Chapter 6 Overview of Transaction Processing and Financial

Reporting Systems
TRUE/FALSE
1.

Processing more transactions at a lower unit cost makes batch processing more efficient
than real-time systems.

ANS: T
2.

PTS: 1

The process of acquiring raw materials is part of the conversion cycle. ANS: F
PTS: 1

3.

Directing work-in-process through its various stages of manufacturing is part of the

conversion cycle.

ANS: T
4.

The portion of the monthly bill from a credit card company is an example of a turn- around
document.

ANS: T
5.

PTS: 1

PTS: 1

The general journal is used to record recurring transactions that are similar in nature. ANS: F
PTS: 1

6.

Document flowcharts are used to represent systems at different levels of detail. ANS: F
PTS: 1

7.

Data flow diagrams represent the physical system. ANS: F

PTS: 1

8.

System flowcharts are often used to depict processes that are handled in batches. ANS: T
PTS: 1

9.

Program flowcharts depict the type of media being used (paper, magnetic tape, or disks)
and terminals.

ANS: F
10.

System flowcharts represent the input sources, programs, and output products of a
computer system.

ANS: T
11.

PTS: 1

PTS: 1

Program flowcharts are used to describe the logic represented in system flowcharts. ANS: T
PTS: 1
12.

Batch processing systems can store data on direct access storage devices.

ANS: T
13.

PTS: 1

Backups are automatically produced in a direct access file environment. ANS: F

PTS: 1

14.

The box symbol represents a temporary file. ANS: F

PTS: 1

15.

Auditors may prepare program flowcharts to verify the correctness of program logic. ANS: T
PTS: 1

ledger.

16.

ANS: T
17.

A control account is a general ledger account which is supported by a subsidiary

PTS: 1

The most significant characteristic of direct access files is access speed. ANS: T
PTS: 1

18.

Real time processing is used for routine transactions in large numbers. ANS: F
PTS: 1

19.

Batch processing is best used when timely information is needed because this method
processes data efficiently.

ANS: F
20.

PTS: 1

An inverted triangle with the letter N represents a file in name order. ANS: F
PTS: 1

21.

Real-time processing in systems that handle large volumes of transactions each day can
create operational inefficiencies.

ANS: T
22.

Operational inefficiencies occur because accounts unique to many concurrent

transactions need to be updated in real time.

ANS: F
23.

PTS: 1

Operational inefficiencies occur because accounts common to many concurrent

transactions need to be updated in real time.

ANS: T
24.

PTS: 1

PTS: 1

Batch processing of non-critical accounts improves operational efficiency. ANS: T

PTS: 1

25.

Batch processing of accounts common to many concurrent transactions reduces

operational efficiency.

ANS: F
26.

PTS: 1

The block code is the coding scheme most appropriate for a chart of accounts. ANS: T
PTS: 1

27.

Sequential codes may be used to represent complex items or events involving two or more
pieces of related data.

ANS: F
28.

PTS: 1

Block codes restrict each class to a pre-specified range. ANS: T PTS:

1

29.

For a given field size, a system that uses alphabetic codes can represent far more situations than
a system with that uses numeric codes.

ANS: T
30.

Mnemonic codes are appropriate for items in either an ascending or descending sequence,
such as the numbering of checks or source documents.

ANS: F
31.

33.
ANS:

34.

PTS:

Individuals with access authority to general ledger accounts should not prepare journal
vouchers.
ANS:

ledger.

PTS: 1

The most common means of making entries in the general ledger is via the journal voucher.
ANS:

32.

PTS: 1

PTS:

The journal voucher is the document that authorizes entries to be made to the general
T

PTS:

Each account in the chart of accounts has a separate record in the general ledger master
file.
ANS:

PTS:

MULTIPLE CHOICE
1.

Which system is not part of the expenditure cycle?

a.
b.
c.
d.

cash disbursements
payroll
production planning/control
purchases/accounts payable

ANS: C
2.
a.
b.
c.
d.

Which system produces information used for inventory valuation, budgeting, cost control,
performance reporting, and make-buy decisions?
sales order processing
purchases/accounts payable
cash disbursements
cost accounting

ANS: D

a.
b.
c.
d.

PTS: 1

6.
In general, a special journal would not be used to record
sales
cash disbursements
depreciation
purchases

ANS: C

a.
b.
c.
d.

PTS: 1

5.
The order of the entries made in the general journal is by
date
account number
user
customer number

ANS: A

a.
b.
c.
d.

PTS: 1

4.
The order of the entries made in the ledger is by
transaction number
account number
date
user

ANS: B

a.
b.
c.
d.

PTS: 1

3.
Which of the following is a turn-around document?
remittance advice
sales order
purchase order
payroll check

ANS: A

a.
b.
c.
d.

PTS: 1

PTS: 1

7.
Which account is least likely to have a subsidiary ledger?
sales
accounts receivable
fixed assets
inventory

ANS: A
8.

PTS: 1
Subsidiary ledgers are used in manual accounting environments. What file is

comparable to a subsidiary ledger in a computerized environment?

a.
archive file
b.
reference file
c.
transaction file
d.
master file
ANS: D
9.
a.
b.
c.
d.

A journal is used in manual accounting environments. What file is comparable to a journal

in a computerized environment?
archive file
reference file
transaction file
master file

ANS: A

a.
b.
c.
d.

PTS: 1

13.
The most important purpose of a turnaround document is to
serve as a source document
inform a customer of the outstanding amount payable
provide an audit trail for the external auditor
inform the bank of electronic funds deposits

ANS: A
detail?

PTS: 1

12.
Which document is not a type of source document?
a sales order
an employee time card
a paycheck
a sales return receipt

ANS: C

a.
b.
c.
d.

PTS: 1

11.
Which of the following is an archive file?
an accounts payable subsidiary ledger
a cash receipts file
a sales journal
a file of accounts receivable that have been written off

ANS: D

a.
b.
c.
d.

PTS: 1

10.
In a computerized environment, a list of authorized suppliers would be found in the
master file
transaction file
reference file
archive file

ANS: C

a.
b.
c.
d.

PTS: 1

14.

PTS: 1
Which type of graphical documentation represents systems at different levels of

a.
b.
c.
d.

data flow diagram

document flowchart
system flowchart
program flowchart

ANS: A

a.
b.
c.
d.

15.
Data flow diagrams
depict logical tasks that are being performed, but not who is performing them
illustrate the relationship between processes, and the documents that flow between them
and trigger activities
represent relationships between key elements of the computer system
describe in detail the logic of the process

ANS: A

a.
b.
c.
d.

b.
c.
d.

PTS: 1

20.
The type of transaction most suitable for batch processing is
airline reservations
credit authorization
payroll processing
adjustments to perpetual inventory

ANS: C

a.
b.
c.

PTS: 1

19.
In contrast to a batch processing system, in a real-time system
a lag occurs between the time of the economic event and when the transaction is recorded
relatively fewer hardware, programming, and training resources are required
a lesser resource commitment per unit of output is required
processing takes place when the economic event occurs

ANS: D

a.
b.
c.
d.

PTS: 1

18.
In contrast to a real-time system, in a batch processing system
there is a lag between the time when the economic event occurs and the financial records
are updated
relatively more resources are required
a greater resource commitment per unit of output is required
processing takes place when the economic event occurs

ANS: A

a.
b.
c.
d.

PTS: 1

17.
When determining the batch size, which consideration is the least important?
achieving economies by grouping together large numbers of transactions
complying with legal mandates
providing control over the transaction process
balancing the trade off between batch size and error detection

ANS: B

a.

PTS: 1

16.
System flowcharts
depict logical tasks that are being performed, but not who is performing them
illustrate the relationship between database entities in systems.
represent relationships between key elements of both manual and computer systems.
describe the internal logic of computer applications in systems. .

ANS: C

a.
b.
c.
d.

PTS: 1

PTS: 1

21.
The type of transaction most suitable for real-time processing is
recording fixed asset purchases
recording interest earned on long-term bonds
adjusting prepaid insurance

d.

recording a sale on account

ANS: D
a.
b.
c.
d.

22.
Which step is not found in batch processing using sequential files?
control totals
sort runs
edit runs
immediate feedback of data entry errors

ANS: D
23.
a.
b.
c.
d.

PTS: 1

24.
All of the following can provide evidence of an economic event except
source document
turn-around document
master document
product document

ANS: C

a.
b.
c.
d.

PTS: 1

Both the revenue and the expenditure cycle can be viewed as having two key parts. These
are
manual and computerized
physical and financial
input and output
batch and real-time

ANS: B

a.
b.
c.
d.

PTS: 1

PTS: 1

25.
Which method of processing does not use the destructive update approach?
batch processing using direct access files
real-time processing
batch processing using sequential files
all of the above use the destructive update approach

ANS: C
26.

PTS: 1
Which symbol represents a data store?

a.
b.
c.
d.
ANS: B
27.

PTS: 1
Which symbol represents a manual operation?

a.
b.
c.
d.
ANS: D
28.
a.
b.

PTS: 1
Which symbol represents accounting records?

c.
d.
ANS: A
29.

PTS: 1
Which symbol represents a document?

a.
b.
c.
d.
ANS: B

30.

PTS: 1

Which symbol represents a magnetic tape (sequential storage device)?

a.
b.
c.
d.
ANS: D
31.

PTS: 1
Which symbol represents a decision?

a.
b.
c.
d.
ANS: A

PTS: 1

32.
a.
b.
c.
d.

The characteristics that distinguish between batch and real-time systems include all of the
following except
time frame
resources used
file format
efficiency of processing

ANS: C

a.
b.
c.
d.

33.
A file that stores data used as a standard when processing transactions is
a reference file
a master file
a transaction file
an archive file

ANS: A

a.
b.
c.
d.

PTS: 1

36.
Which accounting application is least suited to batch processing?
general ledger
vendor payments
sales order processing
payroll

ANS: C

a.
b.
c.
d.

PTS: 1

35.
Real-time processing would be most beneficial in handling a firms
fixed asset records
retained earning information
merchandise inventory
depreciation records

ANS: C

a.
b.
c.
d.

PTS: 1

34.
Sequential storage means
data is stored on tape
access is achieved through an index
access is direct
reading record 100 requires first reading records 1 to 99

ANS: D

a.
b.
c.
d.

PTS: 1

PTS: 1

37.
Which accounting application is best suited to batch processing?
general ledger
updating inventory reductions to the subsidiary ledger
sales order processing
credit checking

ANS: A

PTS: 1

a.
b.
c.
d.

38.
Operational inefficiencies occur because
accounts both common and unique to many concurrent transactions need to be updated in
real time.
accounts common to many concurrent transactions need to be updated in real time.
accounts unique to many concurrent transactions need to be updated in real time.
None of the above are true statements

ANS: B

a.
b.
c.
d.

39.
Operational efficiencies can be improved by
updating accounts both common and unique to many concurrent transactions in real time.
updating accounts both common and unique to many concurrent transactions in batch
mode.
updating accounts unique to many concurrent transactions in real time and updating
common accounts in batch mode.
None of the above are true statements

ANS: C

a.
b.
c.
d.

a.
b.
c.
d.

PTS: 1

When a firm wants its coding system to convey meaning without reference to any other
document, it would choose
an alphabetic code
a mnemonic code
a group code
a block code

ANS: B

a.
b.

PTS: 1

42.
The most important advantage of sequential coding is that
missing or unrecorded documents can be identified
the code itself lacks informational content
items cannot be inserted
deletions affect the sequence

ANS: A
43.

PTS: 1

42.
A common use for sequential coding is
creating the chart of accounts
identifying inventory items
identifying documents
identifying fixed assets

ANS: C

a.
b.
c.
d.

PTS: 1

40.
The coding scheme most appropriate for a chart of accounts is
sequential code
block code
group code
mnemonic code

ANS: B

a.
b.
c.
d.

PTS: 1

PTS: 1

44.
The most important advantage of an alphabetic code is that
meaning is readily conveyed to users
sorting is simplified

c.
d.

the capacity to represent items is increased

missing documents can be identified

ANS: C

PTS: 1

45.
Which statement is not true/
a. The journal voucher is the only source of input into the general ledger.
b. A journal voucher can be used to represent summaries of similar transactions or a
single unique transaction.
c. Journal vouchers are not used to make adjusting entries and closing entries in the
general ledger.
d.
Journal vouchers offer a degree of control against unauthorized general ledger entries.
ANS: C

a.
b.
c.
d.

46.
Entries into the General Ledger System (GLS) can be made using information from
the general journal
a journal voucher which represents a summary of similar transactions
a journal voucher which represents a single, unusual transaction
all of the above

ANS: D

a.
b.
c.
d.

b.
c.
d.

PTS: 1

49.
Which report is not an output of the Financial Reporting System (FRS)?
variance analysis report
statement of cash flows
tax return
comparative balance sheet

ANS: A

a.

PTS: 1

48.
What type of data is found in the general ledger master file?
a chronological record of all transactions
the balance of each account in the chart of accounts
budget records for each account in the chart of accounts
subsidiary details supporting a control account

ANS: B

a.
b.
c.
d.

PTS: 1

47.
Which statement is not correct? The general ledger master file
is based on the firms chart of account
contains a record for control accounts
is an output of the Financial Reporting System (FRS)
supplies information for management decision making

ANS: C

a.
b.
c.
d.

PTS: 1

PTS: 1

50.
Which steps in the Financial Accounting Process are in the correct sequence?
record the transaction, post to the ledger, prepare the adjusted trial balance, enter adjusting
entries, prepare financial statements
record the transaction, prepare the unadjusted trial balance, record adjusting journal entries,
record closing entries, prepare financial statements
record the transaction, post to the ledger, record adjusting entries, prepare the unadjusted
trial balance, prepare financial statements
record the transaction, post to the ledger, prepare the adjusted trial balance, prepare
financial statements, record closing entries

ANS: D
a.
b.
c.
d.

51.
Which statement is not correct?
the post-closing trial balance reports the ending balance of each account in the general
ledger
one purpose of preparing the unadjusted trial balance is to ensure that debits equal credits
financial statements are prepared based on the unadjusted trial balance
the unadjusted trial balance reports control account balances but omits subsidiary ledger
detail

ANS: C

a.
b.
c.
d.

a.
b.
c.
d.

a.
b.
c.
d.

a.
b.
c.
d.

PTS: 1

Which situation indicates an internal control risk in the General Ledger/Financial

Reporting Systems (GL/FRS)?
the employee who maintains the cash journal computes depreciation expense
the cash receipts journal voucher is approved by the Treasurer
the cash receipts journal vouchers are prenumbered and stored in a locked safe
the employee who maintains the cash receipts journal records transactions in the accounts
receivable subsidiary ledger

ANS: D
56.

PTS: 1

Risk exposures in the General Ledger and Financial Reporting Systems include all of the
following except
loss of the audit trail
unauthorized access to the general ledger
loss of physical assets
general ledger account out of balance with the subsidiary account

ANS: C
55.

PTS: 1

53.
Financial statements are prepared from the
trial balance
adjusted trial balance
general ledger
general journal

ANS: B
54.

PTS: 1

52.
What account appears on the post closing trial balance?
income summary
machinery
rent expense
interest income

ANS: B

a.
b.
c.
d.

PTS: 1

PTS: 1

With a limited work force and a desire to maintain strong internal control, which
combination of duties performed by a single individual presents the least risk exposure?
maintaining the inventory ledger and recording the inventory journal voucher in the general
ledger
recording the inventory journal voucher in the general ledger and maintaining custody of
inventory
maintaining the cash disbursements journal and recording direct labor costs applied to
specific jobs
preparing the accounts payable journal voucher and recording it in the general ledger

a.
b.
c.
d.
e.

57.
XBRL
is the basic protocol that permits communication between Internet sites.
controls Web browsers that access the Web.
is the document format used to produce Web pages.
was designed to provide the financial community with a standardized method for preparing
is a low-level encryption scheme used to secure transmissions in higher-level (HTTP)
format.

ANS: D

a.
b.
c.
d.
e.

PTS: 1

58.
An XBRL taxonomy:
is the document format used to produce web pages.
is the final product (report).
is a classification scheme.
is a tag stored in each database record.
none of the above is true.

ANS: C

PTS: 1