Question 1

In the processing and recording of cash disbursements,

Accepted Answer

A)  after a check includes the signature of an authorized person, it is a liability. 
B)  when a check cashed by the vendor has cleared the bank, it is called an outstanding check. 
C)  in many cases, the company submits payment to the vendor electronically through an electronic funds transfer (EFT) between the company's bank and the vendor's bank. 
D)  the accounts payable master file is a computer-generated file that includes all cash disbursement transaction processed by the accounting system for a period.

Question 2

When assets are being verified, auditors focus much of their attention on making sure that the accounts are not overstated. Alternatively, auditors focus their efforts on understatement when auditing liabilities. What is the primary reason for this difference in focus?

Accepted Answer

A)  auditors' legal liability 
B)  GAAP 
C)  GAAS requirements 
D)  all of the above

Question 3

Auditing the acquisition and payment cycle often takes more time than any other cycle.

Accepted Answer

A) True 
 B)False

Question 4

After a check prepared for payment to a vendor includes the signature of an authorized person, the check is now a liability.

Accepted Answer

A) True 
 B)False

Question 5

A vendor invoice is normally prepared at the time tangible goods are received and indicates the description of goods, the quantity received, the date received, and other relevant data.

Accepted Answer

A) True 
 B)False

Question 6

Which one of the following duties should not be assigned to the purchasing department?

Accepted Answer

A)  finding the lowest cost vendor 
B)  reviewing vendors' catalog descriptions and prices for standardized items 
C)  designing the purchase order form 
D)  authorizing the acquisition of goods

Question 7

Smaller privately held companies may not maintain an accounts payable master file by vendor. These companies pay on the basis of

Accepted Answer

A)  vendors' monthly statements. 
B)  individual vendors' invoices. 
C)  the accounts payable account in the general ledger. 
D)  dunning letters.

Question 8

Which of the following is not an accurate statement regarding the acquisition and payment cycle?

Accepted Answer

A)  The personnel in the receiving department should be independent of the storeroom personnel. 
B)  Goods received should be physically controlled from the time of their receipt until their use or disposal. 
C)  Accounting records should transfer responsibility for the goods each time they are moved. 
D)  The accounting department should be responsible for receiving goods and preparing the receiving report.

Question 9

Which of the following accounts is not included in the acquisitions class of transactions?

Accepted Answer

A)  inventory 
B)  prepaid expenses 
C)  sales discounts 
D)  accounts payable

Question 10

List the four business functions in the acquisition and payment cycle.

Accepted Answer

The answer of List the four business functions in the...

Question 11

When auditors examine vendors' statements or receive confirmations, there must be a reconciliation of the statement or confirmation with the

Accepted Answer

A)  accounts payable list. 
B)  vendors' invoices. 
C)  purchase orders. 
D)  receiving reports.

Question 12

At what point do most companies recognize liabilities in the acquisition and payment cycle when the goods are shipped FOB destination?

Accepted Answer

A)  when the purchase order is issued 
B)  when the vendor acknowledges receipt of the order 
C)  when the goods or services are received 
D)  when the vendor invoice is received

Question 13

The auditor gets highly reliable evidence about individual transactions by examining

Accepted Answer

A)  vendors' invoices. 
B)  vendors' statements. 
C)  confirmations of accounts payable balances. 
D)  detailed inventory counting instructions.

Question 14

Checks should be prenumbered to make it easier to account for all checks.

Accepted Answer

A) True 
 B)False

Question 15

When an acquisition is on an FOB origin basis, the inventory and related accounts payable must be recorded in the current period if the goods were

Accepted Answer

A)  received prior to the balance sheet date. 
B)  shipped on or before the balance sheet date. 
C)  both shipped and received prior to the balance sheet date. 
D)  paid for in advance.

Question 16

A key internal control in the acquisition and payment cycle is someone matching the key information contained on the purchase requisition, the purchase order, the receiving report, and the vendor's invoice to the payment voucher.

Accepted Answer

A) True 
 B)False

Question 17

A company recorded an acquisition of merchandise and its related liability, but failed to include the merchandise in ending inventory. The effect on the financial statements was to

Accepted Answer

A)  understate liabilities. 
B)  understate net income. 
C)  overstate net income. 
D)  have no impact on the financial statements since the errors cancel each other out.

Question 18

Describe the methodology for designing tests of details of balances for accounts payable.

Accepted Answer

The answer of Describe the methodology for designing tests of...

Question 19

What are the three most important controls over cash disbursements?

Accepted Answer

The answer of What are the three most important controls...

Question 20

A CPA learns that his client has paid a vendor twice for the same shipment, once based upon the original invoice and once based upon the monthly statement. A control procedure that should have prevented this duplicate payment is the

Accepted Answer

A)  attachment of the receiving report to the disbursement report. 
B)  prenumbering of disbursement vouchers. 
C)  use of a limit or reasonableness test. 
D)  prenumbering of receiving reports.

Exam 18: Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

In the processing and recording of cash disbursements,

When assets are being verified, auditors focus much of their attention on making sure that the accounts are not overstated. Alternatively, auditors focus their efforts on understatement when auditing liabilities. What is the primary reason for this difference in focus?

Auditing the acquisition and payment cycle often takes more time than any other cycle.

After a check prepared for payment to a vendor includes the signature of an authorized person, the check is now a liability.

A vendor invoice is normally prepared at the time tangible goods are received and indicates the description of goods, the quantity received, the date received, and other relevant data.

Which one of the following duties should not be assigned to the purchasing department?

Smaller privately held companies may not maintain an accounts payable master file by vendor. These companies pay on the basis of

Which of the following is not an accurate statement regarding the acquisition and payment cycle?

Which of the following accounts is not included in the acquisitions class of transactions?

List the four business functions in the acquisition and payment cycle.

When auditors examine vendors' statements or receive confirmations, there must be a reconciliation of the statement or confirmation with the

At what point do most companies recognize liabilities in the acquisition and payment cycle when the goods are shipped FOB destination?

The auditor gets highly reliable evidence about individual transactions by examining

Checks should be prenumbered to make it easier to account for all checks.

When an acquisition is on an FOB origin basis, the inventory and related accounts payable must be recorded in the current period if the goods were

A key internal control in the acquisition and payment cycle is someone matching the key information contained on the purchase requisition, the purchase order, the receiving report, and the vendor's invoice to the payment voucher.

A company recorded an acquisition of merchandise and its related liability, but failed to include the merchandise in ending inventory. The effect on the financial statements was to

Describe the methodology for designing tests of details of balances for accounts payable.

What are the three most important controls over cash disbursements?

A CPA learns that his client has paid a vendor twice for the same shipment, once based upon the original invoice and once based upon the monthly statement. A control procedure that should have prevented this duplicate payment is the