Chapter 05 1

Chapter 5—The Expenditure Cycle Part I: Purchases and Cash Disbursements Procedures

TRUE/FALSE
1. In non-manufacturing firms, purchasing decisions are authorized by inventory control.
-T
2. The blind copy of the purchase order that goes to the receiving department contains no item
descriptions.
-F
3. Firms that wish to improve control over cash disbursements use a voucher system.
-T
4. In a voucher system, the sum of all unpaid vouchers in the voucher register equals the firm's total
voucher payable balance.
-T
5. The accounts payable department reconciles the accounts payable subsidiary ledger to the control
account.
-F
6. The use of inventory reorder points suggests the need to obtain specific authorization.
-F
7. Proper segregation of duties requires that the responsibility approving a payment be separated from
posting to the cash disbursements journal.
-T
8. A major risk exposure in the expenditure cycle is that accounts payable may be overstated at the end of
the accounting year.
-F
9. When a trading partner agreement is in place, the traditional three way match may be eliminated.
-T
10. Authorization of purchases in a merchandising firm occurs in the inventory control department.
-T
11. A three way match involves a purchase order, a purchase requisition, and an invoice.
-F
12. Authorization for a cash disbursement occurs in the cash disbursement department upon receipt of the
supplier's invoice.
-F
13. An automated cash disbursements system can yield better cash management since payments are made
on time.
-T
14. Permitting warehouse staff to maintain the only inventory records violates separation of duties.
-T
15. A purchasing system that employs electronic data interchange does not use a purchase order.
-F
16. Inventory control should be located in the warehouse.
-F

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Chapter 05 2

17. Inspection of shipments in the receiving department would be improved if the documentation showed
the value of the inventory.
-F
18. One reason for authorizing purchases is to enable efficient inventory management.
-T
19. If accounts payable receives an invoice directly from the supplier it needs to be reconciled with the
purchase order and receiving report.
-T
20. Supervision in receiving is intended to reduce the theft of assets.
-T
21. The inventory procurement process begins with the purchasing clerk preparing a purchase order.
-F
22. The warehouse is responsible for updating the inventory subsidiary ledger.
-F
23. The receiving report is prepared by the vendor to provide evidence that the purchase order was
received.
-F
24. The accounts payable clerk is responsible for updating the AP Control accounts to reflect each vendor
liability.
-F
25. When goods are received, the receiving clerk sends copies of the receiving report to the inventory
control clerk and the AP clerk.
-T
MULTIPLE CHOICE

1. The purpose of the purchase requisition is to

a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. bill for goods delivered

2. The purpose of the receiving report is to

a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. bill for goods delivered

3. All of the following departments have a copy of the purchase order except
a. the purchasing department
b. the receiving department
c. accounts payable
d. general ledger

© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 05 3

4.The purpose of the purchase order is to

a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. approve payment for goods received

5.The open purchase order file in the purchasing department is used to determine
a. the quality of items a vendor ships
b. the best vendor for a specific item
c. the orders that have not been received
d. the quantity of items received

6. The purchase order

a. is the source document to make an entry into the accounting records
b. indicates item description, quantity, and price
c. is prepared by the inventory control department
d. is approved by the end-user department

7. The reason that a blind copy of the purchase order is sent to receiving is to
a. inform receiving when a shipment is due
b. force a count of the items delivered
c. inform receiving of the type, quantity, and price of items to be delivered
d. require that the goods delivered are inspected

8. The receiving report is used to

a. accompany physical inventories to the storeroom or warehouse
b. advise the purchasing department of the dollar value of the goods delivered
c. advise general ledger of the accounting entry to be made
d. advise the vendor that the goods arrived safely

9. When a copy of the receiving report arrives in the purchasing department, it is used to
a. adjust perpetual inventory records
b. record the physical transfer of inventory from receiving to the warehouse
c. analyze the receiving department's process
d. recognize the purchase order as closed

10. The financial value of a purchase is determined by reviewing the

a. packing slip
b. purchase requisition
c. receiving report
d. supplier's invoice

© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 05 4

11. Which document is least important in determining the financial value of a purchase?
a. purchase requisition
b. purchase order
c. receiving report
d. supplier's invoice

12. In a merchandising firm, authorization for the payment of inventory is the responsibility of
a. inventory control
b. purchasing
c. accounts payable
d. cash disbursements

13. In a merchandising firm, authorization for the purchase of inventory is the responsibility of
a. inventory control
b. purchasing
c. accounts payable
d. cash disbursements

14. When purchasing inventory, which document usually triggers the recording of a liability?
a. purchase requisition
b. purchase order
c. receiving report
d. supplier's invoice

15. Because of time delays between receiving inventory and making the journal entry
a. liabilities are usually understated
b. liabilities are usually overstated
c. liabilities are usually correctly stated
d. none of the above

16. Usually the open voucher payable file is organized by

a. vendor
b. payment due date
c. purchase order number
d. transaction date

17. Which of the following statements is not correct?

a. the voucher system is used to improve control over cash disbursements
b. the sum of the paid vouchers represents the voucher payable liability of the firm
c. the voucher system permits the firm to consolidate payments of several invoices on one
voucher

© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 05 5

d. many firms replace accounts payable with a voucher payable system

18. In the expenditure cycle, general ledger does not

a. post the journal voucher from the accounts payable department
b. post the account summary from inventory control
c. post the journal voucher from the purchasing department
d. reconcile the inventory control account with the inventory subsidiary summary

19. The documents in a voucher packet include all of the following except
a. a check
b. a purchase order
c. a receiving report
d. a supplier's invoice

20. To maintain a good credit rating and to optimize cash management, cash disbursements should arrive
at the vendor's place of business
a. as soon as possible
b. on the due date
c. on the discount date
d. by the end of the month

21. The cash disbursement clerk performs all of the following tasks except
a. reviews the supporting documents for completeness and accuracy
b. prepares checks
c. signs checks
d. marks the supporting documents paid

22. When a cash disbursement in payment of an accounts payable is recorded

a. the liability account is increased
b. the income statement is changed
c. the cash account is unchanged
d. the liability account is decreased

23. Authorization for payment of an accounts payable liability is the responsibility of

a. inventory control
b. purchasing
c. accounts payable
d. cash disbursements

© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 05 6

24. Of the following duties, it is most important to separate

a. warehouse from stores
b. warehouse from inventory control
c. accounts payable and accounts receivable
d. purchasing and accounts receivable

25. In a firm with proper segregation of duties, adequate supervision is most critical in
a. purchasing
b. receiving
c. accounts payable
d. general ledger

26. The receiving department is not responsible to

a. inspect shipments received
b. count items received from vendors
c. order goods from vendors
d. safeguard goods until they are transferred to the warehouse

27. The major risk exposures associated with the receiving department include all of the following except
a. goods are accepted without a physical count
b. there is no inspection for goods damaged in shipment
c. inventories are not secured on the receiving dock
d. the audit trail is destroyed

28. When searching for unrecorded liabilities at the end of an accounting period, the accountant would
search all of the files except
a. the purchase requisition file
b. the cash receipts file
c. the purchase order file
d. the receiving report file

29. In regards to the accounts payable department, which statement is not true?
a. the purchase requisition shows that the transaction was authorized
b. the purchase order proves that the purchase was required
c. the receiving report provides evidence of the physical receipt of the goods
d. the supplier's invoice indicates the financial value of the transaction

30. In a computerized system that uses an economic order quantity (EOQ) model and the perpetual
inventory method, who determines when to reorder inventory?
a. the inventory control clerk
b. the purchasing department

© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 05 7

c. the vendor
d. the computer system

31. Firms can expect that proper use of a valid vendor file will result in all of the following benefits except
a. purchasing agents will be discouraged from improperly ordering inventory from related
parties
b. purchases from fictitious vendors will be detected
c. the most competitive price will be obtained
d. the risk of purchasing agents receiving kickbacks and bribes will be reduced

32. In a real-time processing system with a high number of transactions, the best and most practical
control over cash disbursements is to have
a. all checks manually signed by the treasurer
b. all checks signed by check-signing equipment
c. checks over a certain dollar amount manually signed by the treasurer
d. checks over a certain dollar amount manually signed by the cash disbursements clerk

33. The document which will close the open purchase requisition file is the
a. purchase order
b. vendor invoice
c. receiving report
d. none of the above

34. Goods received are inspected and counted to

a. determine that the goods are in good condition
b. determine the quantity of goods received
c. preclude payment for goods not received or received in poor condition
d. all of the above
35. If a company uses a standard cost system, inventory records can be updated from the
a. vendor invoice
b. purchase order
c. receiving report
d. purchase requisition

36. If a company uses an actual cost system, inventory records can first be updated from the
a. vendor invoice
b. purchase order
c. receiving report
d. purchase requisition

37. Copies of a purchase order are sent to all of the following except

© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 05 8

a. inventory control
b. receiving
c. general ledger
d. accounts payable

38. The receiving report

a. is used to update the actual cost inventory ledger
b. accompanies the goods to the storeroom
c. is sent to general ledger
d. is returned to the vendor to acknowledge receipt of the goods

39. A supplier invoice

a. is included with the goods
b. shows what was ordered even if all was not shipped
c. is sent by vendor to accounts payable
d. none of the above

40. The cash disbursement function is

a. part of accounts payable
b. an independent accounting function
c. a treasury function
d. part of the general ledger department

© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.