Study Unit 7 - Internal Control - Purchases, Payroll & Other Cycles

Question 1

Identify the department/individual that (1) initiates a purchase requisition, (2) prepares purchase orders, (3) counts and inspects goods received, (4) prepares receiving reports, and (5) safekeeps the goods received.

Answer 1

Duty - Department/Individual

Initiates purchase requisition - Inventory control
Prepares purchase orders - Purchasing
Counts and inspects goods received - Receiving
Prepares receiving reports - Receiving
Safekeeps goods received - Warehouse

Question 2

Identify the department/individual that (1) approves the invoice for payment, (2) prepares the payment voucher and check, (3) approves the payment and signs the check and (4) records settlement of accounts payables.

Answer 2

Duty - Department/Individual

Approves payment invoice - Purchasing
Prepares payment voucher and check (unsigned) - Accounts payable
Approves payment and signs the check - Cash disbursement (CFO)
Records accounts payable settlement - General ledger

Question 3

To which of the management assertions does prenumbering documents relate?

Answer 3

Completeness

Question 4

Why is the payment voucher and attached documents stamped with “Paid”?

Answer 4

Stamping the documents “Paid” prevents them from supporting a second, illicit payment voucher.

Question 5

What is usually omitted on the purchase order (blind-copy) sent to the receiving department?

Answer 5

Quantity of the goods ordered is usually omitted so that employees of the receiving department must count the goods to determine the quantity to record on the receiving report.

Question 6

Define electronic data interchange (EDI).

Answer 6

EDI is the communication of electronic documents directly from a computer in one entity to a computer inn another entity.

Question 7

What are the advantages of using electronic data interchange (EDI)?

Answer 7

• Reduced clerical errors
• Increased speed
• Elimination of repetitive clerical tasks
• Elimination of document preparation, processing, filing and mailing costs

Question 8

Define an audit trail.

Answer 8

An audit trail allow for the tracing of a transaction from initiation to disposition. One key element of an audit trail in transactions involving auditing electronic data interchange (EDI) is the activity log.

Question 9

Identify the department/individual that (1) provides authorizations of employees and their pay rates, (2) oversees employees’ working hours, (3) prepare the payroll register, (4) prepare payment vouchers, (5) approves the payment, and (6) record the payrolls.

Answer 9

Duty - Department/Individual

Provides authorization of employees and their pay rates - Human resources
Oversees employees’ working hours (cloaca cards) - Timekeeping
Prepares the payroll register - Payroll
Prepares payment vouchers - Accounts payable
Approves the payments (signing checks) - Cash disbursement (CFO)
Records the payrolls - General ledger

Question 10

Who authorizes transactions related t the investing and financing cycle?

Answer 10

The board of directors or other ultimate authority.