MULTIPLE CHOICE QUESTIONS

Chapter 1

1. Which of the following is NOT a purpose of the Transaction Processing System?

a. managing and reporting on the status of financial investments
b. converting economic events into financial transactions
c. distributing essential information to operations personnel to support their daily operations
d. recording financial transactions in the accounting records

2. The objectives of the data collection activity of the general model for Accounting Information
Systems are to collect data that are:
a. relevant and redundant.
b. efficient and objective.
c. efficient and redundant.
d. efficient and relevant.

3. Which of the following is NOT a database management task?

a. retrieval
b. storage
c. summarization
d. deletion

4. Which of the following is NOT a financial transaction?

a. purchase of products
b. cash receipts
c. update valid vendor file
d. sale of inventory

5. The following are subsystems of the Accounting Information System, EXCEPT

a. Transaction Processing System.
b. Human Resources System.
c. General Ledger/Financial Reporting System.
d. Management Reporting System.

6. Which of the following is NOT a characteristic of effective information?

a. relevance
b. accuracy
c. summarization
d. precision

7. When viewed from the highest to most elemental

level, the data hierarchy is
a. attribute, record, file.
b. record, attribute, key.
c. file, record, attribute.
d. file, record, key.
e. key, record, file.

8. Which of the following is least likely to be used as evidence by an external auditor?

a. substantive tests result
b. work performed by internal auditors who organizationally report to the controller
c. tests of control results
d. work performed by internal auditors who report to the audit committee of the BOD

9. Which of the following is NOT an objective of all information systems?

a. support for the stewardship function of management
b. support for management decision making
c. support for the day-to-day operations of the firm
d. all of the above are objectives
10. Which of the following best describes the activities of the materials management function?
a. purchasing, receiving, and inventory control
b. receiving, sales, distribution, and purchasing
c. receiving, storage, purchasing, and accounts payable
d. purchasing, receiving, and storage
e. purchasing, storage, and distribution
11. Which of the following best describes the activities of the production function?
a. maintenance, inventory control, and production planning
b. production planning, quality control, manufacturing, and cost accounting
c. quality control, production planning, manufacturing, and payroll
 d. maintenance, production planning, storage, and quality control
e. manufacturing, quality control, and maintenance

12. Which of the following best describes the activities of the accounting function?
a. inventory control, accounts payable, fixed assets, and payroll
b. fixed assets, accounts payable, cash disbursements, and cost accounting
c. purchasing, cash receipts, accounts payable, cash disbursements, and payroll
d. inventory control, cash receipts, accounts payable, cash disbursements, and payroll
e. inventory control, cost accounting, accounts payable, cash disbursements, and payroll

13. Which statement best describes cloud computing?

a. cloud computing involves long-term contracts
b. cloud computing is location-independent computing
c. cloud computing involves an organization selling its IT resources to a vendor and leasing back
IT services from the vendor
d. cloud computing involves fixed price contracts

14. Which of the following statements is most accurate?

a. ERP systems are commercial software packages that are sometimes called turnkey systems
because they can be implemented by the user with little or no modification
b. substantive tests provide evidence focused on the system controls
c. public accounting firms that provide attest services are not allowed under SOX to offer IT
advisory services
d. both small and large firms that have standardized information needs are potential
customers for commercial software
e. external auditors may rely on the work of internal auditors only if they report to the controller or
the CEO of the client company

Chapter 2

1. Which of the following is not an advantage of real-time processing of files over batch
processing?
a. shorter transaction processing time
b. reduction of inventory stocks
c. improved customer service
d. all are advantages
e. none of the above are advantages

2. Which statement is NOT true? Batch processing

a. is a subject to deadlocks when processing common accounts
b. permits data to be edited in a separate computer run
c. can use databases and flat files
d. can be initiated from a terminal

3. Which is the least appropriate type of transaction for a real-time system?

a. airline reservations
b. point-of-sale transactions
c. weekly processing of payroll checks
d. air traffic control system
e. all of the above are real-time systems

4. Which of the following statements is not correct?

a. the database approach uses one common database to promote the concept of single
user view
b. database systems resolve task data dependency
c. the flat-file model encourages data redundancy
d. a primary goal of database systems is to minimize data redundancy e. database systems
provide increased accessibility to data and data integration

5. Which of the following is NOT true of a turn-around document?

a. it may reduce errors made by external parties
b. it is used as internal documents only
c. it is commonly used by utility companies (gas, power, water)
d. it is both input and output document

6. A documentation tool used to represent the logical elements of a system is a(n)

a. data flow diagram d. system flowchart
b. programming flowchart e. all of the above
c. entity relationship diagram

7. Which of the following statements is not a true statement?

a. Transactions are recorded on ledgers and are posted to journals
b. Transactions are recorded in journals and are posted to ledgers
c. Infrequent transactions are recorded in the general journal
d. Transactions are recorded in special journal

8. Which of the following is true of the relationship between subsidiary ledgers and general ledger
accounts?
a. The two contain different and unrelated data
b. The relationship between the two constitute part of the audit trail.
c. All general ledger accounts have subsidiaries
d. The total of subsidiary ledger accounts usually exceeds the total in the related general ledger
accounts

9. Which statement is NOT correct?

a. Indexed random files are dispersed throughout the storage device without regard for physical
proximity with related records.
b. Indexed random files use disk storage space efficiently.
c. Indexed random files are efficient when processing a large portion of a file at one time.
d. Indexed random files are easy to maintain in terms of adding records

10. A database deadlock

a. is a lock placed on a record to prevent it from being accessed by other processes.
b. occurs when two records are accidentally assigned the same primary key
c. occurs when a unique record is accessed by several different processes simultaneously.
d. is none of the above

11. An invoice file would best be coded using a(n) coding ___ scheme.
a. alphabetic
b. mnemonic
c. block
d. sequential

12. Which statement is NOT correct?

a. Legacy systems do not process financially significant transactions
b. Mainframes are exclusive to legacy systems, while modern systems use only client-
server model
c. Legacy systems may use database technology
d. All of the above are true

13. A documentation tool that depicts the physical flow of information relating to a particular
transaction through an organization is a(n)
a. ER diagram d. decision table
b. system flowchart e. data flow diagram
c. program flowchart

14. A coding scheme in the form of acronyms and other combinations that convey meaning is a(n)
a. sequential code c. alphabetic code
b. mnemonic code d. block code

15. In a hashing structure

a. pointers are used to indicate location of a record with the same address as another record
b. two records can be stored at the same address
c. pointers are used to indicate the location of all records
d. all locations on the disk are used for record storage

16. An advantage of a physical address pointer is that

a. it remains unchanged when disks are reorganized
b. it is easily recovered if it is inadvertently lost
c. it points directly to the actual disk storage location
d. all of the above are advantages of the physical address pointer

17. Which statement is NOT correct? The virtual storage access method
a. is used for very large files that need both direct access and batch processing.
b. may use an overflow area for records.
c. provides an exact physical address for each record.
d. is appropriate for files that require few insertions or deletions.

18. Which statement is true about hashing structure?

a. The same address could be calculated for two different records.
b. Storage space is used efficiently.
c. Records cannot be accessed rapidly.
d. A separate index is required.

19. Which of the following statements is not true?

a. Sorting records that are coded alphabetically tends to be more difficult for users than sorting
numeric sequences.
 b. Mnemonic coding requires the user to memorize codes.
c. Mnemonic codes are limited in their ability to represent items within a class.
d. Sequential codes carry no information content beyond their order in the sequence.

20. The production subsystem of the conversion cycle includes all of the following EXCEPT
a. make-or-buy decisions on components part
b. determining raw materials requirements
c. release of raw materials into production
d. scheduling the goods to be produced

21. Which statement is NOT true?

a. Manufacturing firms have a conversion cycle but retail firms do not.
b. The conversion cycle includes the task of determining raw materials requirements.
c. A payroll check is an example of a product document of the payroll system.
d. A general journal may be replaced by a collection of journal voucher.

Chapter 3

1. An example of a control designed to validate a transaction at the point of data entry is

a. Recalculation of batch total
b. A record count
c. A check digit
d. Checkpoint
e. Recalculation of hash total

2. Application controls are classified as

a. Input, processing and output
b. Input, processing, output and storage
c. Input, processing, output and control
d. Input, processing, output, storage and control
e. Collective, sorting, summarizing, and reporting

3. Which of the following is NOT an element of the fraud triangle?

a. Ethics
b. Justifiable Reliance
c. Situational Pressure
d. Opportunity
e. All the above are elements

4. How are individual transactions edited in a real-time file processing system

a. In a separate computer run
b. In online mode as transactions are entered
c. During backup procedure
d. Editing transactions in real time is not necessary

5. In an automated payroll processing environment, a department manager substituted the time card
for a terminated employee with a time card for a fictitious employee. the fictitious employee had
the same pay rate and hours worked as the terminated employee. the best control technique to
detect this action using employee identification numbers would be to use a:
a. batch total
b. record count
c. hash total
d. subsequent check
e. Financial total

6. Which of the following is often called a compensating control?

A. Transaction
B. Supervision
C. Accounting Records
D. Segregation of Duties

7. The underlying assumption of reasonable assurance regarding implementation of internal control

means that
a. Auditors are reasonably assured that fraud has not occurred in the period
b. Auditors are reasonably assured that employee carelessness can weaken an internal
control structure
c. Implementation of the control procedure should not have significant adverse effect
on efficiency or profitability
d. Management assertions about control effectiveness should provide auditors with
reasonable assurance
e. Control applies reasonably well to all forms of computer technology
8. Which of the following journal entries would a bookkeeper make to conceal the theft of cash
receipts from customers in payment of their accounts?
DR CR
a. Miscellaneous Expense Cash
b. Petty cash Cash
c. Cash Accounts Receivable
d. Sales Return Accounts Receivable

9. Which of the following is not an example of preventive control?

a. Separation of responsibilities for the recording, custodial, and authorization functions
b. Sound personnel practices
c. Documentation of policies and procedures
d. Password authentication software and hardware
e. Source documents for capturing sales data

10. Which of the following situations is NOT a segregation of duties violation?

a. The treasurer has the authority to sign checks but gives the signature block to the
assistant treasurer to run the check-signing machine.
b. The warehouse clerk who has custodial responsibility over inventory in the warehouse,
selects the vendor and authorizes purchases when inventories are low
c. The sales manager has the responsibility to approve credit and the authority to write off
accounts
d. The department time clerk is given the undistributed payroll checks to mail to absent
employees
e. The accounting clerk who shares record-keeping responsibility for the accounts
receivable subsidiary ledger performs the monthly reconciliation of the subsidiary ledger
and the control account

11. What name is given to computer programs that are used for checking the validity and accuracy of
transaction data?
a. Operating system programs
b. Edit programs
c. Compiler programs
d. Integrated test programs
e. Interrogation programs

12. An employee in the receiving department keyed in a shipment from a remote terminal and
inadvertently omitted the purchase order number. The best application control to detect this error
would be a
a. Batch total
b. Missing data check
c. Completeness check
d. Reasonable test
e. Compatibility test

13. Which of the following controls would best prevent the lapping of accounts receivable?
a. Segregate duties so that the clerk responsible for recording in the accounts receivable
subsidiary ledger has no access to the general ledger
b. Request that customers review their monthly statements and report unrecorded cash
payments
c. Separate the tasks of depositing cash receipts and posting to the AR sub ledger
d. Request the customers make checks payable to the company

14. Ensuring that all material transactions processed by the information system are valid and in
accordance with management's objectives is an example of
A. Transaction authorization
B. Supervision
C. Accounting Records
D. Independent Verification

15. Which of the following is an example of an input control?

a. Making sure that reports are distributed to the proper people
b. Monitoring the work of data entry clerks
c. Collecting accurate statistics of historical transactions while gathering data
d. Performing a check-digit test on a customer account number
e. Having another person review the design of business form

16. Providing timely information about transactions in sufficient detail to permit proper classification
and financial reporting is an example of
a. The control environment
b. Risk assessment
c. Information and communication
d. monitoring
 17. The fraud scheme that is similar to the concept of "borrowing from Peter to pay Paul" is
a. Expense account fraud
b. Bribery
c. Lapping
d. Transaction fraud

18. What is the process for posting to accounting records in a computer system?
a. Mater file is updated to a transaction file
b. Master file is updated to an index file
c. Transaction file is updated to a master file
d. Master file is updated to year-to-date file
e. Current balance file is updated to an index file

Chapter 4

1. Which function or department records a sale in the sales journal?

A. Warehouse
B. Sales department
C. Billing department
D. Inventory control

2. Which functions should be segregated?

A. Picking goods from the warehouse shelves and updating the inventory subsidiary
ledger
B. Authorized credit and determining reorder quantities
C. Billing customers and posting the bills to the sales journal
D. Providing information on inventory levels and reconciling the bank statement

3. WOTF are incompatible tasks?

A. The AR clerk authorizes the write-off of bad debts
B. The record-keeping clerk maintains both AR and AP subsidiary ledgers
C. The inventory control clerk authorizes inventory purchases
D. The AE clerk prepares customer statements every

4. Which control helps to ensure that the inventory items shipped to the customer are the correct
type and the correct amount?
A. Reconciliation BOL and shipping notice
B. Issuance of a blind copy of purchase order
C. Reconcile stock release document and packing slip
D. The way watch

5. The bill of lading is prepared by the?

A. Sales clerk
B. Shipping clerk
C. Warehouse clerk
D. Billing clerk

6. WOTF is NOT an independent verification control?

A. The shipping department verifies that the goods sent from the warehouse are correct in type
and quantity
B. General ledger clerks reconcile journal vouchers that were independently prepared in various
departments
C. The billing department reconciles the shipping notice with the sales invoice to ensure that
customers are billed for only the quantities shipped.
D. Cash receipts reconcile checks from customers and remittance advices to ensure that
payments are correct in amount
E. All of the above are independent verification controls

7. Which document defines terms for shipped goods ownership?

A. Packing slip
B. Shipping notice
C. Bill of lading
D. Customer invoice

8. WOTF sets of tasks should not be separated?

A. Processing customer sales orders and approving credit
B. Receiving cash and updating the accounts receivable subsidiary ledger
 C. Storing inventory in the warehouse and updating the inventory subsidiary ledger
D. Processing customer sales orders and posting to the sales journal
E. All of the above tasks should be separated

9. WOTF is often called a compensating control?

A. Supervision
B. Access control
C. Segregation of duties
D. Accounting records

10. Which document triggers the billing function?

A. Bill of lading
B. Customer order
C. Sales order
D. Shipping notice