Expenditure Cycle Overview Quiz

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Questions and Answers

What is a key purpose of transaction logs in an audit?

To calculate tax liabilities

To identify potential fraudulent activities (correct)

To review employee performance

To track physical inventory counts

Which of the following files would be critical for verifying the completeness of purchase transactions?

Employee payroll file

Inventory file

Disbursement voucher file (correct)

Vendor contract file

What is a common method for testing the accuracy of disbursement vouchers?

Validating invoice prices (correct)

Examining physical inventory

Calculating transaction volumes

Reviewing employee salaries

What assertion relates to searching for unrecorded liabilities?

Completeness assertion Signup and view all the answers

Which of the following is NOT a concern when auditing payroll records?

Reviewing multiple checks to vendors Signup and view all the answers

What should happen after checks are printed and signed?

They are distributed to the mailroom. Signup and view all the answers

Which of the following is NOT an improvement noted from proper cash disbursement processes?

Decreased communication between departments Signup and view all the answers

What is primarily updated in the general ledger after payments are recorded?

Accounts Payable and cash accounts Signup and view all the answers

What drawback is associated with using standard A.P. systems for payroll?

They accommodate steady transaction flow. Signup and view all the answers

What is a benefit of integration with Human Resources in payroll systems?

Better data accuracy and efficiency Signup and view all the answers

What is the role of the disbursement system regarding payroll checks?

It generates checks to fund the payroll imprest account. Signup and view all the answers

Which aspect of payroll systems allows for timely updates?

Real-time data processing Signup and view all the answers

What is the role of the purchasing department in the data processing steps?

They manage inventory control. Signup and view all the answers

How are labor costs distributed in the payroll process?

Using online labor distribution summary Signup and view all the answers

Which step involves scanning for items due and printing checks?

Data processing department. Signup and view all the answers

What does the accounts payable department do with copies of checks?

Matches checks with open vouchers. Signup and view all the answers

Which data processing step is performed automatically after the items are received?

Receiving report file record is added. Signup and view all the answers

How are purchase orders prepared and sent to vendors?

Produced through an Electronic Data Interchange (EDI). Signup and view all the answers

What happens to the record once a quantity received is matched to an open P.O. record?

It is added to the inventory subsidiary records. Signup and view all the answers

Which department is responsible for reconciling checks?

Cash disbursements department. Signup and view all the answers

What action is taken when due dates are scanned in accounts payable?

Payments are processed. Signup and view all the answers

Which of the following is NOT considered a type of input control?

Payroll imprest account Signup and view all the answers

What type of control ensures that only authorized personnel can access sensitive information?

Access controls Signup and view all the answers

Which process control is related to verifying the accuracy of employee pay based on work performed?

Verification of timecards Signup and view all the answers

What does the sequence check control primarily ensure?

Files are updated in the correct order Signup and view all the answers

Which of the following is a purpose of physical controls in a purchasing system?

Reconciliation of supporting documents Signup and view all the answers

Which control helps detect unauthorized changes to files?

File update controls Signup and view all the answers

Which of the following is NOT a risk associated with access controls?

Employees without any system access Signup and view all the answers

What type of control includes the segregation of inventory from the warehouse?

Physical controls Signup and view all the answers

Study Notes

Expenditure Cycle: Steps & Departments

Step 1: Inventory control (Data Processing department) interacts with the Purchasing Department.
Step 2: Purchase order (P.O.) generation (Data Processing department) interacts with the Receiving Department.
Step 3: Batch update of inventory (Data Processing department) interacts with Accounts Payable.
Step 4: Vendor validation (Data Processing department).
Step 5: Scanning for due items and check printing (Data Processing department).
Step 6: Check reconciliation and submission for signature (Cash disbursements department).
Step 7: Matching checks with vouchers, closing, and filing (Accounts Payable).

Automated Data Processing Steps (Expenditure Cycle)

Inventory file scanned for items and reorder points.
Purchase requisition record created for items needing replenishment.
Requisitions consolidated by vendor.
Vendor mailing information retrieved.
P.O. prepared and sent to vendor (EDI).
Open P.O. record added for each transaction.
List of P.O.s sent to purchasing department.

Receiving Department Processes

Goods arrive at the receiving department.
Quantities received are entered per item.

Automated Data Processing Steps (Receiving & Accounts Payable)

Quantities keyed matched to open P.O. records.
Receiving report file record added.
Inventory subsidiary records updated.
General Ledger (G.L.) inventory updated.
Record removed from open P.O. file and added to open A.P. file; due date established.

Accounts Payable Payment Process

Daily scan of A.P. due date file for payments.
Automated processes include check printing, check register updates, transferring paid items from open to closed A.P. files, G.L. updates (A.P. and cash accounts), and report transmission.

Expenditure Cycle: Control Implications

General controls similar to Chapter 9.

Expenditure Cycle: Benefits & Drawbacks

Benefits: Improved inventory control, better cash management, reduced time lag, better purchasing time management, reduced paper documents.
Drawbacks (using regular A.P. and cash disbursement systems for payroll): General expenditure procedures don't apply to employees; special controls needed for employee checks; general procedures unsuitable for the flow of payroll transactions.

Payroll System Integration with HR

Often integrated with HR. Differences include electronic transaction transmission from operational departments to Data Processing, direct file access for data storage, and real-time processing.

Payroll System: Processes & Departments

Involved departments include Personnel, Cost Accounting, Timekeeping, and Data Processing.
- Labor cost distribution.
- Online labor distribution summary and payroll register.
- Employee record updates.
- Payroll check preparation and signing.
- Check generation to fund the payroll imprest account.
- G.L. updates.

Payroll System: Control Types & Testing

Input Controls: Data validation, batch controls, purchase authorization, employee authorization, and testing of these controls.
Process Controls: File update (sequence check, liability validation, valid vendor file), access controls (warehouse security, asset movement, payment method), physical controls (purchase system segregation of duties, receiving department supervision, payroll system verification, supervision, paymaster, imprest account), and testing of these controls. Risks associated with employee access to various files and records are highlighted.
Output Controls: A.P. change report, transaction logs, listing, automatic transaction logs, unique transaction identifiers, error listing, and testing of these controls.

Audit Risks and Concerns, Data Understanding & Testing

Understanding data within files (inventory, purchase order, receiving report, disbursement voucher, file preparation procedures).
Testing accuracy and completeness assertions, reviewing for unusual trends and exceptions (accurate invoice prices).
Testing completeness, existence, rights and obligations assertions includes searching for unrecorded liabilities and unauthorized disbursement vouchers, reviewing multiple checks to vendors, and auditing payroll and related records.

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Description

Test your knowledge of the Expenditure Cycle, detailing the essential steps and departments involved in the process. Understand how inventory control interacts with purchasing, receiving, and accounts payable in this automated data processing framework.