Chapter 8—General Ledger, Ledger, Financial Reporting, and Management Reporting Systems
TRUE/FLSE
1. The most most common means means of making entries entries in the general general ledger ledger is via the journal journal voucher voucher.. ANS: T 2. Individuals with access access authority authority to general ledger ledger accounts accounts should not reare journal vouchers. vouchers. ANS: T !. The journal journal voucher voucher is the document document that that authori"es authori"es entrie entriess to #e made to the general general ledger. ledger. ANS: T $. %ach account account in the the chart chart of accounts accounts has a searate searate record record in the the general general ledger ledger master file. file. ANS: T &. The resonsi resonsi#ili #ility ty center center file is rimarily rimarily used #y the the 'inancial 'inancial (eorting (eorting System. System. ANS: ' ). *anagement reorting reorting is often often called discretionary reorting #ecause #ecause it is not mandated as is financial financial reorting. ANS: T +. ,rimary ,rimary reciients reciients of financia financiall statement statement informati information on are internal internal managemen management. t. ANS: ' -. The *anagemen *anagementt (eorting (eorting System System is a nondi nondiscret scretiona ionary ry system. system. ANS: ' . /hen evaluat evaluating ing decision decision altern alternativ atives0 es0 one otion otion is to take take no action. action. ANS: T 1. In most most cases intang intangi#le i#le decisi decision on criteria criteria can #e uantifie uantified. d. ANS: ' 11. 3ne #enefit of the *anagement *anagement (eorting System is that it can alert management to delays in roject imlementation. ANS: T 12. (esonsi#ility refers to to an individual4s individual4s o#ligation o#ligation to achieve achieve desired desired results. results.
ANS: T 1!. A firm with a wide san of control tends to have relatively more layers of management. ANS: ' 1$. The control function entails evaluating a rocess against a standard and0 if necessary0 taking corrective action. ANS: T 1&. Standards are the #asis for evaluating actual erformance. ANS: T 1). A reort is said to have information content if it eliminates uncertainty associated with a ro#lem facing the decision maker. ANS: ' 1+. An inventory out5of5stock reort is an e6amle of a rogrammed0 on5demand reort. ANS: T 1-. A rincile of resonsi#ility accounting is that managers are resonsi#le for controlla#le and uncontrolla#le costs. ANS: ' 1. The manager of a cost center is resonsi#le for cost control and revenue generation. ANS: ' 2. 7esigning an effective management reorting system does not reuire an understanding of the information managers need to deal with the ro#lems they face. ANS: ' 21. The formali"ation of tasks rincile suggests that management should structure the firm around the uniue skills sets of key individuals. ANS: ' 22. If a manager delegates resonsi#ility to a su#ordinate0 he or she must also grant the su#ordinate authority to make decisions. ANS: T 2!. 3erational control involves motivating managers at all levels to use resources0 including materials0 ersonnel0 and financial assets0 as roductively as ossi#le. ANS: '
2$. The #lock code is the coding scheme most aroriate for a chart of accounts. ANS: T MULT!"LE C#$!CE
1. The coding scheme most aroriate for a chart of accounts is a. seuential code #. #lock code c. grou code d. mnemonic code ANS: 8 2. A common use for seuential coding is a. creating the chart of accounts #. identifying inventory items c. identifying documents d. identifying fi6ed assets ANS: 9 !. The most imortant advantage of seuential coding is that a. missing or unrecorded documents can #e identified #. the code itself lacks informational content c. items cannot #e inserted d. deletions affect the seuence ANS: A $. /hen a firm wants its coding system to convey meaning without reference to any other document0 it would choose a. an alha#etic code #. a mnemonic code c. a grou code d. a #lock code ANS: 8 &. The most imortant advantage of an alha#etic code is that a. meaning is readily conveyed to users #. sorting is simlified c. the caacity to reresent items is increased d. missing documents can #e identified ANS: 9 ). %ntries into the eneral ;edger System <;S= can #e made using information from a. the general journal #. a journal voucher which reresents a summary of similar transactions c. a journal voucher which reresents a single0 unusual transaction d. all of the a#ove ANS: 7
+. /hich statement is not correct> The general ledger master file a. is #ased on the firm4s chart of account #. contains a record for control accounts c. is an outut of the 'inancial (eorting System <'(S= d. sulies information for management decision making ANS: 9 -. /hat tye of data is found in the general ledger master file> a. a chronological record of all transactions #. the #alance of each account in the chart of accounts c. #udget records for each account in the chart of accounts d. su#sidiary details suorting a control account ANS: 8 . /hich reort is not an outut of the 'inancial (eorting System <'(S=> a. variance analysis reort #. statement of cash flows c. ta6 return d. comarative #alance sheet ANS: A 1. /hich stes in the 'inancial Accounting ,rocess are in the correct seuence> a. record the transaction0 ost to the ledger0 reare the adjusted trial #alance0 enter adjusting entries0 reare financial statements #. record the transaction0 reare the unadjusted trial #alance0 record adjusting journal entries0 record closing entries0 reare financial statements c. record the transaction0 ost to the ledger0 record adjusting entries0 reare the unadjusted trial #alance0 reare financial statements d. record the transaction0 ost to the ledger0 reare the adjusted trial #alance0 reare financial statements0 record closing entries ANS: 7 11. /hich statement is not correct> a. the ost5closing trial #alance reorts the ending #alance of each account in the general ledger #. one urose of rearing the unadjusted trial #alance is to ensure that de#its eual credits c. financial statements are reared #ased on the unadjusted trial #alance d. the unadjusted trial #alance reorts control account #alances #ut omits su#sidiary ledger detail ANS: 9 12. /hat account aears on the ostclosing trial #alance> a. income summary #. machinery c. rent e6ense d. interest income ANS: 8 1!. 'inancial statements are reared from the a. trial #alance
#. adjusted trial #alance c. general ledger d. general journal ANS: 8 1$. (isk e6osures in the eneral ;edger and 'inancial (eorting Systems include all of the following e6cet a. loss of the audit trail #. unauthori"ed access to the general ledger c. loss of hysical assets d. general ledger account out of #alance with the su#sidiary account ANS: 9 1&. /hich situation indicates an internal control risk in the eneral ;edger?'inancial (eorting Systems <;?'(S=> a. the emloyee who maintains the cash journal comutes dereciation e6ense #. the cash receits journal voucher is aroved #y the Treasurer c. the cash receits journal vouchers are renum#ered and stored in a locked safe d. the emloyee who maintains the cash receits journal records transactions in the accounts receiva#le su#sidiary ledger ANS: 7 1). /ith a limited work force and a desire to maintain strong internal control0 which com#ination of duties erformed #y a single individual resents the least risk e6osure> a. maintaining the inventory ledger and recording the inventory journal voucher in the general ledger #. recording the inventory journal voucher in the general ledger and maintaining custody of inventory c. maintaining the cash dis#ursements journal and recording direct la#or costs alied to secific jo#s d. rearing the accounts aya#le journal voucher and recording it in the general ledger ANS: 9 1+. The audit trail fulfills all of the following uroses e6cet a. rovides the a#ility to answer inuiries #. ensures the accuracy of the alication software c. fulfills governmental regulations d. offers a means for reventing0 detecting0 and correcting errors ANS: 8 1-. /hich #est descri#es a #atch rocess eneral ;edger System <;S= a. aer documents are eliminated #. the general ledger master file is udated each night c. there is a time lag #etween transaction rocessing and osting to the general ledger d. no direct access or uerying of the eneral ;edger is ossi#le ANS: 9 1. An advantage of a #atch eneral ;edger System <;S= is that a. searation #etween authori"ation and transaction rocessing is strictly enforced #. the general ledger master file is recreated with each udate
c. udates and reconciliation of transactions occur as a ste within the transaction cycle d. errors and out5of5#alance conditions are identified at the end of the month ANS: 9 2. A characteristic of the *anagement (eorting System <*(S= is a. the *(S oerates in conformity with generally acceted accounting rinciles #. it is a legal reuirement that the *(S #e installed and functioning roerly c. the *(S is develoed #y imlementing S%9 reuirements d. the *(S focuses on internal decision5making information ANS: 7 21. /hich statement is not true> a. authority refers to an individual4s o#ligation to achieve desired results #. if an emloyee is given the resonsi#ility for a task0 that emloyee should #e given authority to make decisions within the limits of that task c. the level of detail rovided to an emloyee is a function of the emloyee4s osition with the firm d. all of the a#ove are true ANS: A 22. /hich statement is not true> The manager4s san of control a. is narrow for routine and reetitive tasks #. is related to the num#er of layers of management c. affects the amount of detail rovided to a manager d. can affect emloyee morale and motivation ANS: A 2!. Short5range lanning involves a. setting goals and o#jectives of the firm #. lanning the roduction schedule for the ne6t uarter c. lanning the growth of the firm d. deciding on the degree of diversification among the firm4s roducts ANS: 8 2$. ;ong5range lanning involves a. lanning the marketing and romotion for a roduct #. resenting deartment heads with #udgetary goals for the ne6t year c. rearing a work force utili"ation #udget for the ne6t uarter d. deciding the otimum si"e of the firm ANS: 7 2&. The level of management that makes tactical lanning decisions is a. to management #. middle management c. oerations management d. front5line management ANS: 8 2). The decision to enter a new market is an e6amle of
a. #. c. d.
strategic lanning tactical lanning management control oerational control
ANS: A 2+. All of the following are elements of oerational control decisions e6cet a. determining the scoe of the activity #. setting oerating standards c. evaluating erformance d. taking corrective action when necessary ANS: A 2-. In contrast to tactical lanning decisions0 management control decisions0 and oerational control decisions0 strategic lanning decisions usually a. are more focused #. have a shorter time frame c. are unstructured d. have a high degree of certainty ANS: 9 2. /hich of the following management rinciles affects the management reorting system> a. formali"ation of tasks #. authori"ation c. san of control d. all of the a#ove ANS: 7 !. All of the following are elements of ro#lem structure e6cet a. certainty #. data c. rocedures d. o#jectives ANS: A !1. All of the following are e6amles of rogrammed reorts e6cet a. cash flow reorts for 7ivision 8 #. year5to5date local income ta6 ayments made #y all emloyees living in 9ity @ and working in 9ity c. inventory e6cetion reorts for 7ivision d. euiment utili"ation reorts for ,lant * ANS: 8 !2. A fundamental rincile of resonsi#ility accounting is that a. managers are accounta#le only for items they control #. a manager4s san of control should not e6ceed eight eole c. structured reorts should #e reared weekly d. the information flow is in one direction0 to5down ANS: A
!!. /hich statement is not true> (esonsi#ility accounting a. involves #oth a to5down and #ottom5u flow of information #. acknowledges that some economic events cannot #e traced to any manager c. creates a #udget d. comares actual erformance with #udget ANS: 8 !$. /hat mechanism is used to convey to managers the standards #y which their erformance will #e measured> a. the resonsi#ility reort #. the scheduled reort c. the #udget d. all of the a#ove ANS: 9 !&. All of the following concets encourage goal congruence e6cet a. detailed information reorting at all management levels #. authority and resonsi#ility c. formali"ation of tasks d. resonsi#ility accounting ANS: A !). /hich of the following statements is N3T true> a. Sorting records that are coded alha#etically tends to #e more difficult for users than sorting numeric seuences. #. *nemonic coding reuires the user to memori"e codes. c. Seuential codes carry no information content #eyond their order in the seuence. d. *nemonic codes are limited in their a#ility to reresent items within a class. ANS: 8 !+. /hich file has as its rimary urose to resent comarative financial reorts on a historic #asis> a. journal voucher history file #. #udget master file c. resonsi#ility file d. general ledger history file ANS: 7 !-. All of the following are characteristics of the strategic lanning rocess e6cet the a. emhasis on #oth the short and long run. #. review of the attri#utes and #ehavior of the organi"ation4s cometition. c. analysis of e6ternal economic factors. d. analysis of consumer demand. ANS: A !. /hich of the following erformance measures can not result in dysfunctional #ehavior> a. rice variance #. uotas c. (3I d. net income
e.
all of the a#ove can result in dysfunctional #ehavior
ANS: % $. /hich of the following #est descri#es a rofit center: a. authority to make decisions affecting the major determinants of rofit0 including the ower to choose its markets and sources of suly. #. authority to make decisions affecting the major determinants of rofit0 including the ower to choose its markets and sources of suly0 and significant control over the amount of invested caital. c. authority to make decisions over the most significant costs of oerations0 including the ower to choose the sources of suly. d. authority to rovide seciali"ed suort to other units within the organi"ation. e. resonsi#ility for com#ining the raw materials0 direct la#or0 and other factors of roduction into a final roduct. ANS: A S#$RT %S&ER
1. ;ist0 in order0 the stes in the 'inancial Accounting ,rocess. 1. 2. !. $. &. ). +. -. . 1. 11. ANS: 1. 9ature the transaction on source documents. 2. (ecord in secial journals. !. ,ost to su#sidiary ledger. $. ,ost to general ledger
ANS: make entries in secial journals or su#sidiary ledgersC reare journal vouchersC maintain custody of hysical assets !. %6lain the urose and contents of the general ledger master file. ANS: The general ledger master file is the main file on the general ledger data#ase. It is #ased on the firm4s chart of accounts. %ach record is either a general ledger account
/hat has taken its lace> ANS: *any firms have relaced a traditional general journal with a journal voucher system. %ach entry is documented on a renum#ered journal voucher which contains additional information0 such as authori"ation0 which enhances control. A voucher may contain information on a num#er of related transactions. ). /hat are the major e6osures in the general ledger?financial reorting system> ANS: The rimary e6osures are: a defective or lost audit trail0 unauthori"ed access0 ; accounts out of #alance with su#sidiary ledger accounts0 and incorrect account #alances due to unauthori"ed or incorrect entries. +. /hy is the audit trail necessary> ANS: The audit trail is needed for several reasons: to rovide the a#ility to answer inuiries from customers and suliers0 to reconstruct files if lost0 to rovide historical data to auditors0 to satisfy government regulations0 and for error control. -. The FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF rincile suggests that management should structure the firm around the work it erforms r ather than around individuals with uniue skills.
ANS: formali"ation of tasks . %mloyees who are resonsi#le for a task must have the FFFFFFFFFFFFFFFFFFFFFFFFFF to make decisions within the limits of the resonsi#ility delegated. ANS: authority 1. FFFFFFFFFFFFFFFFFFFFFFFFFF refers to the num#er of su#ordinates directly under a manager4s control. ANS: San of control 11. The difference #etween the actual erformance and the standard is called the FFFFFFFFFFFFFFFFFFFFFFFFFF. ANS: variance 12. Gow does the *anagement #y %6cetion rincile affect the *anagement (eorting System> ANS: (eorts should focus on differences #etween actual and e6ected num#ers in key factors that are symtomatic of otential ro#lems. (eorts that rovide unnecessary details a#out routine0 in control items should #e avoided. 1!. 'or reorts to #e useful they must have information content. 7escri#e a reorting o#jective which gives reorts information content. ANS: (eorts must reduce the level of uncertainty associated with a ro#lem facing the decision maker0 and must influence the #ehavior of the decision maker in a ositive way. 1$. /hat is information overload> Gow does it affect decision5making> ANS: Information overload refers to a situation in which a manager receives more information than can #e assimilated. A natural resonse to this is to ignore information or select only some. In addition0 intuition can dislace logic. 1&. %6lain the hrase Hsan of control. /hat are the imlications for the management reorting system of this rincile> ANS: A manager4s san of control is the num#er of su#ordinates he?she suervises directly. The #roader a manager4s san of control0 the more autonomy his?her su#ordinates enjoyDthe less involved the manager is in their secific tasks. This imacts the *(S in terms of the level of detail a manager reuires. If the san is wide0 less detailC if narrow0 more. 1). %6lain the three tyes of resonsi#ility centers. ANS:
9ost centers are organi"ational units with resonsi#ility for cost management. ,rofit centers have resonsi#ility for #oth cost management and revenue generation. Investment centers have resonsi#ility for cost management0 revenue generation0 and also the investment and use of assets. 1+. 7escri#e at least three characteristics of strategic lanning decisions and their information reuirements. ANS: have long time framesDcreate a need for information that suorts forecasting0 reuire summari"ed informationDnot encum#ered #y detail0 tend to #e nonrecurringDthus having little historical data in suort involve a lot of uncertaintyDi.e.0 are unstructured decisions are #road in scoeDthus reuiring #road #ased information often reuire significant e6ternal informationDgenerated #eyond the information system itself. 1-. /hat three elements must #e resent for a ro#lem to #e Hstructured> ANS: data0 rocedures0 o#jectives 1. Gow does management #y e6cetion hel to alleviate information overload #y a manager> ANS: The rincile of management #y e6cetion is that managers should limit their attention to otential ro#lem areas rather than #eing involved with every activity or decision. Thus0 only situations which are not roceeding as scheduled are highlighted #y the reorts and analy"ed # y the manager. Thus0 the manager does not have to weed through multile reorts to find the situations which need attention. 2. /hat is a data warehouse> ANS: A data warehouse is a relational data#ase management system that has #een designed secifically to meet the needs of data mining. The warehouse is a central location that contains oerational data a#out current events
1. ;ist and e6lain the si6 #asic files in the general ledger data#ase. ANS: The general ledger master file is the main file on the general ledger data#ase. It is #ased on the firm4s chart of accounts. %ach record is either a searate general ledger account
The #udget master file contains #udgeted amounts for resonsi#ility centers. 2. 7escri#e the three elements of ro#lem structure. 9ontrast a structured ro#lem to an unstructured ro#lem. 7escri#e which levels of management tyically deal with structured ro#lems and with unstructured ro#lems. ANS: ,ro#lem structure has three elements: <1= 7ataDthe values used to reresent factors that are relevant to the ro#lemC <2= ,roceduresDthe seuence of stes or decision rules used in solving the ro#lemC and ANS: Jnlike nondiscretionary reorts whose content0 timing0 even format are rescri#ed #y regulatory or authoritative #odies0 discretionary reorts are whatever management feels is neededDin content0 timing0 format0 and use. The *(S can #e an imortant art of the firm4s internal control system. 8y summari"ing activities0 highlighting trends0 and identifying e6cetions from normal erformance0 reorts can greatly enhance management4s understanding of oerations. These can #e whatever management feels is necessary to make good decisions. The e6ansion of the *(S must #e guided #y common sense. If too many reorts are generated0 information overload results. If the cost of the system e6ceeds the erceived #enefits0 the organi"ation loses. $. There are two #asic tyes of management reortsDrogrammed and ad hoc. 7escri#e each and give e6amles. ANS: ,rogrammed reorts rovide information to solve anticiated ro#lems and make normal decisions. They include scheduled reorts such as daily sales reorts and on5demand reorts generated #y need such as inventory #elow reorder oint
timelinessDinformation that is reasona#le comlete and accurate in a reasona#le time frame is more valua#le than erfect information too late0 concisenessDconciseness is a counter measure to information overload. ). /hat is the imlication for the *anagement (eorting System of an organi"ation that imlements the formali"ation of tasks rincile> ANS: Information reuirements are defined #y a osition0 not #y the erson filling that osition. /hen there is a ersonnel change0 there should #e no major changes in the information needed #y the new emloyeeC it will #e essentially the same as that needed #y the former emloyee. Internal control is strengthened #ecause information is rovided #ased on the reuirements of the osition ANS: 9omanies use coding schemes in their AISs #ecause codes concisely reresent large amounts of comle6 information that would otherwise #e unmanagea#le. They also rovide a means of accounta#ility over the comleteness of the transactions rocessed and identify uniue transactions and accounts within a file. In addition0 coding suorts the audit function #y roviding an effective audit trail. -. 9omare and contrast the relative advantages and disadvantages of seuential0 #lock0 grou0 alha#etic and mnemonic codes. ANS: Se()ential codes are aroriate for items in either an ascending or descending seuence0 such as the num#ering of checks or source documents. An advantage is that during #atch rocessing0 any gas detected in the seuence is a signal that a transaction may #e missing. A disadvantage is that the codes carry little0 if any0 information other than the seuence order. Another disadvantage is that seuential codes are difficult to manage when items need to #e addedC the seuence needs either to #e reordered or the items must #e added to the end of the list. *loc+ codes rovide some remedies to seuential codes #y restricting each class to a resecified range. The first digit tyically reresents a class0 whereas the following digits are seuential items which may #e saced in intervals in case of future additions. An e6amle of #lock coding is a chart of accounts. A disadvantage of #lock coding is that the information content does not rovide much meaning0 i.e. an account num#er only means something if the chart of accounts is known. Gro)p codes may #e used to reresent comle6 items or events involving two or more ieces of related data. The code is comrised of fields which ossess secific meaning. The advantages of grou codes over seuential and #lock codes are 1= they facilitate the reresentation of large amounts of diverse data0 2= they allow comle6 data structures to #e reresented in a hierarchical form that is logical and thus more easily remem#ered #y humans0 and != they ermit detailed analysis and reorting #oth within an item class and across different classes of items. A disadvantage is that the codes may #e overused to link classes which do not need to #e linked0 and thus creating a more comle6 coding system that is necessary. lphaetic codes may #e used seuentially or in #lock or grou codes. An advantage is that a system which uses alha#etic codes can reresent far more situations than a system with numeric codes given a secific field si"e. Some disadvantages are that seuentially assigned codes mostly have little meaning. Also0 humans tyically find alha#etic codes more difficult to sort than numeric data.
;astly0 mnemonic codes are alha#etic characters in the form of acronyms0 a##reviations or other com#inations that convey meaning. The meaning asect is its advantage. A disadvantage of mnemonic codes is that they are limited in their a#ility to reresents items within a class i.e. names of all of American %6ressKs customers. . 9ontrast the four decision tyes0 strategic lanning0 tactical lanning0 management control and oerational control0 #y the four decision characteristics0 time frame0 scoe0 level of details0 recurrence0 and certainty. ANS: Strategic lanning decisions are 1= tyically long5term in nature0 2= have a high imact on the firm0 != reuire highly summari"ed information0 $= t yically non5recurring ro#lems?oortunities0 and &= uncertain in nature. Tactical lanning decisions are 1= tyically medium5term in nature0 2= have a limited imact on the firm0 != reuire detailed information0 $= tyically are eriodically recurring ro#lems?oortunities0 and &= highly certain in nature. *anagement control decisions are 1= tyically medium5term in nature0 2= have a narrower imact on the firm0 != reuire moderately summari"ed information0 $= tyically are eriodically recurring ro#lems?oortunities0 and &= uncertain in nature. 3erational control decisions are 1= tyically short5term in nature0 2= have the narrowest imact on the firm0 != reuire highly detailed information0 $= tyically are eriodically recurring ro#lems?oortunities0 and &= highly certain in nature.
