Accounting Information Systems, 13/E Marshall B. Romney Paul J. Steinbart solutions manual and test bank

Accounting Information Systems, 13/E Marshall B. Romney Paul J. Steinbart solutions manual and test bank

CHAPTER 2

Overview of Transaction Processing

and Enterprise Resource Planning Systems

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

2.1 Table 2-1 lists some of the documents used in the revenue, expenditure, and human resources cycle. What kinds of input or output documents or forms would you find in the production (also referred to as the conversion cycle)?

Students will not know the names of the documents but they should be able to identify the tasks about which information needs to be gathered. Here are some of those tasks

· Requests for items to be produced

· Documents to plan production

· Schedule of items to be produced

· List of items produced, including quantity and quality</inst></para></question><question id="ch02ques02" label="2.2">

· Form to allocate costs to products

· Form to collect time spent on production jobs

· Form requesting raw materials for production process

· Documents showing how much raw materials are on hand

· Documents showing how much raw materials went into production

· List of production processes

· List of items needed to produce each product

· Documents to control movement of goods from one location to another

2.2 With respect to the data processing cycle, explain the phrase “garbage in, garbage out.” How can you prevent this from happening?

When garbage, defined as errors, and allowed into a system that error is processed and the resultant data stored. The stored data at some point will become output. Thus, the phrase garbage in, garbage out. Data errors are even more problematic in ERP systems because the error can affect many more applications than an error in a non-integrated database.

Companies go to great lengths to make sure that errors are not entered into a system. To prevent data input errors:

· Data captured on source documents and keyed into the system are edited by the computer to detect and correct errors and critical data is sometimes double keyed.

· Companies use turnaround documents to avoid the keying process.

· Companies use source data automation devices to capture data electronically to avoid the keying and some of the editing process.

· Well-designed documents and screens improve accuracy and completeness by providing instructions or prompts about what data to collect, grouping logically related pieces of information close together, using check off boxes or pull-down menus to present the available options, and using appropriate shading and borders to clearly separate data items.

· Data input screens are preformatted to list all the data the user needs to enter.

· Prenumbered source documents are used or the system automatically assigns a sequential number to each new transaction. This simplifies verifying that all transactions have been recorded and that none of the documents has been misplaced.

· The system is programmed to make sure company policies are followed, such as approving or verifying a transaction. For example, the system can be programmed to check a customer’s credit limit and payment history, as well as inventory status, before confirming a sale to a customer.

2.3 </inst><para><inst>What kinds of documents are most likely to be turnaround documents? Do an Internet search to find the answer and to find example turnaround documents.

Documents that are commonly used as turnaround documents include the following:

· Utility bills

· Meter cards for collecting readings from gas meters, photocopiers, water meters etc

· Subscription renewal notices

· Inventory stock cards

· Invoices

· Checks (banks encode account info on the bottom of checks)

· Annual emissions inventory forms (http://www.deq.state.ok.us/aqdnew/Emissions/TurnAroundDocs.htm)

Students will find many other turnaround documents.

Here are some URLs for turnaround document definitions and examples:

http://en.wikipedia.org/wiki/Turnaround_document

http://www.pcmag.com/encyclopedia_term/0,2542,t=turnaround+document&i=53248,00.asp

http://www.answers.com/topic/turnaround-document-1

Here are some turnaround document images (1 long URL):

http://images.google.com/images?q=turnaround+document&oe=utf-8&rls=org.mozilla:en-US:official&client=firefox-a&um=1&ie=UTF-8&ei=N7yBSpbAF4KiswO39JnwCA&sa=X&oi=image_result_group&ct=title&resnum=4

2.4 The data processing cycle in Figure 2-1 is an example of a basic process found throughout nature. Relate the basic input/process/store/output model to the functions of the human body.

There are a number of ways to relate the input/process/store/output model to the human body. Here are a few of them

· Brain. We read, see, hear, and feel things. We process that input in order to understand what it is and how it relates to us. We store that data in our brains and then process it again in order to solve problems, make decisions, etc., which represent output.

· Stomach. We take food in as input. It is processed to produce energy to fuel all bodily functions. If we eat more food than the body needs at any one time it is stored as fat. The output is walking, talking, thinking – all functions fueled by the energy produced. Human waste is also an output of that process.

Students will come up with other examples of how the input/process/store/output model applies to the human body

2.5 Some individuals argue that accountants should focus on producing financial statements and leave the design and production of managerial reports to information systems specialists. What are the advantages and disadvantages of following this advice? To what extent should accountants be involved in producing reports that include more than just financial measures of performance? Why?</para></question></general-problem></problemset>

There are no advantages to accountants focusing only on financial information. Both the accountant and the organization would suffer if this occurred. Moreover, it would be very costly to have two systems rather than one that captures and processes operational facts at the same time as it captures and reports financial facts.

The main disadvantage of this is that accountants would ignore much relevant information about the organization’s activities. To the extent that such nonfinancial information (e.g., market share, customer satisfaction, measures of quality, etc.) is important to management, the value of the accounting function would decline. Moreover, accountants have been trained in how to design systems to maximize the reliability of the information produced. If relevant information is not produced by the AIS, there is danger that the information may be unreliable because the people responsible for its production have not been trained in, or adequately aware of, the potential threats to reliability and the best measures for dealing with those threats.

SUGGESTED ANSWERS TO THE PROBLEMS

2.1 The chart of accounts must be tailored to an organization’s specific needs. Discuss how the chart of accounts for the following organizations would differ from the one presented for S&S in <link linkend="ch02table04" preference="0">Table 2-4<xref linkend="ch02table04" label="2-4"/></link>.</para>

Some of the changes in the chart of accounts for each type of entity include the following:

a. University

· No equity or summary drawing accounts. Instead, have a fund balances section for each type of fund.

· Several types of funds, with a separate chart of accounts for each. The current fund is used for operating expenses, but not capital expenditures. Loan funds are used to account for scholarships and loans. Endowment funds are used to account for resources obtained from specific donors, generally with the objective that principal be preserved and that income be used for a specific purpose. Plant funds are used for major capital expenditures. Most fund categories would be further divided into restricted and unrestricted categories.

· Unlikely to have Notes Receivable, but may have Accounts Receivable for students who pay tuition in installment payments.

· Tuition and fees would be one source of revenue. Others include gifts, investment income, sales of services, and, for public universities, state appropriations.

· Student loans are an asset; student deposits are a liability.

b. Bank

· Loans to customers would be an asset, some current others noncurrent, depending upon the length of the loan.

· No inventory

· Customer accounts would be liabilities.

· Classification of revenue would be among loans, investments, service charges, etc.

· No cost of goods sold.

c. Government Unit

· No equity or summary drawing accounts. Instead, have fund balances.

· Balance sheet shows two major categories: (1) assets and (2) liabilities and fund equity.

· Separate chart of accounts for each fund (general fund, special revenue fund, capital projects fund, and debt service fund).

· Revenue and expenditure accounts would be grouped by purpose (e.g., police, highways, sanitation, education, etc.).

· Encumbrance accounts

· Revenues would include taxes, licenses and permits, fines, and charges for specific services.

· Taxes receivable as a separate category due to importance.

· No cost of goods sold.

d. Manufacturing Company

· Several types of inventory accounts (raw materials, work-in-process, and finished goods).

· Additional digits to code revenues and expenses by products and to code assets/liabilities by divisions.

e. Expansion of S&S

· Additional digits to code:

- Revenues and expenses by products and by stores

- Assets/liabilities by stores.

2.2 <para>Design a chart of accounts for SDC. Explain how you structured the chart of accounts to meet the company’s needs and operating characteristics. Keep total account code length to a minimum, while still satisfying all of Mace’s desires.</para><source>

(Adapted from the CMA Exam)

A six-digit code (represented by letters ABCDEF) is sufficient to meet SDC’s needs:

A This digit identifies the 4 divisions plus the corporate office

B This digit represents major account types (asset, liability, equity, revenue, expense).

C This digit represents the major classification within account type:

· For balance sheet accounts, this represents specific sub-categories (current assets, plant and equipment, etc.), as only six categories are needed.

· For expense and revenue accounts, this digit represents the product group, as again there are only five products plus general costs.

D This digit represents specific accounts or cost centers:

· For balance sheet accounts, this is the control account; one digit is adequate because the problem says no more than 10 categories.

· For expense accounts, this is the cost center; one digit is adequate because the problem indicates no more than 6 cost centers.

EF These two digits represent the subsidiary accounts and natural expense categories:

· For expense accounts, these represent the 56 natural expense categories and variances for each cost center.

· For the balance sheet, these two digits accommodate up to 100 subsidiary accounts.

2.3 An audit trail enables a person to trace a source document to its ultimate effect on the financial statements or work back from amounts in the financial statements to source documents. Describe in detail the audit trail for the following:

</para>

a. The audit trail for inventory purchases includes linking purchase requisitions, purchase orders, and receiving reports to vendor invoices for payment. All these documents would be linked to the check or EFT transaction used to pay for an invoice and recorded in the Cash Disbursements Journal. In addition, these documents would all be linked to the journal entry made to record that purchase. There would be a general ledger account number at the bottom of each column in the journal. The journal reference would appear in the General Ledger, Inventory Ledger, and Accounts Payable ledger.

b. The audit trail for the sale of inventory links the customer order, sales order, and shipping document to the sales invoice. These documents are linked to the journal entry recording the sale of that merchandise. The invoice would also be linked to the cash received from the customer and to the journal entry to record that receipt.

c. The audit trail for employee payroll links records of employee activity (time cards, time sheets, etc.) to paychecks and to the journal entry to record payment of payroll. In a manufacturing company, there would also be links to the job-time tickets used to allocate labor costs to specific products or processes.

2.4 Your nursery sells various types and sizes of trees, bedding plants, vegetable plants, and shrubs. It also sells fertilizer and potting soil. Design a coding scheme for your nursery.

Grading depends upon the instructor’s judgment about the quality of the coding scheme. The coding scheme should be either a group or block coding. In addition, the student’s solutions should provide sufficient detail in order to determine whether the solution represents a group or block coding scheme.

2.5 Match the following terms with their definitions

a. 10

b. 23

c. 7

d. 16

e. 1

f. 13

g. 26

h. 21

i. 2

j. 25

k. 19

l. 22

m. 4

n. 8

o. 17

p. 3

q. 11

r. 9

s. 6

t. 24

u. 5

v. 12

w. 14

x. 18

y. 20

z. 15

2.6 For each of the following scenarios identify which data processing method (batch or online, real-time) would be the most appropriate.

Some students will respond that all can and ought to be done with online-real time processing. While all can certainly be done that way, batch processing does have its advantages (cheaper, more efficient, etc.). In making the decision between batch and online-real time processing, designers must consider the need for current and accurate data. Batch processing is often used for data that does not need frequent updating and naturally occurs or is processed at fixed times. For example, while employee check in and checkout times may be gathered in real time, payroll is usually only processed at a fixed interval such as weekly, biweekly, or monthly.

a. online-real time

b. online-real time

c. batch

d. online-real time

e. batch

f. batch

g. batch

h. on-line real time

2.7 <para>After viewing the Web sites, and based on your reading of the chapter, write a 2 page paper that describes how an ERP can connect and integrate the revenue, expenditure, human resources/payroll, and financing cycles of a business.

Student solutions will vary depending on the demonstrations they observe. However, the demonstrations should give the students a more concrete and visual understanding of what an ERP system is and does. Student solutions should at least discuss how an ERP could integrate all of the various cycle activities of a business into one integrated system.

2.8 Which of the following actions update a master file and which would be stored as a record in a transaction file?

a. Update customer address change – Master file

b. Update unit pricing information – Master file

c. Record daily sales – Transaction file

d. Record payroll checks – Transaction file

e. Change employee pay rates Master file

f. Record production run variances – Transaction file

g. Record Sales Commissions – Transaction file

h. Change employee office location – Master file

i. Update accounts payable balance – Master file

j. Change customer credit limit – Master file

k. Change vendor payment discount terms – Master file

l. Record purchases – Transaction file

2.9 You were hired to assist Ashton Fleming in designing an accounting system for S&S. Ashton has developed a list of the journals, ledgers, reports, and documents that he thinks S&S needs (see <link linkend="ch02table06" preference="1">Table 2-4<xref linkend="ch02table06" label="2-8"/></link>). He asks you to complete the following tasks:</para>

a. <orderedlist numeration="arabic" inheritnum="ignore" type="nl" continuation="restarts"><listitem><para><inst></inst>Specify what data you think should be collected on each of the following four documents: </para><orderedlist numeration="loweralpha" inheritnum="ignore" type="ll" continuation="restarts"><listitem><para><in</inst>sales invoice, </para></listitem><listitem><para><inst>purchase order, </para></listitem>receiving report</para></listitem>, employee time card</para></listitem></orderedlist></listitem>

b. <listitem><para><inst></Design a report to manage inventory.</para></listitem>

c. <listitem><para><inst></inst>Design a report to assist in managing credit sales and cash collections.</para></listitem>

d. <listitem><para><inst></inst>Visit a local office supply store and identify what types of journals, ledgers, and blank forms for various documents (sales invoices, purchase orders, etc.) are available. Describe how easily they could be adapted to meet S&S’s needs.

No single answer exists with this case. Indeed, solutions will vary depending upon student ingenuity and creativity. Student answers can be compared to examples of these documents found in chapters 10 and 11.

a. A sample invoice is presented in the Revenue Cycle chapter. A sample purchase order is presented in the Expenditure Cycle chapter. A sample receiving report also appears in the Expenditure Cycle chapter. Although student designs will vary, each document should contain the following data items:

Sales Invoice

Customer name and address Product code or number

Customer account number Product description

Customer order number Quantity ordered

Salesperson code Quantity shipped

Shipping Address Unit price

Shipper and date shipped Extended price

Terms of sale Taxes, if applicable

Total Amount due

Purchase Order

Ship to address Item numbers ordered

Bill to address Payment terms

Purchasing agent number Shipping instructions

Quantity of parts ordered Supplier name or number

Prices of parts ordered Date of purchase

Taxes, if any Total amount of purchase

Receiving Report

Vendor name Vendor number

Vendor address Date received

Shipper Receiving clerk number

Quantity received Part number received

Description/quality remarks Purchase order number

Inspected by

Employee Time Card

Employee name Total regular hours

Employee number Time in/ Time out

Pay period Total overtime hours

Department number Approved by

Employee signature

b. The report to manage inventory should contain the following information:

· Preferred vendor

· Product number

· Description

· Reorder point

· Quantity on Hand

· Quantity Available

· Vendor performance history

· Quantity on order

· Lead time

c. The report to manage credit sales and cash collections should include:

· Credit sales per period

· Cash collections per period

· Aging of accounts receivable

· Customers by geographic region

· Uncollectible accounts per period

d. The answers to this will vary depending upon the types of documents carried in the office supplies stores visited by the students.

A fruitful topic for class discussion, or a possible additional case assignment, is to compare the design of paper documents to the data entry screen layouts used in various popular accounting packages.

SUGGESTED ANSWERS TO THE CASE

2.1 Bar Harbor Blueberry Farm

Data from Case

Date	Supplier Invoice	Supplier Name	Supplier Address	Amount
March 7	AJ34	Bud’s Soil Prep	PO Box 34	$2,067.85
March 11	14568	Osto Farmers Supply	45 Main	$ 67.50
March 14	893V	Whalers Fertilizer	Route 34	$5,000.00
March 21	14699	Osto Farmers Supply	45 Main	$3,450.37
March 21	10102	IFM Wholesale	587 Longview	$4,005.00
March 24	10145	IFM Wholesale	587 Longview	$ 267.88

Purchases Journal

Page 1

Date	Supplier	Supplier Invoice	Account Number	Post Ref	Amount
March 7	Bud’s Soil Prep	AJ34	23	√	$2,067.85
March 11	Osto Farmers Supply	14568	24	√	$ 67.50
March 14	Whalers Fertilizer	893V	36	√	$5,000.00
March 21	Osto Farmers Supply	14699	24	√	$3,450.37
March 21	IFM Wholesale	10102	38	√	$4,005.00
March 24	IFM Wholesale	10145	38	√	$ 267.88
March 31	TOTAL				14,858.60

General Ledger

Accounts Payable Account Number: 300

Date	Description	Post Ref	Debit	Credit	Balance
March 1	Balance Forward				$18,735.55
March 31		√		14,858.60	33,594.15

Purchases Account Number: 605

Date	Description	Post Ref	Debit	Credit	Balance
March 1	Balance Forward				$54,688.49
March 31		√	14,858.60		69,547.09

Account Payable Subsidiary Ledger

Account No: 23	Bud’s Soil Prep	PO Box 34	Terms: 2/10, Net 30
Date	Description	Debit	Credit	Balance
March 1	Balance Forward			0.00
March 7	Supplier invoice AJ34		2,067.85	2,067.85

Account No: 24	Osto Farmers Supply	45 Main	Terms: 2/10, Net 30
Date	Description	Debit	Credit	Balance
March 1	Balance Forward			0.00
Mar 11	Supplier invoice 14568		67.50	67.50
Mar 21	Supplier invoice 14699		3,450.37	3,517,87

Account No: 36	Whalers Fertilizer	Route 34	Terms: 2/10, Net 30
Date	Description	Debit	Credit	Balance
March 1	Balance Forward			0.00
March 14	Supplier invoice 893V		5,000.00	5,000.00

Account No: 38	IFM Wholesale	587 Longview	Terms: 2/10, Net 30
Date	Description	Debit	Credit	Balance
March 1	Balance Forward			0.00
Mar 21	Supplier invoice 10102		4,005.00	4,005.00
Mar 24	Supplier invoice 10145		267.88	4,272.88

Accounting Information Systems, 13e (Romney/Steinbart)

Chapter 2 Overview of Transaction Processing and Enterprise Resource Planning Systems

2.1 Describe the four parts of the data processing cycle and the major activities in each.

1) Which of the following commonly initiates the data input process?

A) a business activity

B) automatic batch processing

C) an accounting department source document

D) a trial balance query

Answer: A

Objective: Learning Objective 1

Difficulty: Easy

AACSB: Analytic

2) A typical source document could be

A) some type of paper document.

B) a computer data entry screen.

C) the company's financial statements.

D) both A and B

Answer: D

Objective: Learning Objective 1

Difficulty: Easy

AACSB: Analytic

3) Which step below is not considered to be part of the data processing cycle?

A) data input

B) feedback from external sources

C) data storage

D) data processing

Answer: B

Objective: Learning Objective 1

Difficulty: Easy

AACSB: Analytic

4) John Pablo works in the accounting department of a multinational manufacturing company. His job includes updating accounts receivable based on sales orders and remittance advices. His responsibilities are part of the company's

A) revenue cycle.

B) expenditure cycle.

C) financing cycle.

D) production cycle.

Answer: A

Objective: Learning Objective 1

Difficulty: Moderate

AACSB: Reflective Thinking

5) John Pablo works in the accounting department of a multinational manufacturing company. His job includes updating accounts payable based on purchase orders and checks. His responsibilities are part of the company's

A) revenue cycle.

B) expenditure cycle.

C) financing cycle.

D) production cycle.

Answer: B

Objective: Learning Objective 1

Difficulty: Moderate

AACSB: Reflective Thinking

6) Many small businesses choose to outsource their payroll activities to firms that specialize in providing payroll services. Dolores Yu operates a payroll processing business in Calabasas, California. When she sends bills out to her clients, her work is part of her firm's

A) revenue cycle.

B) expenditure cycle.

C) financing cycle.

D) production cycle.

Answer: A

Objective: Learning Objective 1

Difficulty: Moderate

AACSB: Reflective Thinking

7) A delivery of inventory from a vendor, with whom a credit line is already established, would be initially recorded in which type of accounting record and as part of what transaction cycle?

A) purchases journal; expenditure cycle

B) general journal; expenditure cycle

C) general ledger; expenditure cycle

D) cash disbursements journal; production cycle

Answer: A

Objective: Learning Objective 1

Difficulty: Difficult

AACSB: Reflective Thinking

8) Describe the basic cycles and business activities for a typical merchandising company.

Answer: Revenue cycle — deliver inventory to customers and collect cash. Expenditure cycle — receive goods and services from vendors and pay cash. Human resources cycle — track hours worked by employees and record withholding data.

Objective: Learning Objective 1

Difficulty: Easy

AACSB: Analytic

9) Identify the four parts of the transaction processing cycle.

A) data input, data storage, data processing, information output

B) data input, data recall, data processing, information output

C) data input, data recall, data transmission, information output

D) data input, data recall, data transmission, data storage

Answer: A

Objective: Learning Objective 1

Difficulty: Easy

AACSB: Analytic

10) What is the most frequent revenue cycle transaction?

A) purchase of inventory

B) receipt of cash

C) sale to customer

D) billing

Answer: C

Objective: Learning Objective 1

Difficulty: Easy

AACSB: Analytic

11) True or False: The existence of relevant data guarantees the data are useful.

Answer: FALSE

Objective: Learning Objective 1

Difficulty: Easy

AACSB: Analytic

12) Identify the item below that is not one of the four different types of data processing activities.

A) creating

B) reading

C) using

D) deleting

Answer: C

Objective: Learning Objective 1

Difficulty: Moderate

AACSB: Analytic

13) What is the final step in the data processing cycle?

A) output

B) storage

C) processing

D) input

Answer: A

Objective: Learning Objective 1

Difficulty: Moderate

AACSB: Analytic

2.2 Describe documents and procedures used to collect and process transaction data.

1) The general ledger

A) is the initial place to record general expenses.

B) is posted in total to the general journal.

C) only includes balance sheet accounts.

D) summarizes the transactions in journals.

Answer: D

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Reflective Thinking

2) For a retail business, a delivery of inventory, from a vendor (with whom there is an established credit relationship) would be initially recorded in which type of accounting record as part of which transaction cycle?

A) purchases journal; expenditure cycle

B) general journal; expenditure cycle

C) general ledger; expenditure cycle

D) cash disbursements journal; production cycle

Answer: A

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Reflective Thinking

3) Data must be collected about three facets of each business activity. What are they?

A) the business activity, the resources it affects, the people who participate

B) the business activity, the transactions it creates, the impact on the financial statements

C) the inputs, outputs and processes used

D) who is involved, what was sold, how much was paid

Answer: A

Objective: Learning Objective 2

Difficulty: Easy

AACSB: Analytic

4) Issuing a purchase order is part of which transaction cycle?

A) the revenue cycle

B) the expenditure cycle

C) the human resources cycle

D) the production cycle

Answer: B

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Analytic

5) The collection of employee time sheets is part of which transaction cycle?

A) the revenue cycle

B) the production cycle

C) the human resources cycle

D) the expenditure cycle

Answer: C

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Analytic

6) Common source documents for the revenue cycle include all of the following except

A) sales order.

B) receiving report.

C) delivery ticket.

D) credit memo.

Answer: B

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Analytic

7) Which of the following documents would be found in the expenditure cycle?

A) delivery ticket

B) time card

C) credit memo

D) purchase order

Answer: D

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Analytic

8) Documents that are sent to customers or suppliers and then sent back to the company in the course of a business transaction are known as

A) turnaround documents.

B) source documents.

C) input documents.

D) transaction documents.

Answer: A

Objective: Learning Objective 2

Difficulty: Easy

AACSB: Analytic

9) Which of the following is an example of source data automation?

A) a utility bill

B) POS (point-of-sale) scanners in retail stores

C) a bill of lading

D) a subsidiary ledger

Answer: B

Objective: Learning Objective 2

Difficulty: Easy

AACSB: Analytic

10) Pre-numbering of source documents helps to verify that

A) documents have been used in order.

B) company policies were followed.

C) all transactions have been recorded.

D) source data automation was used to capture data.

Answer: C

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Analytic

11) Source documents generally help to improve accuracy in transaction processing because

A) they specify which information to collect.

B) logically related data can be grouped in the same area of the document.

C) they provide directions and steps for completing the form.

D) All of the above are correct.

Answer: D

Objective: Learning Objective 2

Difficulty: Easy

AACSB: Analytic

12) In transaction processing, generally which activity comes first?

A) recording data in a journal

B) posting items to special journals

C) capturing data on source documents

D) recording data in a general ledger

Answer: C

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Analytic

13) Which of the following statements is true?

A) Batch processing ensures that stored information is always current.

B) Batch input is more accurate than on-line data entry.

C) On-line batch processing is a combination of real-time and batch processing.

D) Batch processing is not frequently used.

Answer: C

Objective: Learning Objective 2

Difficulty: Easy

AACSB: Analytic

14) The data processing method used by FedEx to track packages is an example of

A) real-time processing.

B) batch processing.

C) online batch processing.

D) real-time batch processing.

Answer: A

Objective: Learning Objective 2

Difficulty: Easy

AACSB: Analytic

15) Street Smarts (SS) is a retailer located in Naperville, Illinois. During the peak tourist season, it has average daily cash and credit card sales in excess of $7,000. What is the best way for SS to ensure that sales data entry is efficient and accurate?

A) well-designed paper forms

B) source data automation

C) turnaround documents

D) sequentially numbered sales invoices

Answer: B

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Reflective Thinking

16) In Petaluma, California, electric power is provided to consumers by Pacific Power. Each month Pacific Power mails bills to 86,000 households and then processes payments as they are received. What is the best way for this business to ensure that payment data entry is efficient and accurate?

A) well-designed paper forms

B) source data automation

C) turnaround documents

D) sequentially numbered bills

Answer: C

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Reflective Thinking

17) Data processing includes all of the following except

A) verifying subsidiary ledger balances.

B) changing customer addresses.

C) removing inventory items no longer offered.

D) adding the name of a new vendor.

Answer: A

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Reflective Thinking

18) The Cape Fear Rocket Club heads out to the dunes of Cape Fear, Oregon every August to pierce the sky with their fiery projectiles. An enterprising seller of t-shirts has devised a series of designs that capture the spirit of the event in silk-screened splendor. His employees can be found on many of the major intersections selling his products out of the backs of pickup trucks. What is the best way for this business to ensure that sales data entry is efficient and accurate?

A) well-designed paper forms

B) source data automation

C) turnaround documents

D) sequentially numbered forms

Answer: D

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Reflective Thinking

19) Which of the following statements about data processing methods is true?

A) Online real-time processing does not store data in a temporary file.

B) Batch processing cannot be used to update a master file.

C) Control totals are used to verify accurate processing in both batch and online batch processing.

D) Online real-time processing is only possible with source data automation.

Answer: A

Objective: Learning Objective 2

Difficulty: Difficult

AACSB: Reflective Thinking

20) What is the purpose of source documents? What controls are embedded in source documents? Give two examples of source documents.

Answer: The primary purpose of source documents is to record data about business activities. Source documents standardize data collection procedures for an organization and provide better control and accuracy. Source documents are generally pre-numbered, which helps to verify that all transactions have been recorded and there is no missing document; if a document is missing, then which one(s) can be determined. Proper design of source documents ensures which information to collect, preprints standard information such as addresses, and provides directions for completing the form. Examples include: invoices, timecards, sales orders, and purchase orders.

Objective: Learning Objective 2

Difficulty: Easy

AACSB: Reflective Thinking

21) Describe the methods used to collect data about business activities. Describe design and control considerations for each of the data collection methods.

Answer: Data about business activities can be collected with source documents, either on paper or electronic, turnaround documents, and source data automation.

Source documents define what data to collect about an activity, group logically related data close together, provide instructions on how to complete the document, include fields for approvals, and use preprinted standard data. Paper documents should be sequentially prenumbered to allow verification that all documents have been recorded. Electronic source documents should also utilize pull-down menus, drop-down boxes, default values, preformatting, auto sequential numbering, and prompting for complete data entry.

Turnaround documents often begin as output documents that are then sent to external users for further completion. Turnaround documents should utilize most of the same design and control considerations as source documents, but should include data in machine-readable form, such as bar codes or optical character recognition.

Source data automation utilizes technology to capture data in machine-readable form at the time and place the business activity occurs. Source data automation technology includes point-of-sale terminals, bar codes, RFID tags, and electronic data interchange. An especially important control consideration for source data automation is a way to indicate authorization of the activity.

Objective: Learning Objective 2

Difficulty: Difficult

AACSB: Reflective Thinking

22) Source data automation refers to

A) using devices to capture transaction data in machine-readable form at the time the transaction is initiated.

B) using the internet as the operating platform of an accounting information system.

C) using an accounting information system to electronically bill customers.

D) using an accounting information system to automate a previously manual transaction process.

Answer: A

Objective: Learning Objective 2

Difficulty: Moderate

AACSB: Analytic

23) What is the first step in the data processing cycle?

A) input

B) output

C) storage

D) purchasing

Answer: A

Objective: Learning Objective 2

Difficulty: Easy

AACSB: Analytic

24) A purchase requisition is a common source document used to facilitate which business activity?

A) customer sale

B) receipt of goods

C) inventory purchase

D) purchase request

Answer: D

Objective: Learning Objective 2

Difficulty: Difficult

AACSB: Analytic

2.3 Describe the ways information is stored in computer-based information systems.

1) Identify the statement below that is not true with regards to the accounts receivable subsidiary ledger.

A) Every credit sale is entered individually into the subsidiary ledger.

B) Debits and credits in the subsidiary ledger must always equal.

C) The subsidiary ledgers play an important role in maintaining the accuracy of the data stored in the AIS.

D) The total of the subsidiary ledgers must equal the control account.

Answer: B

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

2) Which of the following is not usually a consideration when designing a coding system?

A) government coding regulations

B) standardization

C) future expansion needs

D) ease of reporting

Answer: A

Objective: Learning Objective 3

Difficulty: Easy

AACSB: Analytic

3) Which of the following statements regarding special journals is not true?

A) The balances in a special journal must always reconcile to the general ledger.

B) Special journals are used to record large numbers of repetitive transactions.

C) Special journals are periodically summarized and posted to the general ledger.

D) Special journals provide a specialized format for recording similar transactions.

Answer: A

Objective: Learning Objective 3

Difficulty: Easy

AACSB: Analytic

4) A change in an employee's hourly pay would be recorded in

A) the payroll master file.

B) a payroll transaction file.

C) the employee master file.

D) the employee transaction file.

Answer: C

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

5) When the sum of all entries in the subsidiary ledger equals the balance in the corresponding general ledger account, it is assumed that

A) the recording processes were accurate.

B) all source documents were recorded.

C) adjusting entries are not required.

D) no errors exist in the subsidiary ledger.

Answer: A

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Analytic

6) The general ledger account that corresponds to a subsidiary ledger account is known as a(n)

A) dependent account.

B) control account.

C) credit account.

D) attribute account.

Answer: B

Objective: Learning Objective 3

Difficulty: Easy

AACSB: Analytic

7) Pre-numbered invoices and pre-numbered purchase orders are examples of

A) sequence codes.

B) block codes.

C) group codes.

D) mnemonic codes.

Answer: A

Objective: Learning Objective 3

Difficulty: Easy

AACSB: Analytic

8) A chart of accounts is an example of (select all that apply)

A) sequence codes.

B) block codes.

C) group codes.

D) mnemonic codes.

Answer: B, C

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

9) Product items are often coded with (select all that apply)

A) sequence codes.

B) block codes.

C) group codes.

D) mnemonic codes.

Answer: C, D

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

10) Identify the statement below that is false with regards to effective coding practices.

A) Codes should allow for growth.

B) Codes should be consistent with intended use.

C) Codes should be customized for each division of an organization.

D) Codes should be as simple as possible.

Answer: C

Objective: Learning Objective 3

Difficulty: Easy

AACSB: Analytic

11) To be effective, the chart of accounts must

A) not use alpha-numeric characters.

B) contain sufficient detail.

C) utilize only one coding technique.

D) begin with account 001.

Answer: B

Objective: Learning Objective 3

Difficulty: Easy

AACSB: Analytic

12) The chart of accounts of a movie theater would probably include

A) retained earnings.

B) a drawing account.

C) work-in-process.

D) both A and C

Answer: A

Objective: Learning Objective 3

Difficulty: Easy

AACSB: Analytic

13) The efficiency of recording numerous business transactions can be best improved by the use of

A) prenumbered source documents.

B) specialized journals.

C) posting references.

D) subsidiary ledgers.

Answer: B

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

14) A general journal

A) would be used to record monthly depreciation entries.

B) simplifies the process of recording large numbers of repetitive transactions.

C) records all detailed data for any general ledger account that has individual sub-accounts.

D) contains summary-level data for every account of the organization.

Answer: A

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

15) The general ledger

A) is used to record infrequent or non-routine transactions.

B) simplifies the process of recording large numbers of repetitive transactions.

C) records all detailed data for any general ledger account that has individual sub-accounts.

D) contains summary-level data for every account of the organization.

Answer: D

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Analytic

16) A subsidiary ledger

A) is used to record infrequent or non-routine transactions.

B) simplifies the process of recording large numbers of repetitive transactions.

C) records all detailed data for any general ledger account that has individual sub-accounts.

D) contains summary-level data for every account of the organization.

Answer: C

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Analytic

17) A specialized journal

A) is used to record infrequent or non-routine transactions.

B) simplifies the process of recording large numbers of repetitive transactions.

C) records all detailed data for any general ledger account that has individual sub-accounts.

D) contains summary-level data for every account of the organization.

Answer: B

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Analytic

18) Which statement below is true with regards to an audit trail?

A) An audit trail begins with the general journal.

B) An audit trail provides the means to check the accuracy and validity of ledger postings.

C) An audit trail is a summary of recorded transactions.

D) An audit trail is automatically created in every computer-based information system.

Answer: B

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

19) Which of the following statements about a master file is false?

A) A master file is conceptually similar to a ledger in a manual AIS.

B) A master file's individual records are rarely, if ever, changed.

C) A master file exists across fiscal periods.

D) A master file stores cumulative information.

Answer: B

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Analytic

20) Which of the following is conceptually similar to a journal in a manual AIS?

A) database

B) master file

C) record

D) transaction file

Answer: D

Objective: Learning Objective 3

Difficulty: Easy

AACSB: Analytic

21) Catarina Boards is a skateboard retailer located in Pueblo, New Mexico. Catarina Boards is a sole proprietorship that stocks an inventory of between 30 and 50 different skateboards. Inventory is updated in real time by the AIS. If Catarina wishes to keep detailed information about the purchase price of each skateboard in a place outside of the general ledger, it might use a

A) relational ledger.

B) transaction file.

C) master file.

D) specific ledger.

Answer: B

Objective: Learning Objective 3

Difficulty: Difficult

AACSB: Reflective Thinking

22) Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the price of the Japanese fans is a(n)

A) entity.

B) attribute.

C) field.

D) record.

Answer: B

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

23) Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the data about each Japanese fan represents a(n)

A) entity.

B) attribute.

C) field.

D) record.

Answer: D

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

24) Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the Japanese fans (as a whole) represent a(n)

A) entity.

B) attribute.

C) field.

D) record.

Answer: A

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

25) Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the data about each Japanese fan's price is stored in a(n)

A) entity.

B) attribute.

C) field.

D) record.

Answer: C

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

26) The coding technique most likely used for sales orders is

A) block code.

B) group code.

C) sequence code.

D) data code.

Answer: C

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

27) A specialized journal would be most likely to be used to enter

A) sales transactions.

B) monthly depreciation adjustments.

C) annual closing entries.

D) stock issuance transactions.

Answer: A

Objective: Learning Objective 3

Difficulty: Easy

AACSB: Analytic

28) Changing an employee's hourly wage rate would be recorded where?

A) employee master file

B) employee transaction file

C) special journal

D) employee update file

Answer: A

Objective: Learning Objective 3

Difficulty: Difficult

AACSB: Reflective Thinking

29) Which of the following statements is not correct?

A) The audit trail is intended to verify the validity and accuracy of transaction recording.

B) The audit trail consists of records stored sequentially in an audit file.

C) The audit trail provides the means for locating and examining source documents.

D) The audit trail is created with document numbers and posting references.

Answer: B

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

30) Data about which of the following facets of a business activity is most likely to be recorded in a transaction file?

A) business activity

B) resources affected by the business activity

C) people who participate in the business activity

D) place the business activity occurs

Answer: A

Objective: Learning Objective 3

Difficulty: Difficult

AACSB: Reflective Thinking

31) Data about all of the following facets of a business activity are most likely to be recorded in a master file except the

A) business activity.

B) resources affected by the business activity.

C) people who participate in the business activity.

D) place the business activity occurs.

Answer: A

Objective: Learning Objective 3

Difficulty: Difficult

AACSB: Reflective Thinking

32) Describe an audit trail.

Answer: An audit trail provides a means to check the accuracy and validity of postings to the ledger. The posting references and document numbers help provide the audit trail. An audit trail exists when company transactions can be traced through the AIS from where it originated to where they end up on the financial statements

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

33) Explain how data is organized and stored in an AIS.

Answer: The smallest unit of data is known as a data value. A data value is physically stored in a space called a field. Any number of fields can be grouped together to form a record. Related records are grouped together to form a file. Files are then combined to form a database.

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

34) Describe guidelines to follow for a well-designed coding system.

Answer: First, the code should be consistent with its intended use. Second, the code should allow for growth in the number of items to be coded. The coding system should be as simple as possible. The coding system should be consistent with the company's organizational structure and it should be consistent across the different divisions of an organization.

Objective: Learning Objective 3

Difficulty: Easy

AACSB: Analytic

35) Describe the relationship between the general and subsidiary ledgers.

Answer: The general ledger contains summary-level information about every asset, liability, equity, revenue, and expense account in an organization. The balances in general ledger accounts form the starting point for preparation of financial statements and various other financial reports. A subsidiary ledger account provides support for any general ledger account for which individual subaccounts (for example, accounts receivable, accounts payable, inventory, and fixed assets) are required. The subsidiary ledger records and maintains the detail-level information by having a separate record for each customer, vendor, inventory item, or fixed asset. The sum of the subsidiary ledger balances should equal the balance in the general ledger account. A general ledger account that corresponds to a subsidiary ledger account is known as a control account.

Objective: Learning Objective 3

Difficulty: Moderate

AACSB: Reflective Thinking

2.4 Discuss the types of information that an AIS can provide.

1) Which statement below regarding the AIS is false?

A) The AIS must be able to provide managers with detailed and operational information about the organization's performance.

B) Both traditional financial measures and operational data are required for proper and complete evaluation of performance.

C) The AIS was often just one of the information systems used by an organization to collect and process financial and nonfinancial data.

D) Traditionally, most AIS have been designed so that both financial and operational data are stored in a manner that facilitates their integration in reports.

Answer: D

Objective: Learning Objective 4

Difficulty: Moderate

AACSB: Reflective Thinking

2) The quality assurance department at a large manufacturing business enters data into the AIS that is used to produce a weekly report that summarizes the proportion of defective units in each product line. This is an example of

A) internal financial information.

B) internal nonfinancial information.

C) external financial information.

D) external nonfinancial information.

Answer: B

Objective: Learning Objective 4

Difficulty: Moderate

AACSB: Reflective Thinking

3) Which of the following information would most likely be reviewed by management on an exception report?

A) monthly cash budget

B) quality control system failures

C) unit sales by territory and salesperson

D) income statement

Answer: B

Objective: Learning Objective 4

Difficulty: Moderate

AACSB: Reflective Thinking

4) All of the following situations would likely be communicated in an exception report except

A) production stoppages.

B) weekly credit and cash sales comparison.

C) low inventory level.

D) expense variances outside acceptable range.

Answer: B

Objective: Learning Objective 4

Difficulty: Easy

AACSB: Reflective Thinking

5) Which statement below regarding the AIS and managerial reports is false?

A) The AIS is best utilized for financial data while the management information system is best utilized for operational data.

B) The AIS must be able to provide managers with detailed operational information about the organization's performance.

C) Both financial and nonfinancial data are required for proper and complete evaluation of organizational performance.

D) Most source documents capture both financial and nonfinancial data about business transactions.

Answer: A

Objective: Learning Objective 4

Difficulty: Moderate

AACSB: Reflective Thinking

6) True or False: Traditionally, accounting information systems have been used to collect, process, store and report non-financial information.

Answer: FALSE

Objective: Learning Objective 4

Difficulty: Easy

AACSB: Analytic

7) The existence of multiple systems which provide information can result in all of the following except

A) redundancies.

B) discrepancies.

C) integration issues.

D) efficiency.

Answer: D

Objective: Learning Objective 4

Difficulty: Difficult

AACSB: Analytic

8) When printed on paper, data output is referred to as

A) reports.

B) hard copy.

C) soft copy.

D) financials.

Answer: B

Objective: Learning Objective 4

Difficulty: Moderate

AACSB: Analytic

9) When displayed on a monitor, data output is referred to as

A) reports.

B) hard copy.

C) soft copy.

D) financials.

Answer: C

Objective: Learning Objective 4

Difficulty: Moderate

AACSB: Analytic

10) Identify the output below that an accounting information system can provide.

A) income statement

B) list of sales returns

C) exception reports

D) all of the above

Answer: D

Objective: Learning Objective 4

Difficulty: Easy

AACSB: Analytic

2.5 Discuss how organizations use enterprise resource planning (ERP) systems to process transactions and provide information.

1) Which of the following is an example of an ERP system?

A) Alexis uses a computerized information system to keep track of all the financial data generated by her bakery. She is considering opening a new bakery on the east side of town.

B) Betty has a system that keeps track of the accounts payable and receivable for her plumbing business. At the end of the year, the system helps her to prepare her taxes in just two hours.

C) Charlie keeps records of all his business records in a shoe box. Each week he enters all of the data into spreadsheets that automatically generate purchase orders, based on predetermined inventory reorder points. Production quotas for the coming week are also automatically generated based on customer orders.

D) Doug is a freelance photographer. He keeps records of all expenses and revenues on his cell phone and then e-mails them to himself every month. The files are stored on his personal computer and backed up to CD quarterly.

Answer: C

Objective: Learning Objective 5

Difficulty: Moderate

AACSB: Reflective Thinking

2) In an ERP system, the module used to record data about transactions in the revenue cycle is called

A) order to cash.

B) purchase to pay.

C) financial.

D) customer relationship management.

Answer: A

Objective: Learning Objective 5

Difficulty: Moderate

AACSB: Analytic

3) Implementation of an ERP system requires increased focus on all except which of the following controls?

A) segregation of duties between custody, authorization, and recording

B) data entry controls on validity and accuracy

C) controls over access to data

D) appropriate disposal of hard copy reports

Answer: D

Objective: Learning Objective 5

Difficulty: Moderate

AACSB: Analytic

4) Describe four advantages and four disadvantages of implementing an ERP system at a multinational corporation.

Answer:

Advantages

Integrating information breaks down barriers between departments and streamlines the flow of information.

Data input is captured or keyed only once.

Management gains greater visibility into every area of the enterprise and has improved monitoring capabilities.

Better access control is established by consolidating multiple permissions and security models into a single data access structure.

Standardization of procedures and reports across business units.

Customer service improves as employees can quickly access data.

Increased productivity of employees.

Disadvantages

ERP systems are very costly.

Implementation is time consuming.

Changes to business processes are sometimes required, in order to minimize the customization needed.

Complexity of the system.

Employees may be resistant to implement and use an ERP system and change business processes.

Objective: Learning Objective 5

Difficulty: Easy

AACSB: Analytic

5) ERP stands for

A) enterprise resource planning.

B) enterprise resource program.

C) enterprise reporting program.

D) none of the above

Answer: A

Objective: Learning Objective 5

Difficulty: Easy

AACSB: Analytic

6) In an ERP system, the module used to record data about transactions in the disbursement cycle is called

A) order to cash.

B) purchase to pay.

C) financial.

D) customer relationship management.

Answer: B

Objective: Learning Objective 5

Difficulty: Moderate

AACSB: Analytic

7) In an ERP system, the module used to record data about transactions in the production cycle is called

A) order to cash.

B) purchase to pay.

C) manufacturing.

D) logistics.

Answer: C

Objective: Learning Objective 5

Difficulty: Easy

AACSB: Analytic

8) In an ERP system, the module used to record marketing data is called

A) marketing.

B) advertising.

C) customer relationship management.

D) customer service.

Answer: C

Objective: Learning Objective 5

Difficulty: Moderate

AACSB: Analytic

9) All of the following are disadvantages of an ERP system except

A) an ERP provides an integrated view of the organization's data.

B) ERP software and hardware can cost midsized companies between $10 million and $20 million dollars.

C) ERPs frequently cause organizations to change their business processes to standardized ones.

D) ERPs are relatively complex.

Answer: A

Objective: Learning Objective 5

Difficulty: Moderate

AACSB: Analytic

10) All of the following are advantages of an ERP system except

A) in an ERP, data input is captured or keyed once.

B) ERPs permit management to gain greater visibility into every area of the enterprise.

C) it takes considerable experience and training to use an ERP system effectively.

D) ERPs permit manufacturing plants to receive new orders in real time.

Answer: C

Objective: Learning Objective 5

Difficulty: Moderate

AACSB: Analytic

11) All of the following are reasons that implementing a new ERP may fail except

A) employees may resist using the ERP system.

B) ERPs can take years to fully implement.

C) employees may refuse to share sensitive information with different departments.

D) ERPs may require procedures and reports to be standardized across business units.

Answer: D

Objective: Learning Objective 5

Difficulty: Difficult

AACSB: Analytic

12) All of the following are ERP vendors except

A) Dell.

B) SAP.

C) Oracle.

D) Microsoft.

Answer: A

Objective: Learning Objective 5

Difficulty: Difficult

AACSB: Analytic

13) An ERP system might facilitate the purchase of direct materials by all of the following except

A) selecting the best supplier by comparing bids.

B) preparing a purchase order when inventory falls to reorder point.

C) routing a purchase order to a purchasing agent for approval.

D) communicating a purchase order to a supplier.

Answer: A

Objective: Learning Objective 5

Difficulty: Moderate

AACSB: Reflective Thinking