Financial Accounting Review
Questions
Course Introduction
Financial Accounting is an introductory course that examines the fundamental principles and practices used to record, summarize, and report the economic activities of business entities. The course covers essential topics such as the accounting cycle, preparation of financial statements, and analysis of transactions in accordance with generally accepted accounting principles (GAAP). Students will learn to interpret and analyze financial statements, understand the impact of business activities on financial position and performance, and gain the skills necessary for effective decision-making within organizations or for further study in the field of accounting.
Recommended Textbook
Accounting Information Systems 12th Edition by Marshall B. Romney
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Page 2
Chapter 1: Accounting Information Systems: an Overview
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Q1) Which of the following is a primary activity in the value chain?
A) infrastructure
B) technology
C) purchasing
D) marketing and sales
Answer: D
Q2) Transaction cycles can be summarized on a high level as "give-get" transactions.An example of "give-get" in the expenditure cycle would be
A) give cash, get cash.
B) give cash, get goods.
C) give cash, get labor.
D) give goods, get cash.
Answer: B
Q3) Which of the following is not an example of a common activity in an AIS?
A) buy and pay for goods and services
B) sell goods and services and collect cash
C) summarize and report results to interested parties
D) recording of sales calls for marketing purposes
Answer: D
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Page 3
Chapter 2: Overview of Transaction Processing and Erp Systems
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Sample Questions
Q1) 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.
Q2) Pre-numbered checks,invoices,and purchase orders are examples of A) sequence codes.
B) block codes.
C) group codes.
D) mnemonic codes.
Answer: A
Q3) 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
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Page 4
Chapter 3: Systems Documentation Techniques
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Sample Questions
Q1) Describe a situation in which data flow should be shown with two data flow lines instead of one.
Answer: A data flow may consist of one or more pieces of datum.The determining factor is whether the data elements always flow together at the same time.For example,"customer payment" have both payment and remittance data.Since these elements always flow together,only one data flow line is required.However,data flows between the customer and the payment processes have customer inquiries and cash receipts; these data items do not always flow together at the same time.In such a case,two data flow lines will be shown.
Q2) Explain the relevance of the Sarbanes Oxley Act to the documentation tools presented in this chapter.
Answer: The Sarbanes Oxley Act of 2002 requires executives of public companies to document and evaluate internal controls.External auditors must evaluate management's assessment of internal control and attest to its accuracy.Therefore,company executives and the auditors must document and test the internal controls documentation tools,such as flowcharts,are used to do this.
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Chapter 4: Relational Databases
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Sample Questions
Q1) The database design method in which a designer uses knowledge about business processes to create a diagram of the elements to be included in the database is called
A) normalization.
B) decentralization.
C) geometric data modeling.
D) semantic data modeling.
Q2) The delete anomaly
A) may result in unintentional loss of important data.
B) is usually easily detected by users.
C) restricts the addition of new records.
D) prevents users from deleting outdated data from records or tables.
Q3) In a well-structured relational database,
A) every table must be related to at least one other table.
B) every table must be related to all other tables.
C) one table must be related to at least one other table.
D) one table must be related to all other tables.
Q4) Discuss redundancy as it applies to database design.
Q5) Describe what you think will be the main impact of database technology in your career.
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Chapter 5: Computer Fraud
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Sample Questions
Q1) What are some of the distinguishing characteristics of fraud perpetrators?
Q2) A teller at a savings and loan drive-through accepted a cash payment from customer #1 for an auto loan.The teller appeared to process the payment,but told the customer the printer was jammed and she can't print a receipt.The customer accepted the excuse and drove away.The teller pocketed the cash and wrote down customer #1's loan number and payment amount for future reconciling.A couple of days before customer #1's monthly statement was printed,the teller recorded a cash payment from customer #2 as if it were made by customer #1.The teller pocketed the difference between the two payments.The teller continued to steal and misapply customer payments for the next two years without detection. Identify the type of fraud scheme described.Describe five controls you would implement to address the fraud risk,and label each control as preventive or detective.
Q3) What is the most prevalent opportunity within most companies to commit fraud?
A) lack of any internal controls
B) failure to enforce the internal controls
C) loopholes in the design of internal controls
D) management's failure to believe employees would commit fraud
Q4) Explain the impact of SAS No.99 on auditors' responsibilities.
Q5) Describe four ways companies can reduce losses from fraud.
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Chapter 6: Computer Fraud and Abuse Techniques
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Sample Questions
Q1) After graduating from college with a communications degree,Sylvia Placer experienced some difficulty in finding full-time employment.She free-lanced during the summer as a writer and then started a blog in the fall.Shortly thereafter she was contacted by Clickadoo Online Services,who offered to pay her to promote their clients by mentioning them in her blog and linking to their Web sites.She set up several more blogs for this purpose and is now generating a reasonable level of income.She is engaged in
A) Bluesnarfing.
B) splogging.
C) vishing.
D) typosquatting.
Q2) The unauthorized copying of company data is known as
A) data leakage.
B) eavesdropping.
C) masquerading.
D) phishing.
Q3) Describe at least four social engineering techniques.
Q4) Describe at least six computer attacks and abuse techniques.
Q5) Describe the differences between a worm and a virus?
Q6) How can a system be protected from viruses?
Page 8
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Chapter 7: Control and Accounting Information Systems
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Sample Questions
Q1) The Sarbanes-Oxley Act (SOX)applies to
A) all companies with gross annual revenues exceeding $500 million.
B) publicly held companies with gross annual revenues exceeding $500 million.
C) all private and publicly held companies incorporated in the United States.
D) all publicly held companies.
Q2) According to the ERM,high level goals that are aligned with and support the company's mission are
A) compliance objectives.
B) operations objectives.
C) reporting objectives.
D) strategic objectives.
Q3) Independent checks on performance include all the following except
A) data input validation checks.
B) reconciling hash totals.
C) preparing a trial balance report.
D) supervisor review of journal entries and supporting documentation.
Q4) Explain why management's philosophy and operating style are considered to be the most important element of the internal environment.
Q5) What are some of the ways to assign authority and responsibility within an organization?
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Chapter 8: Information Systems Controls for System
Reliability Part 1: Information Security
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Q1) A special purpose hardware device or software running on a general purpose computer,which filters information that is allowed to enter and leave the organization's information system,is known as a(n)
A) demilitarized zone.
B) intrusion detection system.
C) intrusion prevention system.
D) firewall.
Q2) When new employees are hired by Folding Squid Technologies,they are assigned user names and passwords and provided with laptop computers that have an integrated fingerprint reader.In order to log in,the user's fingerprint must be recognized by the reader.This is an example of a(an)
A) authorization control.
B) biometric device.
C) remote access control.
D) defense in depth.
Q3) Identify six physical access controls.
Q4) Describe the function of a computer incident response team (CIRT)and the steps that a CIRT should perform following a security incident.
Q5) Explain the value of penetration testing.
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Chapter 9: Information Systems Controls for Systems
Reliability Part 2: Confidentiality and Privacy
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Q1) Which of the following describes one weakness of encryption?
A) Encrypted packets cannot be examined by a firewall.
B) Encryption protects the confidentiality of information while in storage.
C) Encryption protects the privacy of information during transmission.
D) Encryption provides for both authentication and non-repudiation.
Q2) These systems use the same key to encrypt and to decrypt.
A) Asymmetric encryption
B) Hashing encryption
C) Public key encryption
D) Symmetric encryption
Q3) Which of the following is not associated with asymmetric encryption?
A) No need for key exchange
B) Public keys
C) Private keys
D) Speed
Q4) These are used to create digital signatures.
A) Asymmetric encryption and hashing
B) Hashing and packet filtering
C) Packet filtering and encryption
D) Symmetric encryption and hashing
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Chapter 10: Information Systems Controls for Systems
Reliability Part 3: Processing Integrity and Availability
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Sample Questions
Q1) This control ensures that the correct and most current files are being updated.
A) Cross-footing balance test
B) Data matching
C) File labels
D) Write-protect mechanism
Q2) A copy of a database,master file,or software that will be retained indefinitely as a historical record is known as a(n)
A) archive.
B) cloud computing.
C) differential backup.
D) incremental backup.
Q3) Concerning system availability,which of the following statements is true?
A) Human error does not threaten system availability.
B) Proper controls can maximize the risk of threats causing significant system downtime.
C) Threats to system availability can be completely eliminated.
D) Threats to system availability include hardware and software failures as well as natural and man-made disasters.
Q4) Define and contrast a recovery point objective and a recovery time objective.
Page 12
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Chapter 11: Auditing Computer-Based Information Systems
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Sample Questions
Q1) An auditor sets an embedded audit module to selectively monitor transactions.Selected transactions are then reprocessed independently,and the results are compared with those obtained by the normal system processing.The auditor is using A) an integrated test facility.
B) the snapshot technique.
C) a system control audit review file.
D) continuous and intermittent simulation.
Q2) To maintain the objectivity necessary for performing an independent evaluation function,auditors should not be involved in
A) making recommendations to management for improvement of existing internal controls.
B) examining system access logs.
C) examining logical access policies and procedures.
D) developing the information system.
Q3) Define and give examples of embedded audit modules.
Q4) Audit tests and procedures traditionally have been performed on a sample basis.Do options exist for auditors to test significantly more (or all)transactions?
Q5) How is a financial audit different from an information systems audit?
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Chapter 12: The Revenue Cycle: Sales to Cash Collections
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Sample Questions
Q1) Discuss the revenue cycle threat of stockouts,carrying costs,and markdowns.
Q2) In Petaluma,California,electric power is provided to consumers by the Power To The People Electrical Company,a local co-op.Each month PTTP mails bills to 70,000 households and then processes payments as they are received.The customers are provided with a remittance advice,which is a
A) warning that failure to pay by the due date will result in a late charge.
B) confirmation of the firm's privacy policy.
C) turnaround document.
D) bill.
Q3) What is the basic document created in the billing process?
A) bill of lading
B) sales order
C) packing list
D) sales invoice
Q4) A monthly statement sent to customers serves a control purpose by
A) providing an opportunity for customers to verify the balance owed and activity on the account.
B) triggering the process to record a customer payment.
C) summarizing invoices and amounts due for customers.
D) reminding customers of the balance due and due date.
Page 14
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Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Sample Questions
Q1) Under what conditions is MRP more suitable than JIT and vice versa?
Q2) Evaluated receipt settlement increases efficiency by
A) eliminating the need for receiving reports.
B) eliminating the need for vendor invoices.
C) eliminating the need for purchase orders.
D) eliminating the need to prepare and mail checks.
Q3) Materials requirements planning (MRP)
A) reduces the uncertainty about when materials are needed, thereby reducing the need to carry large levels of inventory.
B) is able to compute exactly the cost of purchasing by taking into account all costs associated with inventory carrying.
C) requires vendors to deliver inventory to the production site exactly when needed and in the correct quantities.
D) None of the above are correct.
Q4) A voucher package should include
A) a purchase requisition, vendor invoice, and receiving report.
B) a purchase order, vendor invoice, and receiving report.
C) a purchase requisition, purchase order, and receiving report.
D) a bill of lading and vendor invoice.
Page 15
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Chapter 14: The Production Cycle
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Sample Questions
Q1) What does the first term in the throughput formula,productive capacity,represent?
A) the maximum number of units that can be produced given current technology
B) the percentage of total production time used to manufacture a product
C) the percentage of "good" units produced given current technology
D) the percentage of "bad" units produced given current technology
Q2) Overproduction or underproduction can be a threat to an organization.To which process or activity does this threat relate?
A) product design
B) planning and scheduling
C) production operations
D) cost accounting
Q3) Discuss two measures that can address the threats of inefficiencies and quality controls problems.
Q4) What are the two major types of cost accounting systems and what are the differences between the two?
Q5) Discuss the role the accountant can play in the production cycle.
Q6) Describe five threats in the production cycle and the applicable control procedures used to mitigate each threat.
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Chapter 15: The Human Resources Management and Payroll Cycle
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Q1) Direct deposit of employee paychecks is one way an organization can improve efficiency and reduce payroll-processing costs.Which statement regarding direct deposit is false?
A) The cashier does not authorize the transfer of funds from the organization's checking account to a payroll checking account.
B) The cashier does not have to sign employee paychecks.
C) Employees who are part of a direct deposit program receive a copy of their paycheck indicating the amount deposited.
D) Employees who are part of a direct deposit program receive an earnings statement on payday rather than a paper check.
Q2) Which type of payroll report lists the voluntary deductions for each employee?
A) payroll register
B) deduction register
C) earnings statement
D) federal W-4 form
Q3) What is the difference between a payroll service bureau and a professional employer organization?
Q4) Identify the two types of payroll deductions and give two examples of each type.
Q5) What controls are available to address the threat of payroll errors?
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Chapter 16: General Ledger and Reporting System
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Q1) A listing of journal vouchers by numerical sequence,account number,or date is an example of
A) a general ledger control report.
B) a budget report.
C) a batch to be processed.
D) responsibility accounting.
Q2) How is a balanced scorecard used to assess organizational performance?
Q3) What is responsibility accounting?
Q4) The general ledger and reporting system consists of the ________ involved in ________ the general ledger and ________ reports.
A) business transactions; updating; processing
B) data processing; business transactions for; printing
C) information processing; updating; creating
D) business transactions; data processing; preparing
Q5) Which of the following is true about IFRS?
A) Financial statements likely must be prepared using IFRS beginning in 2015.
B) The switch to IFRS is required by the Sarbanes-Oxley Act.
C) IFRS is only slightly different than US GAAP.
D) The switch to IFRS is cosmetic only there isn't any real impact on AIS.
Q6) Explain the purpose of a journal voucher file.
Page 18
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Chapter 17: The Rea Data Model
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Sample Questions
Q1) Which of the following statements is true about the development of an REA model?
A) Events that pertain to the entry of data are included in the REA model.
B) The objective is to model basic value-chain activities.
C) REA diagrams model individual transactions and data collections.
D) Information retrieval events are modeled as events in the REA model.
Q2) Which is a true statement about the REA data model?
A) The REA data model classifies entities into three distinct categories.
B) The term REA is an acronym that stands for resources, entities, and agents.
C) Using an REA data model is not helpful when creating an R-E diagram.
D) The "E" in the REA data model stands for things that have an economic value to the organization.
Q3) The REA data model approach facilitates efficient operations by all the following except
A) standardizing source document format.
B) identifying non-value added activities.
C) storing financial and nonfinancial data in the same database.
D) organizing data to simplify data retrieval and analysis.
Q4) Describe the three basic rules that apply to the REA model pattern.
Q5) Define cardinality.
Q6) Describe an REA data model.
Page 19
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Chapter 18: Implementing an Rea Model in a Relational Database
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Q1) Combining REA diagrams for individual transaction cycles into a single,enterprise-wide model adds two more rules to the three basic principles for drawing REA diagrams.Which of the following is not one of those two new rules?
A) Every resource must be linked to at least one event that increments that resource and to at least one event that decrements that resource.
B) If a specific event can be linked to more than one other type of event, but cannot be linked simultaneously to all of those other events, then the minimum cardinality between that event and every other event with which it may be associated must be 0.
C) If a specific event can be linked to more than one other type of event, but cannot be linked simultaneously to all of those other events, then the maximum cardinality between that event and every other event with which it may be associated must be 0.
D) All of the above are new rules for drawing integrated REA diagrams.
Q2) In an integrated REA diagram,every event must be linked to A) at least two resources.
B) at least two agents.
C) at least one other event.
D) at least two other events.
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Chapter 19: Special Topics in Rea Modeling
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Sample Questions
Q1) In an REA diagram for HRM/payroll cycles,the ________ entity is linked to almost every other entity in the diagram.
A) Employee
B) Job title
C) Payroll
D) Worker I.D.
Q2) Concerning the relationship from the Rent Item to the Receive Cash events: The minimum cardinality is ________ because customers typically pay first,prior to taking possession of the item.The maximum cardinality is ________ because there may be additional charges imposed when the item is returned.
A) 0,1
B) 1,1
C) 1,N
D) N,M
Q3) Describe the relationships between Recruiting event and Skills,and between Recruiting event and Job Applicants.
Q4) Why might an REA diagram show relationships between resources and agents?
Q5) Why is the event Issue Debt often modeled as a separate event entity?
Q6) Why might an REA diagram show relationships between agents?
Page 21
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Chapter 20: Introduction to Systems Development Systems Analysis
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Q1) One behavioral problem occurs when there is insufficient explanation of why a change must take place.In order to curtail this resistance from occurring within the organization,what guideline should be implemented and followed?
A) attempt to meet the users' needs
B) avoid emotionalism
C) keep communication lines open
D) keep the system simple
Q2) Describe the five phases of systems analysis.
Q3) A project development team at Midwest Construction was assigned the task of improving the efficiency of the firm's accounting information system.As part of the ________ step in the systems development life cycle,the team has initiated an end user training program in preparation for switching over to the new system.
A) systems analysis
B) operations and maintenance
C) implementation and conversion
D) physical design
Q4) What are some of the reasons why behavioral problems occur when a new AIS is introduced?
Q5) Describe the physical design stage of the systems development life cycle.
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Chapter 21: Ais Development Strategies
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Q1) Firms should consider preparing a software prototype if the application
A) will be used for a critical function like inventory management.
B) automates a structured task.
C) can be produced using outside developers.
D) inputs and outputs are not clearly defined.
Q2) What is the first step a company should take when evaluating requests for proposals?
A) Carefully compare proposals against the proposed AIS requirements.
B) Determine how much of a given proposal meets the desired AIS requirements.
C) Eliminate proposals that are missing important information or fail to meet minimum requirements.
D) Invite vendors to demonstrate their systems.
Q3) Which statement is true regarding canned software and the SDLC?
A) Canned software cannot be modified to meet unique user needs.
B) Companies that buy, rather than develop, AIS software can still follow the SDLC process.
C) Most canned software meets all of a company's information or data processing needs.
D) The SDLC process does not apply to purchasing canned software.
Q4) Explain the concept of an application service provider.
Page 23
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Chapter 22: Systems Design, implementation, and Operation
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Q1) All of the following reports have pre-specified content and format except A) demand reports.
B) scheduled reports.
C) special-purpose analysis reports.
D) triggered exception reports.
Q2) Describe the different methods of testing a system.
Q3) Which of the following activities is not part of data conversion?
A) changing data content
B) moving file servers
C) changing file formats
D) moving files to a new storage medium
Q4) Processing test data involves
A) managers observing the operation of the system by "walking through" the IT department.
B) processing hypothetical data that are designed to identify errors in the system.
C) processing copies of real transactions in order to determine whether or not the system meets requirements.
D) a thorough review of the procedures and program logic of the system.
Q5) Describe the approaches to system conversion.
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