Chapter 16

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 16 General Ledger and Reporting System

1) 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
Anser! C
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,) -hich item belo is not considered a ma(or input to the general ledger and reporting system.
A) summary entries from the ma(or subsystems
B) reports from managers
C) ad(usting entries
D) financing and investing activities
Anser! B
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&) -ho provides the ad(usting entries for a ell0designed general ledger and reporting system.
A) various user departments
B) the treasurer1s area
C) the other ma(or A2+ subsystems
D) the controller1s area
Anser! D
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$) The general ledger and reporting system is designed to provide information for hich of the
folloing user groups.
A) internal users
B) e3ternal users
C) in4uiry processing by internal or e3ternal users
D) all of the above
Anser! D
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1
Copyright 6 ,71, "earson /ducation8 2nc. publishing as "rentice 9all
5) The general ledger system of an organi:ation should be designed to serve the information
re4uirements of both internal and e3ternal users. This means that the system should support
A) producing e3pansive regular periodic reports to cover all information needs.
B) the real0time in4uiry needs of all users.
C) producing regular periodic reports and respond to real0time in4uiry needs.
D) access by investors and creditors of the organi:ation to general ledger balances.
Anser! C
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%) 9o is general ledger updating accomplished by the various accounting subsystems.
A) 2ndividual (ournal entries for each accounting subsystem transaction update the general ledger every
,$ hours.
B) +ummary (ournal entries that represent the results of all transactions for a certain time period are used
to update the general ledger.
C) The controller or treasurer must approve accounting subsystem (ournal entries before any updating
may occur.
D) ;onroutine transactions are entered into the system by the treasurer1s office.
Anser! B
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<) -hen updating the general ledger8 sales8 purchases8 and production are e3amples of ________ entries8
and issuance or retirement of debt and the purchase or sale of investment securities are e3amples of
________ entries.
A) ad(usting; controller originated
B) accounting subsystem; treasurer originated
C) ad(usting; special (ournal
D) controller generated; special (ournal
Anser! B
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=) /ntries to update the general ledger are often documented by hich of the folloing.
A) general (ournal
B) subsidiary (ournal
C) subsidiary ledgers
D) (ournal vouchers
Anser! D
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,
>) Ad(usting entries that reflect events that have already occurred8 but for hich no cash flo has ta?en
place are classified as
A) accruals.
B) deferrals.
C) revaluations.
D) corrections.
Anser! A
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17) #ecording interest earned on an investment is an e3ample of hich type of ad(usting (ournal entry.
A) accrual entry
B) deferral entry
C) revaluation entry
D) correcting entry
Anser! A
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11) An ad(usting entry made at the end of an accounting period that reflects the e3change of cash prior to
performance of a related event is classified as a@n)
A) accrual entry.
B) deferral entry.
C) revaluation entry.
D) correcting entry.
Anser! B
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1,) Depreciation e3pense and bad debt e3pense are e3amples of hich type of ad(usting (ournal entry.
A) deferrals
B) accruals
C) revaluations
D) estimates
Anser! D
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&
1&) Ad(usting entries that are made to reflect differences beteen the actual and recorded value of an
asset or a change in accounting principle are called
A) reconciliations.
B) revaluations.
C) estimates.
D) accruals.
Anser! B
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1$) Ad(usting entries that are made to counteract the effects of errors found in the general ledger are
called
A) accruals.
B) corrections.
C) deferrals.
D) estimates.
Anser! B
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15) Corrections are entries made to correct errors found in ________.
A) all (ournals
B) special (ournals
C) the general ledger
D) the financial statements
Anser! C
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1%) 2mmediately after the ad(usting entries are posted8 the ne3t step in the general ledger and reporting
system is to prepare
A) an ad(usted trial balance.
B) closing entries.
C) financial statements.
D) an unad(usted trial balance.
Anser! A
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1<) Ainancial statements are prepared in a certain se4uence. -hich statement is prepared last in the
se4uence.
A) the ad(usted trial balance
B) the income statement
C) the balance sheet
D) the statement of cash flos
Anser! D
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1=) A listing of (ournal vouchers by numerical se4uence8 account number8 or date is an e3ample of
A) a general ledger control report.
B) a budget report.
C) a batch to be processed.
D) responsibility accounting.
Anser! A
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1>) 2f you believe not all ad(usting entries ere posted in the general ledger8 you should prepare a
general ledger control report listing (ournal vouchers in
A) numerical se4uence.
B) chronological order.
C) general ledger account number order.
D) any order8 since you have to revie them all anyay.
Anser! A
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,7) 2f you believe a general ledger account as not ad(usted properly or at all8 you should prepare a
general ledger control report listing (ournal vouchers in
A) numerical se4uence.
B) chronological order.
C) general ledger account number order.
D) any order8 since you have to revie them all anyay.
Anser! C
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,1) The managerial report that shos planned cash inflos and outflos for ma(or investments or
ac4uisitions is the
A) (ournal voucher list.
B) statement of cash flos.
C) operating budget.
D) capital e3penditures budget.
Anser! D
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,,) The operating budget
A) compares estimated cash flos from operations ith planned e3penditures.
B) shos cash inflos and outflos for each capital pro(ect.
C) depicts planned revenues and e3penditures for each organi:ational unit.
D) is used to plan for the purchase and retirement of property8 plant8 and e4uipment.
Anser! C
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,&) Budgets and performance reports should be developed on the basis of
A) responsibility accounting.
B) generally accepted accounting principles.
C) financial accounting standards.
D) managerial accounting standards.
Anser! A
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,$) "erformance reports for cost centers should compare actual versus budget ________ costs.
A) controllable
B) uncontrollable
C) fi3ed
D) variable
Anser! A
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,5) "erformance reports for sales deparments should compare actual versus budget
A) revenue.
B) cost.
C) return on investment.
D) profit.
Anser! A
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,%) Departments that mostly provide services to other units and charge those units for services rendered
should be evaluated as ________ centers.
A) cost
B) profit
C) investment
D) revenue
Anser! B
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,<) As responsibility reports are rolled up into reports for higher level e3ecutives8 they
A) become less detailed.
B) become more detailed.
C) become narroer in scope.
D) loo? about the same.
Anser! A
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,=) Bariances for variable costs ill be misleading hen the planned output differs from budgeted
output. A solution to this problem ould be
A) calling all costs fi3ed.
B) to use fle3ible budgeting.
C) better prediction of output.
D) to eliminate the budgeting process.
Anser! B
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,>) Concerning CB#)8 hich of the folloing statements is not true.
A) CB#) is a variant of C*).
B) CB#) is specifically designed for use in communicating the content of financial data.
C) CB#) creates uni4ue tags for each data item.
D) CB#)1s adoption ill re4uire accountants and systems professionals tag data for their clients.
Anser! D
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&7) The benefits of CB#) include!
A) organi:ations can publish financial information only once8 using standard CB#) tags.
B) tagged data is readable and interpretable by computers8 so users don1t need re0enter data into order to
or? ith it.
C) Both are benefits of CB#).
D) ;either are benefits of CB#).
Anser! C
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&1) Communications technology and the 2nternet can be used to reduce the time and costs involved in
disseminating financial statement information. Dsers of such financial information still struggle in that
many recipients have different information delivery re4uirements and may have to manually reenter the
information into their on decision analysis tools. The ideal solution to solve these problems and
efficiently transmit financial information via the 2nternet is to use
A) 9T*) code.
B) C*).
C) pdf file.
D) CB#).
Anser! D
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&,) -hich of the folloing statements is not true about an CB#) instance document.
A) An instance document includes instruction code as to ho the document should be physically
arranged and displayed.
B) An instance document contains facts about specific financial statement line items.
C) An instance document uses separate tags for each specific element.
D) An instance document can be used to tag financial and nonfinancial elements.
Anser! A
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&&) -hich of the folloing are appropriate controls for the general ledger and reporting system.
A) using ell0designed documents and records
B) online data entry ith the use of appropriate edit chec?s
C) prenumbering documents and accounting for the se4uence numbers
D) All of the above are appropriate.
Anser! D
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&$) A type of data entry control that ould ensure that ad(usting entries are posted to e3isting general
ledger accounts is called a@n) ________ chec?.
A) validity
B) e3istence
C) closed loop verification
D) reasonableness
Anser! A
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&5) 'ne ay of ensuring that recurring ad(usting (ournal entries are made each month ould be to
A) ma?e all the entries a month in advance.
B) rotate the responsibility among the accounting staff.
C) program the entries to be made automatically.
D) create a standard ad(usting (ournal entry file.
Anser! D
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&%) -hich of the folloing tas?s are facilitated by maintaining a strong and secure audit trail.
A) tracing a transaction from original source document to the general ledger to a report
B) tracing an item in a report bac? through the general ledger to the original source document
C) tracing changes in general ledger accounts from beginning to ending balances
D) All of the above are facilitated by the audit trail.
Anser! D
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&<) -hich of the folloing balanced scorecard dimensions provides measures on ho efficiently and
effectively the organi:ation is performing ?ey business processes.
A) financial
B) internal operations
C) innovation and learning
D) customer
Anser! B
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&=) -hich of the folloing is not one of the principles of proper graph design for bar charts.
A) 2nclude data values ith each element.
B) Dse &0D rather than ,0D bars to ma?e reading easier.
C) Dse colors or shades instead of patterns to represent different variables.
D) Dse titles that summari:e the basic message.
Anser! B
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&>) 2nformation about financing and investing activities for use in ma?ing general ledger entries is
typically provided by the
A) budget department.
B) controller.
C) treasurer.
D) chief e3ecutive officer.
Anser! C
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$7) Ad(usting entries that are made to recogni:e revenue that has been received but not yet earned are
classified as
A) estimates.
B) deferrals.
C) accruals.
D) revaluations.
Anser! B
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17
$1) Ad(usting entries that reflect a change in accounting principle used to value inventories are classified
as
A) corrections.
B) estimates.
C) deferrals.
D) revaluations.
Anser! D
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$,) Cheryl )iao is an accountant at Aolding +4uid Technologies. -hile ma?ing an ad(usting entry to the
general ledger8 she received the folloing error message8 EThe account number referenced in your
(ournal entry does not e3ist. Do you ant to create a ne account.E This message as the result of a
A) validity chec?.
B) closed loop verification.
C) :ero0balance chec?.
D) completeness test.
Anser! A
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$&) Cheryl )iao is an accountant at Aolding +4uid Technologies. -hile ma?ing an ad(usting entry to the
general ledger8 she received the folloing error message8 EFour (ournal entry must be a numeric value.
"lease reenter.E This message as the result of a
A) validity chec?.
B) field chec?.
Anser! B
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$$) Cheryl )iao is an accountant at Aolding +4uid Technologies. -hile ma?ing an ad(usting entry to the
general ledger8 she received the folloing error message hen she tried to save her entry8 EThe amounts
debited and credited are not e4ual. "lease correct and try again.E This message as the result of a
A) validity chec?.
B) field chec?.
Anser! C
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11
$5) Cheryl )iao is an accountant at Aolding +4uid Technologies. -hile ma?ing an ad(usting entry to the
general ledger8 she received the folloing error message hen she tried to save her entry8 EThe data you
have entered does not include a source reference code. "lease enter this data before saving.E This
message as the result of a
A) validity chec?.
B) field chec?.
Anser! D
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$%) 2A#+ is an acronym for hat.
A) 2nternational Ainancial #eporting +tandards
B) 2nternal Aorensic #esponse +ystem
C) 2nput and Ainancial #eporting +tandards
D) 2nternal Aault #ecovery +ystem
Anser! A
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$<) -hich of the folloing is true about 2A#+.
A) Ainancial statements li?ely must be prepared using 2A#+ beginning in ,715.
B) The sitch to 2A#+ is re4uired by the +arbanes0'3ley Act.
C) 2A#+ is only slightly different than D+ GAA".
D) The sitch to 2A#+ is cosmetic onlythere isn1t any real impact on A2+.
Anser! A
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1,
$=) -hich of the folloing scenarios ill not be alloed under 2A#+.
A) A landscaping and garden retail store ?eeps piles of river roc?8 gravel8 paving stones8 and small
decorative roc?s in a fenced area on the side of the store. The store uses the most recent inventory costs
hen calculating cost of goods sold8 since ne inventory is piled on top of the older inventory.
B) A grocery store strictly enforces a shelf rotation policy8 so that older inventory is alays at the front
and sold first. The store uses the oldest inventory costs to calculate cost of goods sold.
C) A farm chemical supplier maintains a large holding tan? of chemicals8 into hich deliveries are
periodically combined ith the older chemicals. The supplier averages the cost of all inventory to
calculate cost of goods sold.
D) All of the above are acceptable under 2A#+.
Anser! A
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$>) -hich of the folloing is true about accounting for fi3ed assets.
A) Depreciation e3pense under 2A#+ ill li?ely be higher than under GAA"8 because ac4uisitions of
assets ith multiple components must be separately depreciated under 2A#+8 hereas under GAA"
assets could be bundled and depreciated over the longest of the useful life for any of the components.
B) 2A#+ doesn1t allo capitali:ation of any asset that separately accounts for less than ,7H of total
assets.
C) Depreciation e3pense under 2A#+ ill li?ely be less than under GAA"8 because standards for
depreciable lives on asset classes are much longer than under GAA".
D) 2A#+ and GAA" account for fi3ed assets in much the same ay.
Anser! A
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57) -hich of the folloing statements is true about the chart belo.
A) The 30a3is is in reverse chronological order8 hich violates a principle of proper graph design.
B) The chart appears to conform to the principles of proper graph design.
C) The vertical a3is doesn1t appear to start at the origin @:ero).
D) The chart used ,0D bars instead of &0D8 hich violates a principle of proper graph design.
Anser! A
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51) /3plain the purpose of a (ournal voucher file.
Anser! A (ournal voucher is a form on hich (ournal entries to update the general ledger are
documented. The individual entries are stored in the (ournal voucher file. This file is e4uivalent to the
general (ournal in a manual A2+. The (ournal voucher file forms an important part of the audit trail as
ell. Barious internal controls must be implemented in order to maintain ade4uate security and access
control over the file8 because it provides a ay to alter and change the data contained in the general
ledger.
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5,) -hat is responsibility accounting.
Anser! #esponsibility accounting involves the reporting of financial results on the basis of managerial
responsibilities ithin an organi:ation. #eports sho actual amounts and variances to budget for the
current month and year to date for items controllable at that level.
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5&) 9o is a balanced scorecard used to assess organi:ational performance.
Anser! The balanced scorecard contains four perspectives of measurement of the organi:ation. The
perspectives are financial8 internal operations8 innovation and learning8 and customer. Together these
different perspectives provide a dimensional overvie of organi:ational performance that is greater than
financial measures alone. A scorecard that has been properly designed ill measure ?ey aspects of the
organi:ation1s strategy as ell as sho important lin?s across the perspectives or dimensions.
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5$) 9o is an audit trail used in the general ledger and reporting system.
Anser! An audit trail shos the path of a transaction through the accounting system. 2t can provide
information needed to trace any changes made to the general ledger by tracing either to or from an
original source document to the general ledger. 2t helps in tracing all changes in general ledger accounts
from beginning balances to ending balances as ell as any ad(ustments made to the accounts.
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55) /3plain the benefits of CB#).
Anser! CB#) @/3tensible Business #eporting )anguage) is a variation of C*)8 hich is designed to
communicate the content of data. C*) improves upon 9T*) by being able to describe the content of
the data presented. 9oever8 C*) is limited hen communicating financial information. Aor financial
purposes8 CB#) identifies each piece of data8 along ith ho the data should be processed and ho the
data relate to other data items. CB#) may soon become the universal standard computer language for
communicating financial data. CB#) enables organi:ations to publish financial information only once8
using standard CB#) tags. CB#) tagged information is interpretable and doesn1t need to be re0entered
by users.
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15
5%) Discuss the value and role of budgets as managerial reports.
Anser! Budgets are managerial reports that can be e3tracted from the general ledger and reporting
system. Budgets are used for planning and evaluating the organi:ation1s performance. There are several
different types of budgets that an organi:ation may use in this regard. The operating budget shos the
planned revenues and e3penditures for each organi:ational unit. Cash flo budgets compare the
estimated cash inflos from operations ith planned e3penditures8 and they are particularly useful to
determine the borroing needs of the organi:ation. A capital e3penditure budget shos the pro(ected
cash inflos and outflos for a given pro(ect. Budgetary reports should be tailored to the nature of the
unit or department being evaluated8 and they should sho actual versus pro(ected budget amounts.
Dnfortunately8 many budget amounts are vieed as fi3ed targets8 and they are therefore static and
infle3ible. +uch an approach may either reard or penali:e managers for factors that are beyond their
control. A solution to this problem is to develop a fle3ible budget8 in hich variable budgeted amounts
change in relation to some measure of organi:ational activity8 such as labor hours8 or a percentage of
sales. A fle3ible budget may also brea? amounts into their respective fi3ed and variable components.
Bariable amounts can then be ad(usted for fluctuations in sales or production.
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5<) Describe three threats in the general ledger and reporting system and identify corresponding controls
for each threat.
Anser!
THREAT 1! /rrors in updating the general ledger because of inaccurateIincomplete (ournal entries or
posting of (ournal entries Controls! @1) 2nput8 edit8 and processing controls over summary entries from
subsystems. @a) Balidity chec? over e3istence of general ledger accounts. @b) Aield chec? over numeric
data in amount field. @c) Jero0balance chec? ensures e4uality of debits and credits @d) Completeness test
all pertinent data are entered @e) #edundant data chec? closed loop verification to see if on account
numbers and descriptions8 to ensure that the correct general ledger account is being accessed @f)
+tandard ad(usting entry file for recurring entries improves accuracy of the process @g) +ign chec? on
debit and credit entries @h) Calculation of run0to0run totals can verify the accuracy of (ournal voucher
batch processing @,) #econciliation and control reports can detect errors made during updating and
processing; trial balances8 clearing8 and suspense accounts are e3amples @a) Balancing of control and
subsidiary accounts @b) Control reports can help identify the source of errors in the general ledger update
process listings of (ournal vouchers and general (ournal entries ill sho entries posted to the general
ledger and ensures e4uality of debits and credits @&) The audit trail the path of transactions through the
system0should be able to perform the folloing tas?s! @a) Trace any transaction from its original source
document to the general ledger; any other document or report using that data @b) Trace any item from a
report or an output document to the general ledger and thence to the source document @c) Trace all
changes in the general ledger balances from their beginning balance to their ending balance.
THREAT ! )oss or unauthori:ed disclosure or alteration of financial data Controls! @1) Dser 2Ds8
passords8 and access controls should be used @,) /nforce segregation of duties @&) Ad(usting entries
only from the controller1s area @$) Balid authori:ation for (ournal voucher submission.
THREAT "! )oss or destruction of the general ledger Controls! @1) Dse of internal and e3ternal file
labels to protect from accidental data loss @,) *a?e regular bac?up copies of the general ledger8 one
copy stored off0site @&) A good disaster recovery plan and @$) access and processing integrity controls to
ensure confidentiality and accuracy of data transmitted to branch offices or e3ternally.
THREAT #! "oor performance Controls! @1) CB#)8 @,) redesign business processes8 and @&) redesign
metrics used to report results of business activities.
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