.
D) All of the above.

Question 43

Petty cash limits often tend to be higher in small organizations than they are in large, well-run organizations.

Question 44

The delivery of goods or provision of contracted services places the organization under an obligation to pay the vendor.

Question 45

Competitive bidding is a relatively uncomplicated procedure in that the lowest priced bidder that can meet the needs of the organization will be accepted.

Question 46

In most accounting information systems, the purchasing function is represented by two modules: purchase order and receiving, sometimes referred to as the vendor module.

Question 47

Two reports that are helpful to management in selecting invoices to pay are the cash requirements forecast and the schedule of aged accounts payable.

Question 48

The following actions are associated with which of the following triggers in the purchasing process:

A) Associate/match purchase order, receiving report, vendor invoice.
B) Add to open vendor invoice file.
C) Update vendor master file.
D) Receipt of goods.
E) Shipment to customer. F. Arrival of due date for payment.
G) None of the above.

Question 49

Which of the following is NOT a reason why a company would be motivated to use an EDI system for purchase orders?

A) With an EDI system, purchase orders can be sent through the computer to a vendor.
B) An EDI system is inexpensive to purchase and easy to implement.
C) EDI systems reduce the possibility of human data entry error.
D) With the computerized EDI system, there is less paperwork involved.

Question 50

A listing of the cash disbursements transactions file is referred to as the cash disbursements journal, or check register.

Question 51

Because purchase orders are not completed transactions, they do not need to be stored in a file.

Question 52

Providing managers with budgets delegates authority to managers to spend up to a prescribed ceiling on goods and services related to their assigned responsibilities.

Question 53

After an organization compares the vendor invoice with the purchase order data and the receiving data, the invoice data are then keyed into which file?

A) Open purchase order file.
B) Open vendor invoice file.
C) Open accounts transaction file.
D) Open customer invoice file.

Question 54

An organization should compare the vendor's invoice with the purchase order data and the open invoice file.

Question 55

Which of the following actions result from the disbursement of cash for payment in the purchasing process?

A) Creation of the vendor invoice file.
B) Creation of a new record in the cash disbursement file.
C) Closing of the open sales order file record.
D) Closing of the receiving transaction file record.

Question 56

Warehouse personnel are responsible for periodically reviewing the open purchase order file and following up on unfilled orders.

Question 57

An organization is not under an obligation to pay a vendor until the organization receives the vendor's invoice.

Question 58

The purchasing process normally includes purchase order processing, receiving, and accounts payable.

Question 59

Rarely is there a deficiency in the audit trail between the cash disbursements journal and the vendor accounts since the check number is ordinarily used as a posting reference.

Question 60

Financial planners want an aging that monitors the expected timeliness of delivery while purchasing officers desire an aging that estimates future cash requirements.

Question 61

List three of the four efficiency features for data entry AND give examples of each..

Question 62

What are some of the key reports required for effective management of the purchasing process?

Question 63

For a purchase order system to be effective, it must be a real-time system.

Question 64

In most AISs, the purchasing function is represented by two modules-purchase order and accounts receivable.

Question 65

What is the purpose of the unbilled payables account in the purchasing process and when it is debited and credited?

Question 66

What are the advantages of EDI over paper purchase orders?

Question 67

Discuss two of the risks associated with the procurement of vendor goods and services.

Question 68

List two reports generated by the purchasing process and indicate what they are used for.

Question 69

Invoices for received items not yet paid are stored in the purchases transaction file.

Question 70

Cash disbursements to vendors are recorded in the cash disbursements transaction file which is then used to update the open vendor invoice file and the vendor master file.

Question 71

The addition of a new vendor is handled in the vendor account maintenance function of the purchase order module.

Question 72

Retainages are commonly required for construction contractors.

Question 73

Define and explain the purpose of retainages.

Question 74

The most common deficiency in audit trails in the purchasing process is postings from the cash disbursements transaction file.

Question 75

Identify and describe the two data entry points for the purchasing process that attention must be focused on.

Question 76

The use of prenumbered checks is an effective preventive control in the purchasing process.

Question 77

Define electronic data interchange (EDI). List 3 of the advantages of implementing an EDI system.

Question 78

Describe some factors which may complicate competitive bidding.

Question 79

List and explain the activities in the purchasing process.

Question 80

Identify and describe at least three principal reports required for effective management of the purchasing process.