Deck 2: Transaction Processing in the AIS

Question 1

As used in the American Accounting Association's definition of accounting, "measuring economic information" refers most directly to:

A) Human judgment.
B) The steps in the accounting cycle.
C) The process of bookkeeping.
D) Making journal entries.

Answer 1

C

Question 2

The American Accounting Association defined:

A) Neither accounting nor bookkeeping.
B) Both accounting and bookkeeping.
C) Accounting only.
D) Bookkeeping only.

Answer 2

D

Question 3

Which of the following statements is most true?

A) Accounting is the part of bookkeeping devoted to identifying and measuring economic information.
B) Bookkeeping is the part of accounting devoted to identifying and measuring economic information.
C) Bookkeeping is the part of accounting associated with making informed judgments.
D) Accounting is the part of bookkeeping associated with making informed judgments.

Answer 3

B

Question 4

Which of the following best distinguishes adjusting entries from closing entries?

A) Adjusting entries involve only balance sheet accounts; closing entries involve only income statement accounts.
B) Closing entries cannot be journalized using information technology, while adjusting entries can.
C) Adjusting entries happen before preparing financial statements; closing entries occur after preparing financial statements.
D) In adjusting entries, debits must equal credits; in closing entries, debits should be greater than credits.

Question 5

Which of the following is a form of internal control that ensures the ledger is balanced?

A) Financial statements.
B) Sequentially numbered source documents.
C) Trial balance.
D) Adjusted entries.

Question 6

Human judgment is important in the accounting cycle for:

A) Preparing a trial balance.
B) Recognizing recordable transactions.
C) Filling out source documents.
D) Posting transactions to the ledger.

Question 7

Which of the following steps in the accounting cycle happens only at the end of the year?

A) Prepare financial statements.
B) Close temporary accounts to retained earnings.
C) Record adjusting entries.
D) Prepare a trial balance.

Question 8

Which of the following forms of internal control eliminates the need for human judgment in the accounting information system: (i) audits, (ii) trial balances, (iii) information technology.

A) i and ii only.
B) ii and iii only.
C) i, ii and iii.
D) Neither i, ii nor iii.

Question 9

Which type of coding system helps users remember the meaning of the code?

A) Sequential.
B) Hierarchical.
C) Mnemonic.
D) Block.

Question 10

Which of the following is not a coding system for a chart of accounts?

A) Alphabetic.
B) Sequential.
C) Block.
D) Mnemonic.

Question 11

Which of the following adjusting entry types helps determine the value of fixed assets: (i) depreciation, (ii) prepaid expenses.

A) i only.
B) ii only.
C) Both i and ii.
D) Neither i nor ii.

Question 12

One difference between accounting and bookkeeping is:

A) Accounting requires human judgment, while bookkeeping does not.
B) Bookkeeping requires human judgment, but accounting does not.
C) Bookkeeping is more procedural than accounting.
D) Accounting is more procedural than bookkeeping.

Question 13

In the accounting cycle, which step immediately comes before analyzing transactions?

A) Prepare financial statements.
B) Close the temporary accounts.
C) Obtain information from source documents.
D) None-analyzing transactions is the first step in the accounting cycle.

Question 14

Common internal controls associated with source documents include: (i) sequential numbering, (ii) transaction limits, (iii) trial balance.

A) i and ii only.
B) ii and iii only.
C) i and iii only.
D) i, ii, and iii.

Question 15

Which of the following accounting cycle steps is most impacted by information technology?

A) Analyzing transactions.
B) Posting transactions to the ledger.
C) Preparing adjusting entries.
D) Designing a chart of accounts.

Question 16

Which of the following describes a difference between sequential coding and block coding?

A) Sequential coding uses letters; block coding uses numbers.
B) Block coding uses letters; sequential coding uses numbers.
C) Sequential coding cannot be used for a chart of accounts, while block coding can.
D) Individual digits and groups of digits have meaning in block coding, but not in sequential coding.

Question 17

As a form of internal control, information technology is most likely to prevent which of the following types of errors?

A) Debiting the wrong account in a journal entry.
B) Crediting the wrong account in a journal entry.
C) Posting "39" instead of "93".
D) Using human judgment inefficiently.

Question 18

Which of the following best explains "transaction limits" as an internal control?

A) Two signatures are required on all checks.
B) A bank teller needs management approval to accept deposits over $500.
C) Purchasing agents cannot complete more than six purchase orders each day.
D) Sales staff must verify a client's credit before making a sale.

Question 19

Accounting is often confused with:

A) Bookkeeping.
B) Finance.
C) Information systems.
D) Tax research.

Question 20

Interpreting accounting rules involves:

A) Understanding the accounting cycle.
B) Applying human judgment.
C) Using information technology.
D) Preparing financial statements.

Question 21

Information technology can be used in: (i) preparing financial statements, (ii) closing the accounts.

A) i only.
B) ii only.
C) Both i and ii.
D) Neither i nor ii.

Question 22

Which of the following tasks would most likely involve mnemonic coding?

A) Assigning three-letter codes to inventory items.
B) Developing a chart of accounts.
C) Numbering documents sequentially.
D) Completing the steps in the accounting cycle.

Question 23

Which of the following forms of internal control relies most heavily on human judgment?

A) Preparing a trial balance.
B) Enforcing transaction limits.
C) Numbering documents sequentially.
D) Locking a filing cabinet.

Question 24

Information technology would be least useful for:

A) Designing internal controls.
B) Eliminating human judgment.
C) Calculating depreciation.
D) Auditing.

Question 25

Human judgment is least important in:

A) Closing entries.
B) Adjusting entries.
C) Designing source documents.
D) Making journal entries.

Question 26

Which of the following is the best transaction limit for a clerk in a retail store?

A) $100.
B) $500.
C) $1,000.
D) Cannot be determined from the information given.

Question 27

Which of the following best demonstrates an "informed judgment" as the term is used in the a. American Accounting Association's definition of accounting?

A) Deciding whether to debit or credit an account.
B) Completing the steps in the accounting cycle.
C) Choosing between borrowing money and issuing capital stock.
D) Listing the elements of financial statements.

Question 28

In preparing an adjusting entry for depreciation, an accountant debited depreciation expense and credited accumulated depreciation $500. The adjusting entry means (i) the value of the equipment decreased by $500, (ii) future periods will not benefit from the use of the equipment.

A) Neither i nor ii.
B) Both i and ii.
C) i only.
D) ii only.

Question 29

RKH Corporation's net income for 2002 was $10,000. In 2003, its income was $15,000. We can therefore assume its 2004 income was:

A) Less than $20,000.
B) Exactly $20,000.
C) More than $20,000.
D) Not determinable from the information given.

Question 30

Which of the following requires the most human judgment?

A) Accounting.
B) Bookkeeping.
C) Posting.
D) Journalizing.

Question 31

Which of the following is most likely to employ sequential coding?

A) Amounts on a cash register tape.
B) Chart of accounts.
C) License plate numbers.
D) Street addresses.

Question 32

A "uniform chart of accounts" means:

A) All accounts have the same number.
B) The chart of accounts was developed without human intervention.
C) A company and its subsidiaries use the same chart of accounts.
D) The chart of accounts uses block coding.

Question 33

A company's chart of accounts is block coded and contains the following information: Accounts payable (201), Wages payable (204), Interest payable (207). The account number for "accounts receivable" is therefore likely to be:

A) 302.
B) 211.
C) 202.
D) 102.

Question 34

In RKH Corporation's chart of accounts, the account number for cash is "1.1.1," while the account number for "land" is "1.2.1." From that information, we can infer that:

A) RKH uses mnemonic coding in its chart of accounts.
B) The middle digit distinguishes current assets from long-term assets.
C) RKH employs information technology in its accounting information system.
D) No other company utilizes RKH's system for chart of accounts coding.

Question 35

RKH Corporation requires two signatures on all checks over $1,500. We can therefore assume (i) RKH will never have cash stolen; (ii) checks are sequentially numbered.

A) i only.
B) ii only.
C) Both i and ii.
D) Neither i nor ii.

Question 36

Which of the following types of adjusting entries is most likely to involve human judgment?

A) Uncollectible receivables.
B) Prepaid expenses.
C) Deferred revenues.
D) Closing entries.

Question 37

Which of the following requires the least human judgment?

A) Accounting.
B) Bookkeeping.
C) Making estimates.
D) Preparing financial statements.

Question 38

RKH Corporation reported a cash balance of $10,000 on its 12/31/2006 balance sheet. We can therefore assume:

A) The company's cash flow from operations was $10,000.
B) The company's cash flow from operations was less than $10,000.
C) The company's cash flow from operations was more than $10,000.
D) Nothing about the company's cash flow from operations.

Question 39

RKH Corporation wants to design its chart of accounts to facilitate the use of information technology in its closing entries. Which coding system should RKH use?

A) Mnemonic.
B) Block.
C) Sequential.
D) Random.

Question 40

A company purchased a three-month insurance policy for $450 on December 1. On December 31, the company should:

A) Debit prepaid insurance and credit insurance expense, $450.
B) Debit insurance expense and credit prepaid insurance, $450.
C) Debit prepaid insurance and credit insurance expense, $150.
D) Debit insurance expense and credit prepaid insurance, $150.

Question 41

Company A's chart of accounts contains the following: Cash (101), Accounts receivable (102), inventory (103), equipment (201), accounts payable (301). Company B's chart of accounts shows: Wages payable (112), Taxes payable (113), Retained earnings (114). Which of the following is true?

A) Company A uses block coding; Company B uses sequential coding.
B) Company A uses sequential coding; Company B uses hierarchical coding.
C) Both Company A and Company B use block coding.
D) Both Company A and Company B use sequential coding.

Question 42

Internal controls analysis
Dewey, Cheatam and Howe is a consulting firm in southern California. The firm employs the internal control procedures listed below as part of its operations. Place an "X" in the appropriate column to indicate whether each item listed is a strength or a weakness for the firm's internal control system.

Question 43

Internal controls revision
Consider the list of internal control weaknesses listed below. Revise each one to make it stronger.
a. Any employee in a firm can sign checks.
b. Checks from clients can be made out to the firm or any of the partners individually.
c. One of the partners deposits all credit card receipts and checks in the bank at the end of each month.
d. Signature cards, which specify who can sign checks, are re-done only when a new employee is hired.
e. The cash receipts clerk reconciles the bank statement.

Question 44

Accounting and bookkeeping comparison
Indicate whether each of the following statements applies to: (a) accounting alone, (b) bookkeeping alone, (c) both accounting and bookkeeping or (d) neither accounting nor bookkeeping.
_____ Subject to internal controls
_____ Requires analysis
_____ Primarily involves cyclical activities
_____ Involves human judgment
_____ Focuses on economic information
_____ Defined by American Accounting Association
_____ Concerned with measuring
_____ Can incorporate computers
_____ Can be principles-based
_____ Always involves information technology

Question 45

Human judgment and information technology
The text explains the importance of human judgment and information technology in the accounting information system. Indicate with an "X" in the appropriate column which of the following tasks rely primarily on human judgment and which rely primarily on information technology.

Question 46

The following scenario applies to Questions:
You're "doing the books" for a local consulting firm as part of an internship. The rest of the consultants don't have much background in accounting; they're very curious about the work you do and your college studies.
Employees in the consulting firm are paid twice a month. They track their own hours and report them via e-mail to you on the 17th for the first half of the month (i.e., on July 17 for the first half of July) and on the 2nd for the second half of the preceding month (i.e., on August 2 for the second half of July). You use Excel to compute each employee's gross pay; you then prepare paychecks using the firm's general ledger software. The senior manager signs the payroll checks and leaves them in each staff member's mailbox. Prepare a list of three internal controls you would recommend for the firm's payroll process.

Question 47

A company's adjusting entry for prepaid insurance debited insurance expense for $600. If the policy had a six-month duration, how much did it cost originally?

A) $100.
B) $600.
C) $3,600.
D) Cannot be determined from the information given.

Question 48

Chart of accounts coding
Bumble Beasley attempted to design a hierarchical chart of accounts in the following format: x.y.z. "X" stands for the type of account (1 = asset, 2= liability, etc.), while "Y" indicates whether the account is current (1) or non-current (2). If the current/non-current designation doesn't apply, "Y" is the number "zero." "Z" identifies the specific account. He developed the following account numbers:
Identify the accounts that are correctly coded.

Question 49

Which of the following is (are) facts about accounting and bookkeeping: (i) Both involve human judgment. (ii) Both require the use of information technology.

A) i only.
B) ii only.
C) Both i and ii.
D) Neither i nor ii.

Question 50

Internal controls
Sebastian's Coffee Shop makes and sells specialty coffee drinks, sandwiches and pastries. Sebastian has hired you to construct the shop's first chart of accounts; he wants to use a block coding system. Use the principles of block coding to assign account numbers to the accounts listed below.

Question 51

The following scenario applies to Questions:
You're "doing the books" for a local consulting firm as part of an internship. The rest of the consultants don't have much background in accounting; they're very curious about the work you do and your college studies.
Explain, at a conceptual level, the "accounting cycle." Outline the steps in the cycle for your co-workers; provide a brief explanation of each step.

Question 52

Accounting cycle
Explain the meaning of each of the following journal entries. The first is provided as an example.

Question 53

The following scenario applies to Questions:
You're "doing the books" for a local consulting firm as part of an internship. The rest of the consultants don't have much background in accounting; they're very curious about the work you do and your college studies.
Give two specific examples of how accounting is different from bookkeeping. Do not quote or paraphrase from the text.

Question 54

The following scenario applies to Questions:
You're "doing the books" for a local consulting firm as part of an internship. The rest of the consultants don't have much background in accounting; they're very curious about the work you do and your college studies.
List and discuss two ways human judgment and information technology impact the accounting cycle.

Question 55

Which of the following is most true when comparing the information in an income statement with the information in a statement of cash flows?

A) Information in the income statement is more useful for decisions.
B) Information in the statement of cash flows is more useful for decisions.
C) The two report the same information in different formats.
D) Both statements report information for a period of time.