1. Which document is used by cost accounting to allocate direct labor charges to work-in-process?

 The document used by cost accounting to allocate direct labor charges to work-in-process is the
time card or time ticket. This document records the amount of time an employee spends on each
job or task, allowing cost accounting to accurately allocate labor costs to specific work-in-process
accounts.

2. Which department authorizes changes in employee pay rates?

 The Human Resources (HR) department authorizes changes in employee pay rates. This
department manages employee records and ensures that any changes in pay rates are properly
documented and approved.

3. Why should the employee's supervisor not distribute paychecks?

 The employee's supervisor should not distribute paychecks to avoid potential conflicts of interest
and to reduce the risk of fraud or favoritism. This separation of duties ensures that one person
does not have control over both the approval of time worked and the distribution of paychecks.

4. Why should employee paychecks be drawn against a special checking account?

 Employee paychecks should be drawn against a special checking account to maintain better
control and oversight over payroll disbursements. This practice helps in reconciling payroll
transactions separately from other business transactions, making it easier to detect errors or fraud.

5. Why should employees clocking on and off the job be supervised?

 Supervision ensures that employees are accurately recording their working hours, preventing time
theft or falsification of time records. This oversight helps maintain integrity in payroll
calculations and reduces the risk of overpayment or underpayment.

6. What is a personnel action form?

 A personnel action form is a document used to initiate and authorize changes to an employee's
employment status, such as hiring, promotions, salary adjustments, transfers, or terminations. It
serves as an official record of these changes.

7. What tasks does a payroll clerk perform upon receipt of hours-worked data from the production
department?

 Upon receipt of hours-worked data, the payroll clerk:

1. Verifies the accuracy of the data.
2. Calculates gross pay based on hours worked and pay rates.
3. Deduces taxes and other withholdings.
4. Prepares paychecks or direct deposit instructions.
5. Updates payroll records and generates payroll reports.

8. What documents are included in the audit trail for payroll?

  The audit trail for payroll includes:
1. Time cards or time tickets.
2. Personnel action forms.
3. Payroll register.
4. Employee earnings records.
5. Paychecks or direct deposit records.
6. Tax withholding forms (e.g., W-4).
7. Reports on payroll deductions and benefits.

9. What are the strengths and weaknesses of a batch process with sequential files?

 Strengths:
1. Efficient for processing large volumes of data at once.
2. Simplifies error detection and correction before batch processing.
 Weaknesses:
1. Delays in data processing as batches accumulate.
2. Inflexibility in handling real-time transactions and updates.

10. What are the strengths and weaknesses of a batch system with direct access files?

 Strengths:
1. Faster data retrieval compared to sequential files.
2. Easier to update specific records without processing the entire file.
 Weaknesses:
1. More complex file management.
2. Potentially higher system costs due to more sophisticated technology.

11. What are the objectives of a fixed asset system?

 The objectives of a fixed asset system are to:

1. Accurately record acquisition, depreciation, and disposal of fixed assets.
2. Ensure proper maintenance and safeguarding of assets.
3. Provide information for financial reporting and compliance with regulations.
4. Track asset location and condition.

12. How do fixed asset systems differ from purchases systems?

 Fixed asset systems focus on long-term tangible assets, tracking their acquisition, depreciation,
maintenance, and disposal over their useful lives.
 Purchases systems handle the procurement of goods and services needed for daily operations,
dealing with purchase orders, receiving reports, and accounts payable.

13. What are three tasks of the fixed asset system?

 Three tasks of the fixed asset system are:

1. Recording asset acquisitions.
2. Calculating and recording depreciation.
3. Managing and recording asset disposals.

14. What information is found on the depreciation schedule? How can this information be verified?
  A depreciation schedule includes information such as asset description, acquisition date, cost,
useful life, depreciation method, accumulated depreciation, and net book value. This information
can be verified by cross-referencing with purchase invoices, asset records, and financial
statements.

15. Why is it crucial to the integrity of the financial statements that the fixed asset department be
informed of asset improvements and disposals?

 Accurate recording of asset improvements and disposals ensures that the financial statements
reflect the true value of the company’s assets. This integrity is essential for providing reliable
information to stakeholders and complying with accounting standards.

16. What is the auditor's role with respect to the fixed asset system?

 The auditor's role includes:

1. Verifying the existence and condition of fixed assets.
2. Reviewing depreciation calculations and policies.
3. Ensuring proper authorization and documentation of acquisitions, improvements, and
disposals.
4. Testing controls over fixed asset management.

17. Which department performs the formal record-keeping function for fixed assets?

 The fixed asset accounting department or a specific fixed asset management department
typically performs the formal record-keeping function for fixed assets.

18. What document shows when fixed assets are fully depreciated?

 The depreciation schedule or asset register shows when fixed assets are fully depreciated by
indicating that the accumulated depreciation equals the asset's cost, resulting in a net book value
of zero.

19. Who should authorize disposal of fixed assets?

 Disposal of fixed assets should be authorized by senior management or a designated fixed asset
committee to ensure proper oversight and documentation.

20. Assets used for production are secured in a warehouse. Who has custody of fixed assets?

 The warehouse or production manager typically has physical custody of fixed assets used in
production. However, formal record-keeping and asset management responsibilities lie with the
fixed asset accounting department.
1. Differentiate between a purchase requisition and a purchase order.

A purchase requisition is an internal document used by an employee or department to request the

purchase of goods or services. It typically requires approval from a manager or the purchasing
department before being converted into a purchase order.

A purchase order is an external document issued by the purchasing department to a vendor, formally
requesting the supply of goods or services. It specifies details such as quantities, prices, and delivery
terms.

2. What purpose does a purchasing department serve?

The purchasing department is responsible for procuring goods and services needed by the
organization. Its functions include identifying reliable suppliers, negotiating contracts, managing
purchase orders, ensuring timely delivery, and obtaining the best possible prices and terms.

3. Distinguish between an accounts payable file and a vouchers payable file.

An accounts payable file contains records of all the amounts the company owes to its suppliers for
goods and services received but not yet paid for. It includes details like invoice amounts and due
dates.

A vouchers payable file includes vouchers that have been created to authorize payments. Each
voucher typically includes the supplier's invoice, purchase order, receiving report, and other
documentation supporting the payment.

4. What are the three logical steps of the cash disbursements system?

The three logical steps of the cash disbursements system are:

Authorization: Ensuring that payment is properly authorized.

Preparation: Preparing and issuing the payment (e.g., writing a check).

Recordkeeping: Recording the payment in the accounting records.

5. What general ledger journal entries does the purchases system trigger? From which
departments do these journal entries arise?

The purchases system triggers journal entries that include debits to inventory or expense accounts and
credits to accounts payable. These entries arise from the purchasing and receiving departments. For
example, when goods are received, the inventory account is debited, and accounts payable is credited.

6. What two types of exposures can close supervision of the receiving department reduce?

Close supervision of the receiving department can reduce:

Theft and pilferage: Ensuring that all goods received are properly recorded and stored.
 Errors and discrepancies: Verifying that received goods match the purchase orders and are
in good condition.

7. How can a manual purchases cash disbursements system be reengineered to reduce

discrepancies, be more accurate, and reduce processing costs?

A manual purchases cash disbursements system can be reengineered by:

Implementing automation: Using software to automate data entry, approvals, and payment
processes.

Centralizing information: Ensuring all related documents (purchase orders, receiving

reports, invoices) are linked and easily accessible.

Enhancing verification procedures: Using digital verification methods to cross-check

documents and payments.

8. What steps of independent verification does the general ledger department perform?

The general ledger department performs independent verification by:

Reconciliation: Matching subsidiary ledger balances with general ledger accounts.

Reviewing supporting documentation: Ensuring all journal entries are supported by

appropriate documentation.

Conducting periodic audits: Regularly auditing the accounts to ensure accuracy and
compliance.

9. What is (are) the purpose(s) of maintaining a valid vendor file?

Maintaining a valid vendor file serves several purposes:

Streamlining procurement: Ensuring that all purchases are made from approved and
reliable suppliers.

Reducing fraud: Preventing unauthorized or fraudulent purchases.

Enhancing efficiency: Speeding up the purchasing process by having pre-approved vendor

information readily available.

10. How do computerized purchasing systems help to reduce the risk of purchasing
bottlenecks?

Computerized purchasing systems reduce the risk of purchasing bottlenecks by:

Automating order processing: Reducing delays in approving and issuing purchase orders.

Tracking orders: Providing real-time status updates on orders and deliveries.

 Forecasting demand: Analyzing historical data to predict future needs and prevent
stockouts.

11. What is the purpose of the blind copy of a purchase order?

The purpose of the blind copy of a purchase order, which omits quantity and price details, is to
ensure that the receiving department conducts an independent count and inspection of the received
goods. This helps to prevent fraud and errors by ensuring that the received quantities are verified
without prior knowledge of the ordered amounts.

12. Give one advantage of using a vouchers payable system.

One advantage of using a vouchers payable system is that it provides a comprehensive record of all
documents related to a transaction (purchase order, receiving report, and invoice), ensuring that
payments are properly authorized and supported by documentation. This improves accuracy and
accountability in the payment process.
1. What document initiates the sales process?

The sales process is typically initiated by a customer purchase order. This document is received
from the customer and indicates their intent to buy goods or services from the company.

2. Distinguish between a packing slip, a shipping notice, and a bill of lading.

A packing slip is a document that lists the items included in a shipment. It is usually included in the
package for the customer's reference.

A shipping notice is sent to the customer to inform them that their order has been shipped and is on
its way.

A bill of lading is a legal document between the shipper and the carrier that details the type, quantity,
and destination of the goods being transported. It serves as a receipt of shipment when the goods are
delivered.

3. What function does the receiving department serve in the revenue cycle?

The receiving department is responsible for accepting and verifying incoming shipments from
suppliers. In the revenue cycle, they also handle returned goods from customers, ensuring they are
correctly accounted for and processed.

4. The general ledger clerk receives summary data from which departments? What form of
summary data?

The general ledger clerk typically receives summary data from departments such as accounts
receivable, accounts payable, payroll, and inventory. This data is often in the form of journal
vouchers or summary reports that provide a consolidated view of the transactions for posting to the
general ledger.

5. What are three authorization controls?

Three common authorization controls are:

Approval of credit sales to ensure customers have the ability to pay.

Approval of sales returns and allowances to prevent unauthorized or fraudulent returns.

Authorization of cash disbursements to control outgoing payments.

6. What are the three rules that ensure that no single employee or department processes a
transaction in its entirety?

The three rules are:

Segregation of duties, which ensures that different people are responsible for authorization,
recording, and custody of assets.
 Dual control or joint custody, where two people must be present to complete a transaction.

Supervision and independent verification to review and oversee transactions.

7. At which points in the revenue cycle are independent verification controls necessary?

Independent verification controls are necessary at various points, including:

When orders are received and processed.

When goods are shipped and invoices are generated.

When payments are received and recorded.

8. What is automation and why is it used?

Automation involves using technology to perform tasks that would otherwise require manual effort.
It is used to increase efficiency, reduce errors, and improve consistency in business processes.

9. What is the objective of reengineering?

The objective of reengineering is to fundamentally rethink and redesign business processes to

achieve significant improvements in critical performance measures such as cost, quality, service, and
speed.

10. Distinguish between an edit run, a sort run, and an update run.

An edit run checks data for errors and inconsistencies.

A sort run organizes data into a specific sequence or order.

An update run processes data to reflect changes, such as updating account balances.

11. What are the key features of a POS system?

Key features of a POS (Point of Sale) system include real-time transaction processing, inventory
management, sales tracking, and integration with other business systems like accounting and CRM.

12. How is the primary key critical in preserving the audit trail?

The primary key is critical because it uniquely identifies each record in a database, allowing for
accurate tracking and retrieval of transaction details, which is essential for maintaining a clear and
reliable audit trail.

13. What are the advantages of real-time processing?

Advantages of real-time processing include immediate data availability, quicker decision-making,

and enhanced customer service due to up-to-date information.
14. Why does billing receive a copy of the sales order when the order is approved but does not
bill until the goods are shipped?

Billing receives a copy of the sales order to prepare for invoicing. However, the invoice is not issued
until the goods are shipped to ensure accuracy in billing for items actually delivered.

15. Why was EDI devised?

EDI (Electronic Data Interchange) was devised to facilitate the electronic exchange of business
documents between organizations, reducing paperwork, speeding up transactions, and improving
accuracy.

16. What types of unique control problems are created by the use of PC accounting systems?

PC accounting systems can create control problems such as data security risks, lack of segregation
of duties, and potential for unauthorized access or modifications.

17. In a manual system, after which event in the sales process should the customer be billed?

In a manual system, the customer should be billed after the goods have been shipped and delivery
has been confirmed.

18. What is a bill of lading?

A bill of lading is a document issued by a carrier to acknowledge receipt of cargo for shipment. It
outlines the details of the shipment and serves as a contract between the shipper and the carrier.

19. What document initiates the billing process?

The billing process is initiated by a shipping notice or shipping document, which confirms that the
goods have been shipped to the customer.

20. Where in the cash receipts process does supervision play an important role?

Supervision plays a crucial role in the cash receipts process at the point of cash handling, recording
transactions, and reconciling cash collections to prevent fraud and errors.