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290     PART II       Transaction Cycles and Business Processes

                  7. Payroll is often used as a good example of when  11. Describe an internal control that would prevent
                     batch processing by using magnetic tapes is consid-  the payment of insurance premiums on an auto-
                     ered appropriate. Why is payroll typically considered  mobile the company no longer owns.
                     a good application for this type of storage device?  12. Describe an internal control that would prevent
                  8. If an asset that is not fully depreciated is sold or  the charging of depreciation expense to the main-
                     disposed, but the fixed asset records are not  tenance department for a sweeper that is now
                     adjusted, what effect will this have on the financial  located in and used by the engineering depart-
                     statements?                                    ment.
                  9. Discuss the fundamental risk and control issues  13. Describe an internal control that would prevent
                     associated with fixed assets that are different from  the acquisition of office equipment that the firm
                     raw materials and finished goods.              does not need.
                 10. Describe an internal control that would prevent  14. What negative consequences result when fixed
                     an employee from removing a computer and then  asset records include assets that the firm no lon-
                     reporting it as scrapped.                      ger owns?


                 Multiple-Choice Questions

                  1. The document that captures the total amount of    ring payroll funds to the general checking
                     time that individual workers spend on each pro-   account
                     duction job is called a                        d. the general ledger department reconciles the
                     a. time card.                                     labor distribution summary and the payroll dis-
                     b. job ticket.                                    bursement voucher
                     c. personnel action form.                   4. The department responsible for approving pay
                                                                    rate changes is
                     d. labor distribution form.
                                                                     a. payroll
                  2. An important reconciliation in the payroll system
                     is when                                        b. treasurer
                     a. the general ledger department compares the   c. personnel
                       labor distribution summary from cost account-  d. cash disbursements
                       ing to the disbursement voucher from accounts  5. Which function should distribute paychecks?
                       payable.
                                                                     a. personnel
                     b. the personnel department compares the num-
                                                                    b. timekeeping
                       ber of employees authorized to receive a pay-
                       check to the number of paychecks prepared.    c. paymaster
                     c. the production department compares the num-  d. payroll
                       ber of hours reported on job tickets to the  6. Which transaction is not processed in the fixed
                       number of hours reported on time cards.      asset system?
                     d. the payroll department compares the labor dis-  a. purchase of building
                       tribution summary to the hours reported on   b. repair of equipment
                       time cards.
                                                                     c. purchase of raw materials
                  3. Which internal control is not an important part of
                                                                    d. sale of company van
                     the payroll system?
                                                                 7. Depreciation
                     a. supervisors verify the accuracy of employee
                                                                     a. is calculated by the department that uses the
                       time cards
                                                                       fixed asset.
                     b. paychecks are distributed by an independent
                                                                    b. allocates the cost of the asset over its useful life.
                       paymaster
                                                                     c. is recorded weekly.
                     c. the accounts payable department verifies the
                       accuracy of the payroll register before transfer-  d. results in book value approximating fair market
                                                                       value.
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