Chapter 10 - Purchasing and Payments Processes

For good internal control, which of the following duties can be performed by the same individual? a) approve purchase orders b) negotiate terms with suppliers c) reconcile the organization's bank account d) approve supplier invoices for payment e) cancel supporting documents in the voucher package f) sign checks g) mail checks h) request inventory to be purchase i) inspect quantity and quality of inventory received

(1) The person who approves purchase orders should be in the purchasing function, which is also the function with the knowledge and skill to negotiate terms with suppliers. - However, the same person should not both initiate and approve purchases. (2) The cashier should sign checks, cancel the supporting documents before returning them to A/P, and mail the checks. However, the person performing these three duties should not also reconcile the bank account nor should that person approve payment of supplier invoices.

What are the benefits of an automated integrated system? (3)

1) Reduces the risk of error and fraud 2) speeds up processes 3) leaves an electronic audit trail for accountability

Cash is highly susceptible to fraud. Controls that address risks related to payments include: (list at least 3)

1) Segregate responsibility for receiving goods, purchasing goods, overseeing accounts payable, disbursing payments, reconciling bank statements, and reconciling the Subsidiary Ledger to the control account 2) Independently reconcile bank statements 3) Maintain a traceable audit trail for all payments 4) Do not allow checks to be made payable to "Cash" or "Bearer" 5) Check supplier invoices for accuracy by comparing them to purchase orders 6) Use only original invoices and authorized electronic invoices for payments—never duplicates 7) Base payments only on purchase orders and not vendor invoices, which are used for reconciliation only

What is a Purchase Order (PO)?

A document sent from a buyer to a vendor to request items for purchase. - As a control PO must be approved

What is a Split Purchase Orders?

A fraud where employees may use to intentionally separate a single purchase into two or more purchase orders to stay within a single purchase authorization limit. e.g if the purchaser is only authorized to purchase up to $1,000, an $1,800 purchase may be split into two purchase orders—one for $1,000 and one for $800—to circumvent the purchase limit.

What are Main Vendor Table?

A list of all approved vendors the company does with business with - all vendors undergo screening and validation before being added to the main vendor table

What is the Remittance Advice?

A notice that shows the invoices included in the payment to the vendor

What is the Inventory Management?

A process that coordinates the communicates: a) inventory availability b) needs across the purchasing c) conversion, and sales processes

What are Invoices?

A summary of invoices based on status (overdue, paid, open) and aging

What is Vendor Aging Report?

A summary of outstanding accounts payable by vendor and separated into buckets based on the number of days outstanding

What is Purchases by Vendor?

A summary of purchases by vendor over a specific period of time to look for unusual activity

Which ledger accounts are impacted when payment is made to a vendor?

Accounts payable/cash

Which of the following business activities in Purchasing and Payments DO NOT require an exchange of economic resources and recording of accounting transactions: a) Purchasing and receiving raw materials, merchandise b) Negotiating contracts and payment terms with vendors c) Returning goods or negotiating allowances

Correct --> B Negotiating contracts and payment terms with vendors. These require accounting transaction: a) Purchasing and receiving raw materials, merchandise inventory, other goods, fixed assets, and services (Dr. Asset or Expense, Cr. Accounts Payable) b) Paying for these purchases (Dr. Accounts Payable, Cr. Cash) c) Returning goods or negotiating allowances (Dr. Accounts Payable, Cr. Asset or Expense)

What are Capital Expenditures (CAPEX)?

Cost of acquiring fixed assets

What account is used to track the consumption of a fixed asset during a reporting period? a. Depreciation b. Accounts receivable c. Equity d. Cash

Depreciation

What is a Receiving Report?

Electronic data input that shows the descriptions and quantities of goods received from vendors

What does the Accounts Payable department do?

Employees enter vendor invoices into the system upon receipt

What is a purchase requisition? a. Legal contract to purchase goods from a vendor b. Request for payment to a vendor c. Request for the purchase of goods d. Document that opens a purchase order electronically

a) When the Inventory Control department needs more raw material b) An internal request to obtain goods from an authorized source, and sends it to the purchasing department --> Request for the purchase of goods

Upon receiving voucher package from A/P the cashier will pay (4)

a) by check b) electronic fund transfer (EFT) c) FEDI (Financial Electronic Data Interchange) d) petty check

Inaccurate inventory are caused by: (2)

a) inventory theft and damage b) failure to record inventory or movements

Journal entry for receiving goods what are risks?

a) late order b) amount c) quality d) wrong purchase order

Risks and controls for Cash disbursement?

a) make vendor payment accurate amount and address b) SOD of only cashier only having access to payment

Input controls such as field check, validity check, limit check, and reasonableness check are useful in IT systems of purchasing processes to lessen what of the following risks? a. repudiation of purchase transactions b. Virus and worm attacks c. invalid data entered by vendors d. Unauthorized access

Invalid data entered by vendors

Journal entry for receiving goods?

Inventory (debit) Temporary account (credit)--> goods inventory/inventory received * The only department that approves account payable --> A/P department for SOD reasons

Julia's Cookies, the inventory control department must ensure there are adequate raw materials, such as baking ingredients and product packaging, at the company's regional factories and warehouses to meet customer demand. What Department of the Purchasing process is this?

Inventory Control

What is the main result of insufficient inventory and finished goods? a. Spoilage issues b. Inaccurate inventory records c. Loss of revenue and cash flow d. Decreased production

Loss of revenue and cash flow

What does the Inventory Control Department manage?

a) manages inventory and is responsible for ensuring that there is an optimal amount of inventory on hand

What are the Payment Processes (cash disbursements) involve?

a) paying for acquisitions made in the purchasing processes

What is the goal of Supply Chain Management?

a) produce and distribute a product or service b) effectively supply goods and services at the lowest cost c) provide the highest value to the customer

A three way match between what 3 source documents serve as a control before payments are issued to a vendor?

a) purchase order b) Receiving report c) vendor invoice

What are the processes in the procurement and payment cycle?

a) purchasing department starts. b) place order c) receiving

Journal entry for receiving goods what are mitigation?

a) receiving report b) recount

What is a Packing Slip?

a) supplier delivers a document listing the quantity and description of each item included in a shipment

What Work-in process?

Products that are in the process of being manufactured

What is Finished Goods?

Products that are ready to ship to customers

What are Source Documents?

Provide documentation of a transaction, such as a receipt, bill, or invoice, and may be electronic or paper documents, depending on the sophistication of the system.

Within the purchasing processes, which of the following is the first document prepared and thereby the one that triggers the remaining purchasing process? a. The purchase order b. The invoice c. The receiving report d. The purchase requisition

Purchase Requisition

The data created and stored in the database during the ____________ purchasing process includes vendor ID, name, address, telephone number, email address, tax identification number (TIN), purchase order number, receiving report number, asset description, date received, ready-for-use date, cost, tag number, and location. a. inventory b. raw materials c. fixed assets d. intangible assets

Raw materials

What does the Cash Flow Statement report?

a) the impact of increases and decreases to cash over the reporting period b) separating transactions into net cash inflow or outflow from operating activities, investing activities, and financial activities

Which of the given departments will immediately adjust the vendor account for each purchase transaction so that the company will know the correct amount owed to the vendor? a. purchasing b. accounts payable c. receiving d. shipping

accounts payable

Internal control is strengthened by the use of a blind purchase order, upon which the quantity of goods ordered is intentionally left blank. This blind copy is used in which department?: a. The receiving department b. The accounts payable department c. The purchasing department d. The department that initiated the purchase request

Receiving Department

To determine whether accounts payable are complete an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all a. canceled checks b. receiving reports c. vendors' invoices d. purchase orders

Receiving Reports

Which part of the inventory purchasing process involves the receiving department? a. Receiving inventory b. Ordering inventory c. Determining inventory to order d. Paying for inventory

Receiving inventory

Process 2: Place order. Do you make journal entry?

Record purchase journal but not accounting journal

What is the Expenditure Cycle?

Recurring set of business activities and related information processing operations associated with the purchase of and payment for goods or services

What business activity must occur when a request is received for the purchase of unnecessary supplies? a. Reject the purchase order b. Tell the vendor not to ship the supplies c. Prepare the purchase requisition d. Reject the purchase requisition

Reject the purchase requisition

What is the Information Flows of inventory?

Require information technologies that allow supply chain participants to coordinate their activities and control the daily flow of goods and materials along the supply chain

What should management consider for each control activity? a. Time to implement b. Number of people to perform the activity c. Risk and cost versus benefit d. Profitability

Risk and cost versus benefit

When a machine in the factory is tagged for future identification purposes, which record is updated? a. Accounts Payable Subsidiary Ledger b. Machinery ledger account c. Cash ledger account d. Fixed Asset Subsidiary Ledger

d. Fixed Asset Subsidiary Ledger

The document prepared when purchased items are returned is a(n) a. sales journal. b. invoice. c. receiving report. d. debit memo.

debit memo

What does stage 2 of fixed asset acquisition process - Receiving and Tagging Fixed Assets entail?

Routine purchases of fixed assets, such as equipment and furniture 1. The fixed asset is inspected in receiving. 2. A receiving report is prepared. 3. The fixed asset is delivered to the requesting department for installation and/or use. 4. Fixed assets are tagged for future identification purposes.

Requiring a regular reconciliation of the bank account by someone other than the person responsible for writing checks. What is the control purpose?

Sets SOD to prevent unauthorized disbursements

What does stage 3 of fixed asset acquisition process - Recording Fixed Assets entail?

The accounting for a fixed asset occurs when the asset is recorded (Stage 3)

What is Purchasing?

The acquisition of resources, including raw materials

What does stage 1 of fixed asset acquisition process - Fixed Asset Procurement entail?

The department that uses a particular fixed asset generally initiates the purchasing process with a purchase requisition.

The Purchasing department is one of the departments involved in the purchasing process. What's it main role?

The electronic purchase requisition go to the Purchasing department, represented by a purchasing agent at a regional facility

Requiring that a copy of the receiving report be routed through the inventory stores department prior to going to accounts payable. What is control purpose?

Verifies that items received were placed in inventory were not taken

What is an example of the greatest fraud risks in the payment process?

When an employee creates a fictitious vendor and sending fraudulent payments to bank accounts the employee controls

What is the transformation of the Purchase Requisition (internal document) to _________ (external document) What does it do?

a) Purchase Order (PO) b) used to request a supplier to sell and deliver the products in the quantities and for the prices specified in the purchase order

Purchasing and Payment processes leverage what 5 ERP system features?

a) Purchasing b) Shipping/Receiving c) Inventory d) Accounts payable e) Fixed asset

What are controls for: Unrecorded payments may result in duplicate payments to vendors or misstatement of financial statements by overstating cash and accounts payable.

a) Report missing numbers in a sequence of prenumbered checks or EFT's for investigation and resolution b) Compare the total of the authorized vouchers submitted for payment to the total in the cash disbursements journal for a specific period

What is the 2 way match?

a) Send purchase order to supplier - purchase order b) Receive goods and fill out receiving report - Receiving report

What are controls for: Paying invoices twice may result in overpayments to vendors.

a) Tag or cancel vendor invoice, payment voucher, and supporting documentation to prevent reuse

What is a Purchase Requisition?

a) When the Inventory Control department needs more raw material b) An internal request to obtain goods from an authorized source, and sends it to the purchasing department

In a system of proper internal controls, the same employee should NOT be allowed to a. receive goods and prepare the related receiving report. b. initiate purchase requisitions and inspect goods received. c. sign checks and cancel the supporting voucher package. d. prepare voucher packages and sign checks.

prepare voucher packages and sign checks

Which of the 4 departments directly tied with the Purchasing Process includes both: a) Receiving Report b) Discrepancy Report

the Receiving Department

Where are payments first recorded in the AIS?

Cash disbursements journal

What is the Fixed Asset Subsidiary Ledger? what details does it show (5)

* Part of Stage 4 of Fixed Asset Reconciliation Shows details for each fixed asset: a) Date of purchase b) Historical cost c) Accumulated depreciation d) Net book value

What are Fixed Asset Ratios?

- Calculating ratios such as the rate of return on assets and the fixed asset turnover ratio - measures unusual activity or performance

What is a debit memo?

- authorizes to accounts payable, not to pay - prepared for purchase returns (e.g damaged goods or poor quality goods) - issued after the supplier agrees to take back the goods or grant a price reduction decreases (debits) accounts payable and increases (credits) an account named purchases returns and allowances

Which internal control procedure(s) would be cost-effective in dealing with the following expenditure cycle Risks? a) petty cash custodian confesses to having "borrowed $12k over the last 5 years

- conduct periodic surprise counts of petty cash on hand to verify that the total of cash plus receipts equals the fund amount

Risks in Receiving and internal control plans?

1) Accepting unordered items - requiring approved PO before accepting any delivery 2) mistakes in counting - distribute blind PO to receiving - Bar coding or RFID - require receiving clerk to sign RR - Provide incentive for accurate counting 3) Failure to verify receipt of services - audit - budgetary control 4) Theft in inventory - physical access controls - document all transfers - SOD - receiving and warehouse

What is Bid Rigging (2 ways)

1) An employee colludes with a vendor to fraudulently obtain a contract meant to be subject to a competitive bidding process - illegally obtained information from employee, often in a kickback arrangement, the vendor wins the bidding process 2) Vendors collude with one another and reach advance agreement about which vendor will be winning bidder for a particular contract. - the winning bidder agrees to compensate the other vendors in some manner for intentionally losing the contract

What are the 2 primary methods of paying for purchases?

1) Cash payments 2) Credit

For good internal control, which of the following duties can be performed by the same individual? a) approve purchase orders b) negotiate terms with suppliers c) reconcile the organization's bank account d) approve supplier invoices for payment e) cancel supporting documents in the voucher package f) sign checks g) mail checks h) request inventory to be purchase i) inspect quantity and quality of inventory received

1) Cashier a) cancel supporting documents b) sign checks c) mail checks 2) .... a) approve purchase orders b) negotiate terms with suppliers

What 3 steps are used by receiving employees to reconcile the received products to the purchase order?

1) Check condition of shipment 2) Count quantities received 3) Input data online

What are the 2 steps when making the accounting entry to record the acquisition of fixed assets?

1) Debit the asset account with the purchase price plus all expenditures related to transporting the item and getting it ready for use at the desired location 2) Credit cash, accounts payable and or loan payable

What are the Procurement Process Steps? (5) **Going to be on TEST**

1) Determine need 2) Place order 3) Receive goods - receiving department has PO 4) Approve vendor invoices - accounts payable needs to have receiving report * This step at the minimum would be a control 5) Pay Vendor Invoice

Requirement Determination Process algorithm to determine needs:

1) EOQ - minimize cost of (ordering+carrying+stockout) 2) MRP - reduce required inventory level by improving the accuracy of forecasting techniques to better schedule purchases to satisfy production needs 3) JIT - minimize finished goods inventory by purchasing and producing only in response to actual sales

What are 3 main issues that result in HIGH inventory of raw materials and finished goods

1) Excessive expenses and reduced profits as a result of warehouse space, labor costs, insurance costs and other expenses 2) Potential spoilage or obsolescence and reduced profits 3) Reduced cash flow since excess inventory has been paid for but receipt of revenue is delayed

What are the 4 steps of the Fixed Asset Acquisitions process?

1) Fixed Asset Procurement 2) Receiving and Tagging Fixed Assets 3) Recording Fixed Assets 4) Fixed Asset Reconciliation

What should Vendors NOT be: (list at least 3)

1) Foreign officials 2) Politically exposed 3) On a government watch list 4) In violation of the Foreign Corruption Practices Act (FCPA)

What are the 4 departments in a company that is directly involved in the purchasing process?

1) Inventory Control 2) Purchasing 3) Receiving 4) Accounts Payable

What are the Source documents for the 5 high-level business activities in inventory purchasing?

1) Inventory Control -SD: Purchase requisition 2) Purchasing-Vendor Selection and Management -SD: Pricing quote 3) Purchasing - Placing Orders -SD: Purchase order 4) Receiving -SD: Receiving report 5) Accounts payable -SD: Check or electronic transfer

What are the 5 high-level business activities in inventory purchasing? and a general description of what they do

1) Inventory control - Determine inventory to order 2) Purchasing-Vendor Selection and Management - Request availability and prices 3) Purchasing: Placing Orders - Order the inventory 4) Receiving - Receive the inventory 5) Accounts payable - Pay for the Inventory received

What are 4 main issues that result in LOW inventory of raw materials and finished goods

1) Loss of revenue and cash flow, increased expense for expedited shipping and increased cost of goods sold 2) Finished goods being late and causing unsatisfied customers 3) Reduced competitive advantage 4) Unplanned schedule changes or downtime in production, leading to excessive costs

How does the Cash Disbursement Impact the 3 cash flow activities?

1) Operating activity: "Pay supplier invoice" - Reduce cash and accounts payable on the balance sheet. AND reduce net cash flow from operating activities on the cash flow statement 2) Investing activity: "Purchase computer equipment for cash" - Reduce cash and increase computer equipment (a fixed asset) on the Balance sheet. AND reduce net cash flow from investing activities on the cash flow statement 3) Financing activity: "Repay long-term debt" - Reduce cash and long-term debt on the Balance sheet and reduce net cash flow from financing activities on the cash flow statement

What are the 2 links between businesses that form the Supply Chain:

1) Physical Flows 2) Information Flows

The framework for fixed assets involves 6 stages:

1) Procurement 2) Receiving and tagging 3) Recording 4) Reconciliation 5) Depreciation 6) Disposal or Transfer

What are the Risks in Ordering (vendor selection) and internal controls plans?

1) Purchasing goods of inferior quality - buying only from approved vendors - review and approval of purchase from new vendors - tracking and monitoring product 2) Unreliable suppliers - Requiring vendors to have ISO 9000 certificate - Documenting vendor delivery performance data 3) Purchasing from unauthorized suppliers - maintain an approved vendor - configure the system to allow purchase only from approved vendors 4) Kickbacks - prohibit acceptance of gifts from vendors - job rotation - forced/mandatory vacation - conflict of interest disclosure by purchasing agents

Receiving purchases consists of verifying quality and quantity, preventing physical theft, and informing the accounts payable department that payments can be issued. Controls that address all the risks of receiving purchases include: (list at least 5)

1) Segregating duties between receiving and initiating purchases 2) Physically segregating the warehouse storage areas from pro- duction and shipping 3) Dedicating an area to receiving in each facility 4) Restricting physical access to the receiving area 5) Installing cameras in the receiving area 6) Controlling access to the receiving system 7) Implementing an e-procurement system 8) Returning receiving exceptions to the shipper with an audit trail documenting physical movement of product 9) Maintaining documented and authorized policies and procedures for training receiving employees 10) Implementing ongoing performance monitoring of suppliers

What business activities cover Supply Chain?

1) Sourcing raw materials 2) receiving goods and services from suppliers 3) managing inventory 4) producing the product 5) distributing the product to retailers and or customers

Vendor selection and management involve maintaining the vendor table, ensuring that all purchases go to approved vendors, and keeping the vendor table current. Controls that address all the risks of vendor selection and management include: (2)

1) Using automated supplier portals to validate vendors and obtaining required documentation 2) Maintaining documented authorized policies and procedures that establish criteria and screening for onboarding new vendors

What data is created during the payment process?

1) Vendor ID 2) Check number 3) Payment date 4) Bank ID 5) amount 6) Authorization date 7) Payee bank routing number

Which internal control procedure(s) would be cost-effective in dealing with the following expenditure cycle Risks? a) inventory records show that an adequate supply of copy paper should be in stock, but non is available on the supply shelf

1) count physical inventory periodically 2) correct system records using the count

Which internal control procedure(s) would be cost-effective in dealing with the following expenditure cycle Risks? a) receiving dock personnel steal inventory and then claim the inventory was sent to the warehouse

1) have A/P personnel review the signed receiving report copy (signed by both the receiving department and the warehouse personnel) prior to approving payment 2) RFID tag

Which internal control procedure(s) would be cost-effective in dealing with the following expenditure cycle Risks? a) clerical employee obtains a blank check and writes a large amount payable to a fictitious company. the employee then cashes the check

1) limit access to readily available blank checks 2) have supervisor approve check

Which internal control procedure(s) would be cost-effective in dealing with the following expenditure cycle Risks? a) a company is late in paying a particular invoice. Consequently, a second invoice is sent, which crosses the first invoice's payment in the mail. The second invoice is submitted for processing and also paid

1) once you pay the first invoice make a mark so they cannot be used to support the payment of a duplicate invoice

Which internal control procedure(s) would be cost-effective in dealing with the following expenditure cycle Risks? a) purchasing agent orders materials from a supplier that he partially owns

1) require purchasing agent to disclose any financial interest in supplier companies 2) ensure that purchasing agents do not have investments in vendors on the approved vendor list

Name at least 3 internal controls besides automation in the inventory purchasing and maintenance across a supply chain for improved Inventory Management:

1) segregation of duties 2) independent checks (regular physical inventory counts) 3) training of employees 4) adequate policies and procedures

What is the 3 way match?

1) send purchase order to suppliers 2) Receive goods and fill out receiving report 3) Accounts payable receives supplier invoice * Do quantities on supplier invoice = quantities on receiving report and prices on supplier invoice = prices quoted on purchase order

What are the 3 internal controls of the Accounts Payable department

1) software application matches the data from the invoice to the purchase order and the receiving report in a 3 way match 2) Vendors are paid on the due date, after Payment Voucher is authorized 3) Vendors receives a Remittance Advice along with the electronic payment.

Prior to the payment of an invoice, the following documents are matched as a control activity: a. Remittance advice, invoice, receiving report b. Invoice, purchase requisition, receiving report c. Purchase order, receiving report, invoice d. Purchase requisition, receiving report, remittance advice

3 way match: a) purchase order b) Receiving report c) vendor invoice --> Purchase order, receiving report, invoice

How many copies and issued documents for Receiving report?

4 copies b) 4 copies - accounts receivable, accounts payable, procurement, vendor

What is the Expenditure Cycle interaction with other cycles?

?? in powerpoint diagram

What is the Vendor Invoice?

A bill from the vendor that includes the related purchases order number, billing date, description and quantities of goods, amount due, and payment terms.

What is a Blanket order?

A commitment to buy specified items at designated prices from a particular supplier for a set time period

What is a Cash Disbursement Journal?

An accounting journal of cash disbursements that captures all payments recorded

What is a Payment Voucher?

An internal document authorized by management that include the vendor, amount due, and payment terms

What are Fixed Assets with no location?

Analyzing a list of fixed assets with no location by buyer, cost or usage - determines whether fraud activity is occurring

What is Untagged assets?

Analyzing a list of fixed assets with no tag numbers by location, buyer and cost - determines whether fraud activity is occurring

What are Raw materials?

Any component that are used in the creation of a product

In a properly designed accounts payable system, a voucher is prepared after the invoice, purchase order, requisition, and receiving report are verified. The next step in the system is to a. enter the check amount in the check register. b. approve the voucher for payment. c. cancel the supporting documents. d. post the voucher amount to the expense ledger.

Approve the voucher for payment

For Approve Vendor Invoice what is the journal entry?

Approved only by A/P department Good received/inventory received (debit) A/P (credit)

Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness of purchase transactions? a. Are pre-numbered purchase requisitions used and are they subsequently matched with vendor invoices? b. Is there a regular reconciliation of the inventory records with the file of unpaid vouchers? c. Is an authorized purchase order required before the receiving department can accept a shipment or the accounts payable department can record a voucher? d. Are pre-numbered purchase order, receiving reports , and vouchers used, and are the entire sequences accounted for?

Are pre-numbered purchase order, receiving reports , and vouchers used, and are the entire sequences accounted for?

What are Financial Ratios?

Calculating ratios such as accounts payable turnover in days, accounts payable as a percentage of total assets, and cost of goods sold to average accounts payable

What is the most liquid asset on the Balance Sheet? a. Accounts Receivable b. Cash c. Inventory d. Goodwill

Cash

The payments process, which is also known as the ____________________ process, involves paying for acquisitions made in the purchasing process

Cash Disbursement

What is a Vendor?

Engage in both business-to-consumer and business-to-business relationships

What are Suppliers?

Engage in only business-to-business relationships

_________ are expensed as they are consumed over their revenue-generating service lives

Fixed Assets (FA)

What does stage 4 of fixed asset acquisition process - Fixed Asset Reconciliation entail?

Fixed asset accountant ensures the Fixed Asset Subsidiary Ledger is updated.

What is Payments Processes?

Focused on paying for resources

Which of these departments is responsible for updating the General Ledger for acquisitions and payments? a. General accounting b. Accounts payable c. Receiving d. Requesting department

General Accounting

Bank reconciliations compare external records from the bank to the company's ___________ to ensure consistency

General Ledger

What is a Discrepancy Report?

Identifies variances between the receiving report and the purchase order * employee in receiving attempts to resolve and correct any discrepancies and used as internal control

What is a Cash Disbursement journal?

In the payment process, where a company must approve payments and record them in debit and credit format

___________ inventory records have the same negative consequences as insufficient or excessive inventory

Inaccurate

What are Fixed Assets?

Include: a) land b) buildings c) equipment, and machinery * Property, plant and equipment (PPE)

What is Physical Flows of inventory?

Most visible part of the supply chain and involve storing, transforming, and moving inventory

Which transaction would create an increase in accounts payable? a. Selecting vendors b. Entering contracts c. Ordering resources d. Receiving raw materials

Ordering resources

What is Supply Chain Management (SCM)?

Oversees the life cycle of a product from procuring raw materials through customer sales

Cash disbursement journals record approvals for _______

Payments

What is Bidding patterns?

Performing statistical analysis of bidding patterns - detecting potential bid rigging

Personnel who work in the receiving area should complete all of the following processes except a. counting the goods received. b. preparing a receiving report c. inspecting goods received for damage d. preparing an invoice

Preparing an invoice

Requiring two signatures on checks for large amounts. What is control purpose?

Prevent large disbursements for questionable reasons

Separation of duties of approving invoices for payment and signing checks. What is control purpose?

Prevent payment of fictitious invoices

What does a cash flow statement provide to an organization?

The impact of increases and decreases to cash

Which of the following is NOT an independent verification related to cash disbursements? a. The stock of unused checks should be adequately secured and controlled. b. The cash disbursements journal is reconciled to the general ledger. c. The bank statement is reconciled on a monthly basis. d. The accounts payable subsidiary ledger is reconciled to the general ledger.

The stock of unused checks should be adequately secured and controlled.

Sometimes vendors offer discounts if you send items/pay on time? (T/F)

True

True or False: Once the supplier accepts the Purchase Order, it becomes a legal contract

True

What is an E-Procurement System?

Where purchase requisitions and orders can be created electronically and follow an electronic authorization sequence.

What is Inventory?

a Balance Sheet line item that includes all items used in the creation of products.

What is a receiving report?

a document that records details about each delivery, including the date received, shipper, supplier, quantity received - should be referenced to the PO - inventory control will assign goods to temporary storage - need to pass quality inspection - move to bulk area - move to picking area

Which of the following is an example of a typical report for a purchasing process for inventory? a. All goods received over a specified time period b. Cash receipts journal c. Accounts receivable aging analysis d. Bidding pattern analysis to detect potential bid-rigging

a) All goods received over a specified time period

What is Accounts Payable?

a) An account that records money the business owes to its suppliers and vendors b) shown as a liability on the balance sheet

What is Customer Demand?

a) An important variable that is predicted using sales forecasts b) drives inventory management, which drives purchases of raw materials and supplies for production

What are the 2 additional risks for fixed asset acquisitions?

a) Bid Rigging b) Overstatement of Fixed Assets - in financial statements because of capitalizing expenses

Which departments (inside the organization) or external entities does an expenditure cycle interact with?

a) Cash disbursement b) accounts payable c) accounts receivable d) approved vendors 3) minimum threshold

What are controls for: Payments recorded in the wrong vendor account may result in duplicate payments to vendors.

a) Compare the vendor ID in the cash payments journal with the vendor ID on supporting documentation and the payments voucher b) Reconcile vendor statements with the Accounts Payable Subsidiary Ledger

Controls for approving vendor invoices?

a) Copy of purchase order b) supplier invoice c) copy of receiving report

Bid rigging can occur when employees collude with a vendor or when external vendors collude with one another to ensure the winner of a contract bid. Important controls for fixed assets include: (4)

a) Expanding the list of bidders to make it more difficult for bidders to collude in bid-rigging schemes b) Providing proactive code of conduct and fraud training for employees related to bid rigging and penalties c) Periodically checking physical fixed assets against the records d) Tagging all fixed assets with permanent tags or etching the fixed asset number into the surface of each asset

What are the Risks in Cash Disbursement and internal control plans?

a) Failure to take advantage of discounts for prompt payment - filling of invoices by due date for discounts - cash flow budgets b) Paying for items not received - budgets for services - requiring receipt for travel expenses c) Duplicate payments - Requiring a complete voucher package for all payments - Policy to pay only from original copies of supplier invoices - cancelling all supporting documents when payment is made d) Check alteration - check protection machines - use of special ink and papers e) Theft of cash - Physical security of blank checks and checking signing machine - periodic accounting of all sequentially numbered checks by cashier

In Process 2: what are the risks and controls

a) Fraudulent vendor risks: there is no purchase requisitions b) missing documents c) dispute prices d) Stockouts and excess inventory - bar coding, perpetual inventory system e) Purchasing items not needed f) Purchasing at inflated prices - price lists, competitve

Placing orders requires routing purchases through the purchasing department, approving purchases, and filling out and submitting purchase orders. Controls that address all the risks of purchasing orders include (3):

a) Implementing an e-procurement system b) Implementing a paperless evaluated receipt settlement system c) Prenumbering and accounting for purchase requisitions and purchase orders

What information is on the Purchase Requisition form?

a) Name of the employee making the request b) Delivery location c) Date by which delivery is required d) Item numbers, descriptions, and quantities

What is the Purchasing Processes?

as procurement processes, are focused on acquiring the necessary resources for a business to operate

Which of the following is a violation of the segregation of duties control activity. a. An employee adds vendors and makes changes to a main vendor file . b. An employee enters purchase orders into the system and approves them. c. An employee matches invoices to purchase orders and receiving reports, and applies coding of account distributions. d. An employee receives goods from vendors and signs off on the deliveries.

b. An employee enters purchase orders into the system and approves them

How do fixed assets differ from current assets? a. They are held for resale. b. They are used for more than one year. c. They are non-depreciating. d. They include short-term holdings.

b. They are used for more than one year.

Which of the following business activities in Purchasing and Payments DO require an exchange of economic resources and recording of accounting transactions: a) Placing an order for resources (e.g raw materials, inventory) which only results in an accounting transaction if there is a requirement for an up-front deposit or prepayment (Dr. Prepaid Asset, Cr. Cash) b) Entering contracts for services such as external auditing, cleaning, consulting which only result in an accounting transaction if there is a requirement for an up-front deposit or prepayment (Dr. Prepaid Asset, Cr. Cash) c) Requiring goods or negotiating allowances (Dr. Accounts payable, Cr. Asset or Expense) d) Selecting vendors

c) Requiring goods or negotiating allowances (Dr. Accounts payable, Cr. Asset or Expense)

A manager suspects that certain employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and related vouchers. To trace whether this is actually happening, it would be best to begin tracing from the a. vendors' invoices. b. approved vouchers. c. receiving reports. d. cash disbursement journal.

cash disbursement journal

Which of the following would be the most appropriate test to determine whether purchase orders are being processed on a timely basis? a. Compare dates of selected purchase orders with those of purchase requisitions. b. Discuss processing procedures with operating personnel and observe actual processing of purchases. c. Determine the dates of unpaid accounts payable invoices. d. Select a block of used purchase order numbers and account for all numbers iin the block.

compare dates of selected purchase orders with those of purchase requisitions

Maintaining an approved supplier list and checking that all purchase orders are issued only to suppliers on that list. What is the purpose of the inventory?

ensure the purchase of quality of goods and prevent violations of company policies

Implement between suppliers and the company a paperless __________ system that ships goods based on system notices and confirms the corresponding purchase order upon receipt of the products

evaluated receipt settlement (ERS)

Which of the following IT systems is designed to avoid the document matching process and is an "invoiceless" system? a. Microsoft Dynamics GP b. Evaluated Receipt Settlement c. Computer-based matching system d. Electronic Data Interchange

evaluated receipt settlement (ERS) * ships goods based on system notices and confirms the corresponding purchase order upon receipt of the products

What is a company's Receiving department responsible for?

initially recording products received and this record drives for paying for the purchases

Which of the following constitutes the most significant risk within the purchasing cycle? a. Warehouse personnel do not compare quantities received to quantities shown on transfer tickets. b. Receiving department personnel sign receiving documents without inspecting or counting the goods. c. Poor records of transfers between warehouses often result in unnecessary purchases and excess inventories. d. Large quantities of relatively inexpensive parts are stored in open areas near workstations to reduce production slowdowns.

receiving department personnel sign receiving documents without inspecting or counting the goods. large

Which of the following internal controls would help prevent overpayment to a vendor or duplicate payment to a vendor? a. Requiring the check signer to mail the payment directly to the vendor b. Review of the accounts where the expenditure transaction has been recorded c. Review and cancellation of supporting documents after issuing payment d. Approving the purchase before the goods are ordered from the vendor.

review and cancellation of supporting documents after issuing payment

One of the most critical controls to prevent theft of inventory purchased is to a. segregate the authorization of purchases from the inventory record keeping b. require authorization of the purchase requisition c. segregate inventory custody from inventory record keeping. d. compare the purchase order, receiving report, and invoice.

segregate inventory custody from inventory record keeping

Reggie is the purchasing agent for a wholesale paint store, Ye Olde Paints. Reggie's cousin, Earl, owns a small paint store. Reggie arranged for paint to be delivered to Earl's stores from paint manufacturers COD, thereby allowing Earl to get the paint at a whole-sale (cheaper) price, which violates a policy of Ye Olde Paints. Reggie was most likely able to violate this policy because of a failure in Ye Olde Paints' controls related to a. purchase orders. b. cash disbursements. c. bills of lading. d. inventory control.

segregation of the receiving function from the purchasing function --> purchase orders

Within accounts payable, to ensure that each voucher is submitted and paid only once, each invoice approved to be paid should be a. supported by a receiving report. b. pre-numbered and accounted for. c. defaced (i.e., stamped "paid") by the check signer. d. approved for authorized purchases.

stamped "paid" by the check signer

What is vendor managed inventory system?

suppliers are given access to sales and inventory data and are authorized automatically replenished inventory using EDI

Within cash disbursements, all of the following should be true before a check is prepared EXCEPT that a. The purchase order, receiving report, and invoice have been matched. b. sufficient cash is available. c. The purchased goods have been used. d. The invoice discount date or due date is imminent.

the purchased goods have been used

Which of the following controls is NOT normally performed in the accounts payable department? a. The vendor's invoice is matched with the related receiving report. b. Unused purchase orders and receiving reports are accounted for. c. Vendor invoices are selected for payment. d. Asset and expense accounts to be recorded are assigned.

unused purchase orders and receiving reports are accounted for