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Chapter 8: Acquisition and Expenditure Cycle

Terms in this set (29)

Which of the following accounts does not appear in the acquisition and expenditure cycle?
sales returns
For which of the following accounts would the matching concept be the most appropriate?
cost of goods sold
Which of the following would not overstate current-period net income?
failing to record a check paying an item in Vouchers Payable
A client's purchasing system ends with the recording of a liability and its eventual payment. Which of the following best describes auditors' primary concern with respect to liabilities resulting from the purchasing system?
accounts payable are not materially understated
Which of the following is an internal control activity that would prevent a paid disbursement voucher from being presented for payment a second time?
the official who signs the check should compare the check with the voucher and should stamp "PAID" on the voucher documents
Budd, the purchasing agent of Lake Hardware Wholesalers, has a relative who owns a retail hardware store. Budd arranged for hardware to be delivered by manufacturers to the retail store on a cash-on-delivery (COD) basis, thereby enabling his relative to buy at Lake's wholesale prices. Budd was probably able to accomplish this because of Lake's poor internal control over
purchase orders
Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?
example a sample of cash disbursements in the period subsequent to year-end
Which of the following procedures is least likely to be performed before the balance-sheet date?
search for unrecorded liabilities
To determine whether accounts payable are complete, auditors perform a test to verify that all merchandise received has been recorded. The population for this test consists of all
receiving reports
When verifying debits to the perpetual inventory records of a nonmanufacturing company, auditors would be most interested in examining a sample of purchase
invoices
A furniture company ordered 84 tables from a supplier. The supplier accidentally sent only 48 tables, but the receiving department at the furniture company accepted the tables. The invoice was eventually received but was for the original 84 tables. The furniture company paid the entire amount. Which of the following controls would have been least likely to have prevented this erroneous payment?
personnel in the furniture company's purchasing department should compare the purchase requisition with the purchase order
Curtis, a maintenance supervisor, submitted maintenance invoices from a phony repair company and received the checks at a post office box. This should have been prevented by
refusal by the purchasing department to approve the vendor
An audit team would most likely examine the detail support for charges to which of the following accounts?
legal expense
Which of the following accounts would most likely be audited in connection with a related balance-sheet account?
property tax expense
When auditing account balances of liabilities, auditors are most concerned with management's assertion about
completeness
In a test of controls, auditors may trace receiving reports to vouchers recorded in the voucher register. This is a test of
completeness
A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows:

Clerk 1 - reviews vendor invoices for proper signature approval
Clerk 2 - enters vendor invoices into the accounting system and verifies payment terms
Clerk 3 - posts entered vendor invoices to the accounts payable ledger for payment and mails checks
Treasurer - reviews the vendor invoices and signs each check

Which of the following would indicate a weakness in the company's internal control?
Clerk 3 mails the checks and remittances after they have been signed
Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated?
examining vendor statements for amounts not reported as purchases
A voucher package is used to
provide a source document for recording the purchase of a good or service
An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal. the purpose of this substantive procedure most likely was to
determine that purchases were properly recorded
Which of the following situations indicates a potential material weakness in internal control over acquisitions and expenditure?
the same person authorizes voucher packages and signs checks
Which of the following accounts would most likely be reviewed by the auditor to gain reasonable assurance that additions to the equipment account are not understated?
repairs and maintenance expense
Which of the following would not be included in the supporting documents for a voucher?
blank checks
When auditing PP&E, the auditor's approach is generally to
examine evidence supporting additions during the year
Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?
vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices
Improperly capitalizing an expense item results in
overstatement of profit in the current year and understatement in future years
Which of the following is not a major control risk in the payroll cycle?
incorrect accounting for costs or expenses
An auditor is planning the testing of the accounts payable balance. The auditor's main concerns should be
completeness and cutoff
Which of the following controls should prevent an invoice for the purchase of merchandise from be paid twice?
the check signer reviews and cancels the voucher packets
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