Chapter 16 General Ledger and Reporting System

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 16 General Ledger and Reporting System

16.1 Describe the information processing operations required to update the general ledger and to produce reports for internal and external users.

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 Answer: C Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

2) Which item below is not considered a major input to the general ledger and reporting system? A) summary entries from the major subsystems B) reports from managers C) adjusting entries D) financing and investing activities Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

3) Who should provide the adjusting entries in a well-designed general ledger and reporting system? A) various user departments B) the treasurer's area C) the other major AIS subsystems D) the controller's area Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

1 Copyright © 2015 Pearson Education, Inc. 4) Which of the following user groups generally receive information produced by the general ledger and reporting system? A) internal users B) external users C) inquiry processing by internal or external users D) all of the above Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

5) The general ledger system of an organization should be designed to serve the information requirements of both internal and external users. This means that the system should support A) producing expansive regular periodic reports to cover all information needs. B) the real-time inquiry needs of all users. C) producing regular periodic reports and respond to real-time inquiry needs. D) access by investors and creditors of the organization to general ledger balances. Answer: C Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

6) Identify the most correct statement with regard to how the various accounting subsystems update the general ledger. A) Individual journal entries for each accounting subsystem transaction update the general ledger every 24 hours. B) Summary journal 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 journal entries before any updating may occur. D) Nonroutine transactions are entered into the system by the treasurer's office. Answer: B Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic

7) When updating the general ledger, sales, purchases, and production are examples of ______entries, and issuance or retirement of debt and the purchase or sale of investment securities are examples of ______entries. A) adjusting; controller originated B) accounting subsystem; treasurer originated C) adjusting; special journal D) controller generated; special journal Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

2 Copyright © 2015 Pearson Education, Inc. 8) Which of the following are used to document entries made to update the general ledger? A) general journal B) subsidiary journal C) subsidiary ledgers D) journal vouchers Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

9) Not all journal entries affect cash flow. Adjusting entries that reflect events that have already occurred, but have no effect on cash, are classified as A) accruals. B) deferrals. C) revaluations. D) corrections. Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

10) Recording interest earned on an investment is an example of which type of adjusting journal entry? A) accrual entry B) deferral entry C) revaluation entry D) correcting entry Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

11) Identify the adjusting entry that is made at the end of an accounting period to reflect an exchange of cash prior to the performance of a related event is classified as a(n) A) accrual entry. B) deferral entry. C) revaluation entry. D) correcting entry. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

3 Copyright © 2015 Pearson Education, Inc. 12) Depreciation expense and bad debt expense are examples of which type of adjusting journal entry? A) deferrals B) accruals C) revaluations D) estimates Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

13) Adjusting entries that are made to reflect differences between the actual and recorded value of an asset or a change in accounting principle are called A) reconciliations. B) revaluations. C) estimates. D) accruals. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

14) Adjusting 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. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

15) Corrections are entries made to correct errors found in A) all journals. B) special journals. C) the general ledger. D) the financial statements. Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

4 Copyright © 2015 Pearson Education, Inc. 16) Immediately after the adjusting entries are posted, the next step in the general ledger and reporting system is to prepare A) an adjusted trial balance. B) closing entries. C) financial statements. D) an unadjusted trial balance. Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

17) Financial statements are prepared in a certain sequence. Which statement is prepared last? A) the adjusted trial balance B) the income statement C) the balance sheet D) the statement of cash flows Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

18) 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. Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

19) Who generally is responsible for providing the accounting department with information about financing and investing activities to create the appropriate general ledger journal entries? A) budget department B) controller C) treasurer D) chief executive officer Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

5 Copyright © 2015 Pearson Education, Inc. 20) Adjusting entries that are made to recognize revenue that has been received but not yet earned are classified as A) estimates. B) deferrals. C) accruals. D) revaluations. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

21) Adjusting entries that reflect a change in accounting principle used to value inventories are classified as A) corrections. B) estimates. C) deferrals. D) revaluations. Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

22) Explain the purpose of a journal voucher file. Answer: A journal voucher is a form on which journal entries to update the general ledger are documented. The individual entries are stored in the journal voucher file. This file is equivalent to the general journal in a manual AIS. The journal voucher file forms an important part of the audit trail as well. Various internal controls must be implemented in order to maintain adequate security and access control over the file, because it provides a way to alter and change the data contained in the general ledger. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

16.2 Identify the major threats in general ledger and reporting activities and evaluate the adequacy of various control procedures for dealing with them.

1) If you believe not all adjusting entries were posted in the general ledger, you should prepare a general ledger control report listing journal vouchers in A) numerical sequence. B) chronological order. C) general ledger account number order. D) any order, since you have to review them all anyway. Answer: A Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking

6 Copyright © 2015 Pearson Education, Inc. 2) If you believe a general ledger account was not adjusted properly or at all, you should prepare a general ledger control report listing journal vouchers in A) numerical sequence. B) chronological order. C) general ledger account number order. D) any order, since you have to review them all anyway. Answer: C Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking

3) Which of the following are appropriate controls for the general ledger and reporting system? A) using well-designed documents and records B) online data entry with the use of appropriate edit checks C) prenumbering documents and accounting for the sequence numbers D) All of the above are appropriate. Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

4) A type of data entry control that would ensure that adjusting entries are posted to existing general ledger accounts is called a(n) ______check. A) validity B) existence C) closed loop verification D) reasonableness Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

5) One way of ensuring that recurring adjusting journal entries are made each month would be to A) make 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 adjusting journal entry file. Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

7 Copyright © 2015 Pearson Education, Inc. 6) Which of the following tasks 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 back 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. Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

7) Marina Filimena is an accountant at Jasmina Hair Products. Marina received the following error message while making an adjusting entry to the general ledger: "The account number referenced in your journal entry does not exist. Create a new account?" This is an example of a A) validity check. B) closed loop verification. C) zero-balance check. D) completeness test. Answer: A Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

8) Marina Filimena is an accountant at Jasmina Hair Products. Marina received the following error message while making an adjusting entry to the general ledger: "Your journal entry must be a numeric value. Please reenter." This is an example of a A) validity check. B) field check. C) zero-balance check. D) completeness test. Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

9) Marina Filimena is an accountant at Jasmina Hair Products. Marina received the following error message while making an adjusting entry to the general ledger: "The amounts debited and credited are not equal. Please correct and try again." This is an example of a A) validity check. B) field check. C) zero-balance check. D) completeness test. Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

8 Copyright © 2015 Pearson Education, Inc. 10) Marina Filimena is an accountant at Jasmina Hair Products. Marina received the following error message while making an adjusting entry to the general ledger: "The data you have entered does not include a source reference code. Please enter this data before saving." This is an example of a A) validity check. B) field check. C) zero-balance check. D) completeness test. Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

11) How is an audit trail used in the general ledger and reporting system? Answer: An audit trail shows the path of a transaction through the accounting system. It 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. It helps in tracing all changes in general ledger accounts from beginning balances to ending balances as well as any adjustments made to the accounts. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

9 Copyright © 2015 Pearson Education, Inc. 12) Describe three threats in the general ledger and reporting system and identify corresponding controls for each threat. Answer: THREAT 1: Errors in updating the general ledger because of inaccurate/incomplete journal entries or posting of journal entries — Controls: (1) Input, edit, and processing controls over summary entries from subsystems. (a) Validity check over existence of general ledger accounts. (b) Field check over numeric data in amount field. (c) Zero-balance check ensures equality of debits and credits (d) Completeness test — all pertinent data are entered (e) Redundant data check — closed loop verification to see if on account numbers and descriptions, to ensure that the correct general ledger account is being accessed (f) Standard adjusting entry file for recurring entries — improves accuracy of the process (g) Sign check on debit and credit entries (h) Calculation of run-to-run totals can verify the accuracy of journal voucher batch processing (2) Reconciliation and control reports — can detect errors made during updating and processing; trial balances, clearing, and suspense accounts are examples (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 journal vouchers and general journal entries will show entries posted to the general ledger and ensures equality of debits and credits (3) The audit trail — the path of transactions through the system-should be able to perform the following tasks: (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 2: Loss or unauthorized disclosure or alteration of financial data — Controls: (1) User IDs, passwords, and access controls should be used (2) Enforce segregation of duties (3) Adjusting entries only from the controller's area (4) Valid authorization for journal voucher submission. THREAT 3: Loss or destruction of the general ledger — Controls: (1) Use of internal and external file labels to protect from accidental data loss (2) Make regular backup copies of the general ledger, one copy stored off-site (3) A good disaster recovery plan and (4) access and processing integrity controls to ensure confidentiality and accuracy of data transmitted to branch offices or externally. THREAT 4: Poor performance — Controls: (1) XBRL, (2) redesign business processes, and (3) redesign metrics used to report results of business activities. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

13) Identify one way "rainbow tables" are often used. A) to discover plaintext passwords associated with a hash B) to integrate different tables into one, master table C) to perform a zero-balance check D) to ensure referential integrity of all the associated tables Answer: A Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic

10 Copyright © 2015 Pearson Education, Inc. 14) What system privileges should an employee involved in the general ledger and reporting system be given? A) general privileges to create, delete, update, or modify data B) no privileges permitting the creation, deletion, updating, or modification of data C) only the specific privileges necessary to perform an employee's assigned duties D) read-only privileges Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

15) What control procedure(s) should be used to reduce the risk of unauthorized disclosure of the financial statements? A) multifactor authentication B) physical security C) encryption D) all of the above Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

16) What control procedure(s) should be used to reduce the risk of the destruction of financial statement master data? A) multifactor authentication B) backup and disaster recovery C) encryption D) all of the above Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

17) True or False: It is important to verify that all temporary accounts have a zero balance at least two times during the time period covered by the financial statements. Answer: FALSE Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

18) True or False: Periodic account reconciliations are a control that can be used to reduce the risk of employees creating unauthorized adjusting entries. Answer: FALSE Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

11 Copyright © 2015 Pearson Education, Inc. 16.3 Understand the implications of new IT developments, such as XBRL, and changes in the external reporting requirements, such as IFRS, for the design and operation of the general ledger and reporting system.

1) Which of the following statements is not true regarding XBRL? A) XBRL is a variant of XML. B) XBRL is specifically designed for use in communicating the content of financial data. C) XBRL creates unique tags for each data item. D) XBRL's adoption will require accountants and systems professionals tag data for their clients. Answer: D Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

2) The benefits of XBRL include A) organizations can publish financial information only once, using standard XBRL tags. B) tagged data is readable and interpretable by computers, so users don't need re-enter data into order to work with it. C) Both are benefits of XBRL. D) Neither is a benefit of XBRL. Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

3) Communications technology and the Internet can be used to reduce the time and costs involved in disseminating financial statement information. Users of such financial information still struggle in that many recipients have different information delivery requirements and may have to manually reenter the information into their own decision analysis tools. The ideal solution to solve these problems and efficiently transmit financial information via the Internet is to use A) HTML code. B) XML. C) pdf file. D) XBRL. Answer: D Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

12 Copyright © 2015 Pearson Education, Inc. 4) Which of the following statements is not true about an XBRL instance document? A) An instance document includes instruction code as to how 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. Answer: A Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

5) IFRS is an acronym for what? A) International Financial Reporting Standards B) Internal Forensic Response System C) Input and Financial Reporting Standards D) Internal Fault Recovery System Answer: A Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

6) Which of the following is true about IFRS? A) There is a global trend towards using IFRS for reporting purposes, though U.S. companies are not currently required to do so. B) The switch to IFRS is required by the Sarbanes-Oxley Act. C) IFRS is only slightly different than U.S. GAAP. D) The switch to IFRS is cosmetic only—there isn't any real impact on AIS. Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

7) Which of the following scenarios will not be allowed under IFRS? A) A landscaping and garden retail store keeps piles of river rock, gravel, paving stones, and small decorative rocks in a fenced area on the side of the store. The store uses the most recent inventory costs when calculating cost of goods sold, since new inventory is piled on top of the older inventory. B) A grocery store strictly enforces a shelf rotation policy, so that older inventory is always 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 tank of chemicals, into which deliveries are periodically combined with 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 IFRS. Answer: A Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking

13 Copyright © 2015 Pearson Education, Inc. 8) Which of the following is true about accounting for fixed assets? A) Depreciation expense under IFRS will likely be higher than under GAAP, because acquisitions of assets with multiple components must be separately depreciated under IFRS, whereas under GAAP assets could be bundled and depreciated over the longest of the useful life for any of the components. B) IFRS doesn't allow capitalization of any asset that separately accounts for less than 20% of total assets. C) Depreciation expense under IFRS will likely be less than under GAAP, because standards for depreciable lives on asset classes are much longer than under GAAP. D) IFRS and GAAP account for fixed assets in much the same way. Answer: A Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking

9) Explain the benefits of XBRL. Answer: XBRL (Extensible Business Reporting Language) is a variation of XML, which is designed to communicate the content of data. XML improves upon HTML by being able to describe the content of the data presented. However, XML is limited when communicating financial information. For financial purposes, XBRL identifies each piece of data, along with how the data should be processed and how the data relate to other data items. XBRL may soon become the universal standard computer language for communicating financial data. XBRL enables organizations to publish financial information only once, using standard XBRL tags. XBRL tagged information is interpretable and doesn't need to be re-entered by users. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

10) Identify the year the SEC will require American companies to switch from U.S.-based GAAP to IFRS as the basis for preparing financial statements. A) 2016 B) 2018 C) 2020 D) At this point it is unclear when the SEC will require American companies to implement IFRS, though the SEC remains committed to requiring U.S. companies use IFRS at some point. Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

14 Copyright © 2015 Pearson Education, Inc. 11) A major way in which IFRS differs from GAAP that will affect the design of a company's general ledger and reporting system is an IFRS principle known as A) componentization. B) monetization. C) securitization. D) none of the above Answer: A Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

12) At a minimum, a switch to IFRS from GAAP will affect companies' accounting information system by A) requiring companies to increase the processing power of their existing accounting information systems. B) requiring IT departments to hire programmers that are fluent in languages besides English. C) requiring the creation of additional fields in research and development (R&D) records to capture information about the stage of research and development that costs are incurred in. D) requiring firms to completely redesign their existing accounting information systems because current systems are not compatible with IFRS accounting principles. Answer: C Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

13) XBRL stands for A) extensible business reporting language. B) extreme business reporting ledgers. C) external business reporting language. D) extensive business report logic. Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

14) True or False: The SEC requires U.S. companies to use XBRL when submitting their filings. Answer: TRUE Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

15 Copyright © 2015 Pearson Education, Inc. 15) Each specific data item in an XBRL document is called a(n) A) taxonomy. B) element. C) instance. D) schema. Answer: B Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

16.4 Discuss how tools like responsibility accounting, balanced scorecards, and graphs can be used to provide information managers need to effectively monitor performance.

1) The ______is the managerial report that shows planned cash inflows and outflows for major investments or acquisitions. A) journal voucher list B) statement of cash flows C) operating budget D) capital expenditures budget Answer: D Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

2) The operating budget A) compares estimated cash flows from operations with planned expenditures. B) shows cash inflows and outflows for each capital project. C) depicts planned revenues and expenditures for each organizational unit. D) is used to plan for the purchase and retirement of property, plant, and equipment. Answer: C Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

3) Budgets used for internal planning purposes and performance evaluation should be developed on the basis of A) responsibility accounting. B) generally accepted accounting principles. C) financial accounting standards. D) managerial accounting standards. Answer: A Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

16 Copyright © 2015 Pearson Education, Inc. 4) Performance reports for cost centers should compare actual versus budget ______costs. A) controllable B) uncontrollable C) fixed D) variable Answer: A Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

5) Performance reports for sales departments should compare actual revenue versus budgeted A) revenue. B) cost. C) return on investment. D) profit. Answer: A Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

6) 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 Answer: B Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

7) As responsibility reports are rolled up into reports for higher level executives, they A) become less detailed. B) become more detailed. C) become narrower in scope. D) look about the same. Answer: A Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking

17 Copyright © 2015 Pearson Education, Inc. 8) Variances for variable costs will be misleading when the planned output differs from budgeted output. A solution to this problem would be A) calling all costs fixed. B) to use flexible budgeting. C) better prediction of output. D) to eliminate the budgeting process. Answer: B Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

9) Which of the following balanced scorecard dimensions provides measures on how efficiently and effectively the organization is performing key business processes? A) financial B) internal operations C) innovation and learning D) customer Answer: B Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

10) Which of the following is not one of the principles of proper graph design for bar charts? A) Include data values with each element. B) Use 3-D rather than 2-D bars to make reading easier. C) Use colors or shades instead of patterns to represent different variables. D) Use titles that summarize the basic message. Answer: B Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

A) The x-axis is in reverse chronological order, which violates a principle of proper graph design. B) The chart appears to conform to the principles of proper graph design. C) The vertical axis doesn't appear to start at the origin (zero). D) The chart used 2-D bars instead of 3-D, which violates a principle of proper graph design. Answer: A Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

12) What is responsibility accounting? Answer: Responsibility accounting involves the reporting of financial results on the basis of managerial responsibilities within an organization. Reports show actual amounts and variances to budget for the current month and year to date for items controllable at that level. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

13) How is a balanced scorecard used to assess organizational performance? Answer: The balanced scorecard contains four perspectives of measurement of the organization. The perspectives are financial, internal operations, innovation and learning, and customer. Together these different perspectives provide a dimensional overview of organizational performance that is greater than financial measures alone. A scorecard that has been properly designed will measure key aspects of the organization's strategy as well as show important links across the perspectives or dimensions. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

19 Copyright © 2015 Pearson Education, Inc. 14) Discuss the value and role of budgets as managerial reports. Answer: Budgets are managerial reports that can be extracted from the general ledger and reporting system. Budgets are used for planning and evaluating the organization's performance. There are several different types of budgets that an organization may use in this regard. The operating budget shows the planned revenues and expenditures for each organizational unit. Cash flow budgets compare the estimated cash inflows from operations with planned expenditures, and they are particularly useful to determine the borrowing needs of the organization. A capital expenditure budget shows the projected cash inflows and outflows for a given project. Budgetary reports should be tailored to the nature of the unit or department being evaluated, and they should show actual versus projected budget amounts. Unfortunately, many budget amounts are viewed as fixed targets, and they are therefore static and inflexible. Such an approach may either reward or penalize managers for factors that are beyond their control. A solution to this problem is to develop a flexible budget, in which variable budgeted amounts change in relation to some measure of organizational activity, such as labor hours, or a percentage of sales. A flexible budget may also break amounts into their respective fixed and variable components. Variable amounts can then be adjusted for fluctuations in sales or production. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking

15) The balanced scorecard attempts to solve what major issue associated with traditional accounting reports? A) Traditional accounting reports focus too narrowly on financial performance. B) Traditional accounting reports are not easily understood by non-accountants. C) Traditional accounting reports are expensive to produce. D) Traditional accounting reports are produced too slowly to provide value. Answer: A Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

16) Which of the following is not a perspective reflected in the balanced scorecard? A) customer perspective B) internal operations perspective C) financial perspective D) efficiency and effectiveness perspective Answer: D Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

20 Copyright © 2015 Pearson Education, Inc. 17) True or False: Organizations should set their balanced scorecard targets to reflect industry benchmark values. Answer: FALSE Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

18) Which type of graph is the most commonly used to display trends in financial data? A) pie chart B) scatterplot chart C) bar chart D) stochastic chart Answer: C Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

19) Which of the following balanced scorecard dimensions provides measures on new products? A) financial B) internal operations C) innovation and learning D) customer Answer: C Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic