Chapter 8 - Acquisition and Expenditure Cycle

Question 1

basic activities of the cycle

Answer 1

1. purchase order
2. receive
3. record
4. pay

Question 2

the expenditure cycle begins when…

Answer 2

an individual or department needs materials, equipment, or services

Question 3

department requisition purchase prepares…

Answer 3

purchase requisition

Question 4

who receives the purchase requisition?

Answer 4

the purchasing department

Question 5

if the purchase is high in price, what might happen?

Answer 5

bidding process

Question 6

an approved vendor usually requires..

Answer 6

several departments to approve

Question 7

when the purchasing identifies a vendor, they create a…

Answer 7

purchase order

Question 8

the purchase order is sent to…

Answer 8

the selected vendor

Question 9

the purchase order represents…

Answer 9

the official authorization of a purchase

Question 10

what determines who approves the purchasing order?

Answer 10

how much $$

Question 11

the purchasing department has a ___ fraud risk

Answer 11

high

Question 12

when goods arrive at the company, the supplier will have a…

Answer 12

bill of landing

Question 13

the bill of landing should be matched to what at delivery?

Answer 13

purchase order

Question 14

after the devilry is verified as the company’s purchase, the receiving department prepares a…

Answer 14

receiving report

Question 15

when recording, the AP department creates a…

Answer 15

voucher package

Question 16

after the voucher packet is completed, accountants can..

Answer 16

enter the AP with debts to proper inventory, fixed asset, or expense accounts with corresponding credit to AP

Question 17

accounts payable relevant assertions

Answer 17

completeness
cutoff
existence
presentation
valuation

Question 18

expenses relevant assertions

Answer 18

completness
cut off
accuracy
classification

Question 19

what is the potential problem for accounts payable relevant assertions?

Answer 19

unrecorded liability

Question 20

what is the potential problem for expenses relevant assertions?

Answer 20

capitalizing expenses

Question 21

types of control procedures

Answer 21

information processing controls
separation of duties
physical controls
performance reviews

Question 22

for SOD, authorization is done by the…

Answer 22

purchasing department

Question 23

for SOD, custody is held by the…

Answer 23

receiving department, but ultimately the requesting department

Question 24

transaction are recorded by ________ and ______

Answer 24

general counting (control account) and AP department (subsidiary account)

Question 25

for SOD, reconcile liabilities to...

Answer 25

customer statements and general ledger account

Question 26

bid are received by who?

Answer 26

someone independent of purchasing department

Question 27

(direction of tests) Did all recorded purchases actually occur?

Answer 27

vouch from purchase journal voucher to vendor invoice

Question 28

(direction of tests) Did all invoiced purchases actually occur?

Answer 28

vouch sample of vendor invoices to receiving reports

Question 29

were all vendor invoices recorded?

Answer 29

trace from vendor invoices to purchase journal

Question 30

were all recipes invoiced by the vendor?

Answer 30

trace from receiving report to vendor invoice

Question 31

for substantive procedures in the acquisition and expenditure cycle, we are looking for...

Answer 31

unrecorded liabilities (completeness)

Question 32

to verify cut-offs for purchases, we examine...

Answer 32

receiving reports and vendor sales invoices occurring around YE

Question 33

what are the other accounts in the cycle?

Answer 33

prepaid expenses accused liabilites expenses inventory PPE

Question 34

what are prepaid expenses easy to audit?

Answer 34

similar from year to year

Question 35

accrued liabilities are hard to audit because..

Answer 35

they aren't typically invoiced or evidenced by the receipt of goods

Question 36

examples for accrued liabilities are...

Answer 36

interest, property taxes, wages, and income tax payable

Question 37

5 steps in auditing accrued liabilities and prepaid expenses

Answer 37

1. agree balances to prior year work paper 2. verify payments 3. examine underlying agreements 4. recalculate amounts 5. search for unrecorded accruals 6. analytical procedures

Question 38

when recalculating amount, make sure there is agreement between...

Answer 38

expense account to trial balances

Question 39

when searching for unrecorded accruals, review..

Answer 39

cash disbursements in YE and expected accruals at other times in the yr

Question 40

income tax payable usually requires a...

Answer 40

tax specialist

Question 41

when looking at income tax payable, we examine..

Answer 41

the correspondence with government agencies

Question 42

PPE has ____ number of transactions and _____ $ amounts

Answer 42

small, high

Question 43

what takes an added importance with PPE?

Answer 43

authorization of

Question 44

with PPE, there is less concern for...

Answer 44

access to assets

Question 45

with PPE, there is more concern for...

Answer 45

unrecorded disposals

Question 46

with PPE, agree balances to...

Answer 46

prior year documentation

Question 47

when purchasing PPE, what do we vouch?

Answer 47

to board minutes, to invoice or cost records

Question 48

when purchasing PPE, we inspect...

Answer 48

title

Question 49

for expenditures subsequent to acquisition, we vouch to..

Answer 49

invoice and work descriptions

Question 50

for expenditures subsequent to acquisition, we consider...

Answer 50

Property of classification (expense or capitalize)

Question 51

steps for disposal of PPE

Answer 51

1. vouch from PPE board minutes to cash receipts journal and validated deposit slip 2. record gain or loss 3. trace from board minutes to PPE for disposals

Question 52

for disposal of PPE, we trace..

Answer 52

from board minutes to PPE

Question 53

from disposal of PPE we vouch...

Answer 53

from board minutes to cash receipts journal and validated slip

Question 54

to look for unrecorded disposals, agree balances to...

Answer 54

prior year work papers

Question 55

to look for unrecorded disposals, examine...

Answer 55

insurance policies, property tax, etc.

Question 56

to look for unrecorded disposals, what do you do with fixed assets?

Answer 56

physically inspect or confirm

Question 57

companies have an incentive to _____ assets

Answer 57

overstate

Question 58

for lease agreements, verify...

Answer 58

proper treatment (capitalized and operating)

Question 59

for lease agreements, ensure...

Answer 59

disclosure in footnotes is appropriate

Question 60

4 auditing cost and expense accounts

Answer 60

1. analytical procedures 2. agree to related balance sheet account 3. substantive tests of transactions 4. vouch detail