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