Chapter-6

Chapter 6— Overview of Transaction Processing and Financial Reporting Systems TRUE/FALSE 1.

Processing more transactions at a lower unit cost makes batch processing more efficient than real-time systems.

ANS: T 2.

PTS: 1

The process of acquiring raw materials is part of the conversion cycle. ANS: F PTS: 1

3.

Directing work-in-process through its various stages of manufacturing is part of the conversion cycle.

ANS: T 4.

The portion of the monthly bill from a credit card company is an example of a turn- around document.

ANS: T 5.

PTS: 1

PTS: 1

The general journal is used to record recurring transactions that are similar in nature. ANS: F PTS: 1

6.

Document flowcharts are used to represent systems at different levels of detail. ANS: F PTS: 1

7.

Data flow diagrams represent the physical system. ANS: F PTS: 1

8.

System flowcharts are often used to depict processes that are handled in batches. ANS: T PTS: 1

9.

Program flowcharts depict the type of media being used (paper, magnetic tape, or disks) and terminals.

ANS: F 10.

System flowcharts represent the input sources, programs, and output products of a computer system.

ANS: T 11.

PTS: 1

PTS: 1

Program flowcharts are used to describe the logic represented in system flowcharts. ANS: T PTS: 1 12.

Batch processing systems can store data on direct access storage devices.

ANS: T 13.

PTS: 1

Backups are automatically produced in a direct access file environment. ANS: F PTS: 1

14.

The box symbol represents a temporary file. ANS: F PTS: 1

15.

Auditors may prepare program flowcharts to verify the correctness of program logic. ANS: T PTS: 1

ledger.

16.

ANS: T 17.

A control account is a general ledger account which is supported by a subsidiary PTS: 1

The most significant characteristic of direct access files is access speed. ANS: T PTS: 1

18.

Real time processing is used for routine transactions in large numbers. ANS: F PTS: 1

19.

Batch processing is best used when timely information is needed because this method processes data efficiently.

ANS: F 20.

PTS: 1

An inverted triangle with the letter “N” represents a file in “name” order. ANS: F PTS: 1

21.

Real-time processing in systems that handle large volumes of transactions each day can create operational inefficiencies.

ANS: T 22.

Operational inefficiencies occur because accounts unique to many concurrent transactions need to be updated in real time.

ANS: F 23.

PTS: 1

Operational inefficiencies occur because accounts common to many concurrent transactions need to be updated in real time.

ANS: T 24.

PTS: 1

PTS: 1

Batch processing of non-critical accounts improves operational efficiency. ANS: T PTS: 1

25.

Batch processing of accounts common to many concurrent transactions reduces operational efficiency.

ANS: F 26.

PTS: 1

The block code is the coding scheme most appropriate for a chart of accounts. ANS: T PTS: 1

27.

Sequential codes may be used to represent complex items or events involving two or more pieces of related data.

ANS: F 28.

PTS: 1

Block codes restrict each class to a pre-specified range. ANS: T PTS: 1

29.

For a given field size, a system that uses alphabetic codes can represent far more situations than a system with that uses numeric codes.

ANS: T 30.

Mnemonic codes are appropriate for items in either an ascending or descending sequence, such as the numbering of checks or source documents.

ANS: F 31.

33. ANS:

34.

T

PTS:

1

Individuals with access authority to general ledger accounts should not prepare journal vouchers. ANS:

ledger.

PTS: 1

The most common means of making entries in the general ledger is via the journal voucher. ANS:

32.

PTS: 1

T

PTS:

1

The journal voucher is the document that authorizes entries to be made to the general T

PTS:

1

Each account in the chart of accounts has a separate record in the general ledger master file. ANS:

T

PTS:

1

MULTIPLE CHOICE 1.

Which system is not part of the expenditure cycle?

a. b. c. d.

cash disbursements payroll production planning/control purchases/accounts payable

ANS: C 2. a. b. c. d.

Which system produces information used for inventory valuation, budgeting, cost control, performance reporting, and make-buy decisions? sales order processing purchases/accounts payable cash disbursements cost accounting

ANS: D

a. b. c. d.

PTS: 1

6. In general, a special journal would not be used to record sales cash disbursements depreciation purchases

ANS: C

a. b. c. d.

PTS: 1

5. The order of the entries made in the general journal is by date account number user customer number

ANS: A

a. b. c. d.

PTS: 1

4. The order of the entries made in the ledger is by transaction number account number date user

ANS: B

a. b. c. d.

PTS: 1

3. Which of the following is a turn-around document? remittance advice sales order purchase order payroll check

ANS: A

a. b. c. d.

PTS: 1

PTS: 1

7. Which account is least likely to have a subsidiary ledger? sales accounts receivable fixed assets inventory

ANS: A 8.

PTS: 1 Subsidiary ledgers are used in manual accounting environments. What file is

comparable to a subsidiary ledger in a computerized environment? a. archive file b. reference file c. transaction file d. master file ANS: D 9. a. b. c. d.

A journal is used in manual accounting environments. What file is comparable to a journal in a computerized environment? archive file reference file transaction file master file

ANS: A

a. b. c. d.

PTS: 1

13. The most important purpose of a turnaround document is to serve as a source document inform a customer of the outstanding amount payable provide an audit trail for the external auditor inform the bank of electronic funds deposits

ANS: A detail?

PTS: 1

12. Which document is not a type of source document? a sales order an employee time card a paycheck a sales return receipt

ANS: C

a. b. c. d.

PTS: 1

11. Which of the following is an archive file? an accounts payable subsidiary ledger a cash receipts file a sales journal a file of accounts receivable that have been written off

ANS: D

a. b. c. d.

PTS: 1

10. In a computerized environment, a list of authorized suppliers would be found in the master file transaction file reference file archive file

ANS: C

a. b. c. d.

PTS: 1

14.

PTS: 1 Which type of graphical documentation represents systems at different levels of

a. b. c. d.

data flow diagram document flowchart system flowchart program flowchart

ANS: A

a. b. c. d.

15. Data flow diagrams depict logical tasks that are being performed, but not who is performing them illustrate the relationship between processes, and the documents that flow between them and trigger activities represent relationships between key elements of the computer system describe in detail the logic of the process

ANS: A

a. b. c. d.

b. c. d.

PTS: 1

20. The type of transaction most suitable for batch processing is airline reservations credit authorization payroll processing adjustments to perpetual inventory

ANS: C

a. b. c.

PTS: 1

19. In contrast to a batch processing system, in a real-time system a lag occurs between the time of the economic event and when the transaction is recorded relatively fewer hardware, programming, and training resources are required a lesser resource commitment per unit of output is required processing takes place when the economic event occurs

ANS: D

a. b. c. d.

PTS: 1

18. In contrast to a real-time system, in a batch processing system there is a lag between the time when the economic event occurs and the financial records are updated relatively more resources are required a greater resource commitment per unit of output is required processing takes place when the economic event occurs

ANS: A

a. b. c. d.

PTS: 1

17. When determining the batch size, which consideration is the least important? achieving economies by grouping together large numbers of transactions complying with legal mandates providing control over the transaction process balancing the trade off between batch size and error detection

ANS: B

a.

PTS: 1

16. System flowcharts depict logical tasks that are being performed, but not who is performing them illustrate the relationship between database entities in systems. represent relationships between key elements of both manual and computer systems. describe the internal logic of computer applications in systems. .

ANS: C

a. b. c. d.

PTS: 1

PTS: 1

21. The type of transaction most suitable for real-time processing is recording fixed asset purchases recording interest earned on long-term bonds adjusting prepaid insurance

d.

recording a sale on account

ANS: D a. b. c. d.

22. Which step is not found in batch processing using sequential files? control totals sort runs edit runs immediate feedback of data entry errors

ANS: D 23. a. b. c. d.

PTS: 1

24. All of the following can provide evidence of an economic event except source document turn-around document master document product document

ANS: C

a. b. c. d.

PTS: 1

Both the revenue and the expenditure cycle can be viewed as having two key parts. These are manual and computerized physical and financial input and output batch and real-time

ANS: B

a. b. c. d.

PTS: 1

PTS: 1

25. Which method of processing does not use the destructive update approach? batch processing using direct access files real-time processing batch processing using sequential files all of the above use the destructive update approach

ANS: C 26.

PTS: 1 Which symbol represents a data store?

a. b. c. d. ANS: B 27.

PTS: 1 Which symbol represents a manual operation?

a. b. c. d. ANS: D 28. a. b.

PTS: 1 Which symbol represents accounting records?

c. d. ANS: A 29.

PTS: 1 Which symbol represents a document?

a. b. c. d. ANS: B

30.

PTS: 1

Which symbol represents a magnetic tape (sequential storage device)?

a. b. c. d. ANS: D 31.

PTS: 1 Which symbol represents a decision?

a. b. c. d. ANS: A

PTS: 1

32. a. b. c. d.

The characteristics that distinguish between batch and real-time systems include all of the following except time frame resources used file format efficiency of processing

ANS: C

a. b. c. d.

33. A file that stores data used as a standard when processing transactions is a reference file a master file a transaction file an archive file

ANS: A

a. b. c. d.

PTS: 1

36. Which accounting application is least suited to batch processing? general ledger vendor payments sales order processing payroll

ANS: C

a. b. c. d.

PTS: 1

35. Real-time processing would be most beneficial in handling a firm’s fixed asset records retained earning information merchandise inventory depreciation records

ANS: C

a. b. c. d.

PTS: 1

34. Sequential storage means data is stored on tape access is achieved through an index access is direct reading record 100 requires first reading records 1 to 99

ANS: D

a. b. c. d.

PTS: 1

PTS: 1

37. Which accounting application is best suited to batch processing? general ledger updating inventory reductions to the subsidiary ledger sales order processing credit checking

ANS: A

PTS: 1

a. b. c. d.

38. Operational inefficiencies occur because accounts both common and unique to many concurrent transactions need to be updated in real time. accounts common to many concurrent transactions need to be updated in real time. accounts unique to many concurrent transactions need to be updated in real time. None of the above are true statements

ANS: B

a. b. c. d.

39. Operational efficiencies can be improved by updating accounts both common and unique to many concurrent transactions in real time. updating accounts both common and unique to many concurrent transactions in batch mode. updating accounts unique to many concurrent transactions in real time and updating common accounts in batch mode. None of the above are true statements

ANS: C

a. b. c. d.

a. b. c. d.

PTS: 1

When a firm wants its coding system to convey meaning without reference to any other document, it would choose an alphabetic code a mnemonic code a group code a block code

ANS: B

a. b.

PTS: 1

42. The most important advantage of sequential coding is that missing or unrecorded documents can be identified the code itself lacks informational content items cannot be inserted deletions affect the sequence

ANS: A 43.

PTS: 1

42. A common use for sequential coding is creating the chart of accounts identifying inventory items identifying documents identifying fixed assets

ANS: C

a. b. c. d.

PTS: 1

40. The coding scheme most appropriate for a chart of accounts is sequential code block code group code mnemonic code

ANS: B

a. b. c. d.

PTS: 1

PTS: 1

44. The most important advantage of an alphabetic code is that meaning is readily conveyed to users sorting is simplified

c. d.

the capacity to represent items is increased missing documents can be identified

ANS: C

PTS: 1

45. Which statement is not true/ a. The journal voucher is the only source of input into the general ledger. b. A journal voucher can be used to represent summaries of similar transactions or a single unique transaction. c. Journal vouchers are not used to make adjusting entries and closing entries in the general ledger. d. Journal vouchers offer a degree of control against unauthorized general ledger entries. ANS: C

a. b. c. d.

46. Entries into the General Ledger System (GLS) can be made using information from the general journal a journal voucher which represents a summary of similar transactions a journal voucher which represents a single, unusual transaction all of the above

ANS: D

a. b. c. d.

b. c. d.

PTS: 1

49. Which report is not an output of the Financial Reporting System (FRS)? variance analysis report statement of cash flows tax return comparative balance sheet

ANS: A

a.

PTS: 1

48. What type of data is found in the general ledger master file? a chronological record of all transactions the balance of each account in the chart of accounts budget records for each account in the chart of accounts subsidiary details supporting a control account

ANS: B

a. b. c. d.

PTS: 1

47. Which statement is not correct? The general ledger master file is based on the firm’s chart of account contains a record for control accounts is an output of the Financial Reporting System (FRS) supplies information for management decision making

ANS: C

a. b. c. d.

PTS: 1

PTS: 1

50. Which steps in the Financial Accounting Process are in the correct sequence? record the transaction, post to the ledger, prepare the adjusted trial balance, enter adjusting entries, prepare financial statements record the transaction, prepare the unadjusted trial balance, record adjusting journal entries, record closing entries, prepare financial statements record the transaction, post to the ledger, record adjusting entries, prepare the unadjusted trial balance, prepare financial statements record the transaction, post to the ledger, prepare the adjusted trial balance, prepare financial statements, record closing entries

ANS: D a. b. c. d.

51. Which statement is not correct? the post-closing trial balance reports the ending balance of each account in the general ledger one purpose of preparing the unadjusted trial balance is to ensure that debits equal credits financial statements are prepared based on the unadjusted trial balance the unadjusted trial balance reports control account balances but omits subsidiary ledger detail

ANS: C

a. b. c. d.

a. b. c. d.

a. b. c. d.

a. b. c. d.

PTS: 1

Which situation indicates an internal control risk in the General Ledger/Financial Reporting Systems (GL/FRS)? the employee who maintains the cash journal computes depreciation expense the cash receipts journal voucher is approved by the Treasurer the cash receipts journal vouchers are prenumbered and stored in a locked safe the employee who maintains the cash receipts journal records transactions in the accounts receivable subsidiary ledger

ANS: D 56.

PTS: 1

Risk exposures in the General Ledger and Financial Reporting Systems include all of the following except loss of the audit trail unauthorized access to the general ledger loss of physical assets general ledger account out of balance with the subsidiary account

ANS: C 55.

PTS: 1

53. Financial statements are prepared from the trial balance adjusted trial balance general ledger general journal

ANS: B 54.

PTS: 1

52. What account appears on the post closing trial balance? income summary machinery rent expense interest income

ANS: B

a. b. c. d.

PTS: 1

PTS: 1

With a limited work force and a desire to maintain strong internal control, which combination of duties performed by a single individual presents the least risk exposure? maintaining the inventory ledger and recording the inventory journal voucher in the general ledger recording the inventory journal voucher in the general ledger and maintaining custody of inventory maintaining the cash disbursements journal and recording direct labor costs applied to specific jobs preparing the accounts payable journal voucher and recording it in the general ledger

a. b. c. d. e.

57. XBRL is the basic protocol that permits communication between Internet sites. controls Web browsers that access the Web. is the document format used to produce Web pages. was designed to provide the financial community with a standardized method for preparing is a low-level encryption scheme used to secure transmissions in higher-level (HTTP) format.

ANS: D

a. b. c. d. e.

PTS: 1

58. An XBRL taxonomy: is the document format used to produce web pages. is the final product (report). is a classification scheme. is a tag stored in each database record. none of the above is true.

ANS: C

PTS: 1