Key Terms & Definitions:
Direct Write-off Method and Allowance Method. Which does
GAAP require?
Cash Ratio. What does a higher number indicate?
Maturity Value of a Note is..
Acid Test Ratio
Days Sales in Receivables
A/R Turnover Ratio
SAMPLE PROBLEMS:
Chapter 7 Accounting Information Systems
Learning Objective 7-1
An accounting information system (AIS) collects, records, stores, and processes accounting
data to produce information that is useful for decision makers.
Answer: TRUE
An effective accounting information system with adequate internal controls can safeguard a
business's assets and reduce the likelihood of fraud and errors.
Answer: TRUE
An accounting information system has three basic components: source documents and
input devices, processing and storage, and outputs.
Answer: TRUE
Pre-numbered source documents provide necessary control in a system by automatically
assigning a sequential number to each new transaction.
Answer: TRUE
A source document provides the evidence and data for accounting transactions.
Answer: TRUE
Which of the following is true of data processing and storage in a computerized
information system?
A) In a computerized accounting information system, processing includes manually
journalizing transactions and posting to the accounts.
B) In a computerized accounting information system, there will be a main centralized
computer where data is stored, which cannot be accessed from any other computers.
C) In both manual and computerized systems, all data are contained in paper documents
and are often stored in filing cabinets and off-site document warehouses.
D) In a computerized accounting information system, companies need to spend large
amounts of cash to ensure that their data and information are secure.
Answer: D
The main computer where data is stored, which can be accessed from many different
computers is known as a(n) ________.
A) internet protocol
B) RAM
C) server
,D) router
Answer: C
Which of the following is an example of a storage device in an accounting information
system?
A) monitor
B) network
C) printer
D) server
Answer: D
Which of the following is an input device in an accounting information system?
A) keyboard
B) internet protocol
C) printer
D) router
Answer: A
Which of the following is an output device in an accounting information system?
A) keyboard
B) internet protocol
C) printer
D) mouse
Answer: C
Which of the following is true of outputs in an accounting information system?
A) In a manual system, reports and financial statements must be created using Word
documents, Excel spreadsheets, or PowerPoint.
B) In a computerized system, the software can generate reports instantaneously that can
never be manipulated.
C) Examples of outputs in an accounting information system include purchase invoices,
bank checks, and sales invoices.
D) Since the output in an accounting information system are audited and error-free, it
provides the evidence and data for accounting transactions.
Answer: A
Which of the following is true of the comparison between a manual and a computerized
accounting information system?
A) In both manual and computerized systems, reports and financial statements must be
created using Word documents, Excel spreadsheets, or PowerPoint.
B) In a computerized system, the software can generate financial reports instantaneously
that can never be manipulated.
C) In a manual system, data are contained in paper documents that are often stored in
filing cabinets and off-site document warehouses; whereas in a computerized system, data
are stored on a main computer called a server.
D) In both manual and computerized systems, processing data includes manually
journalizing transactions and posting to the accounts.
Answer: C
Learning Objective 7-2
A subsidiary ledger is a record of accounts that provides supporting details on individual
balances, the total of which appears in a general ledger account.
Answer: TRUE
,The accounts payable subsidiary ledger lists each vendor along with amounts paid to the
vendors and the remaining amounts owed to them.
Answer: TRUE
The Accounts Receivable balance in the general ledger may or may not equal the sum of
the accounts in the accounts receivable subsidiary ledger.
Answer: FALSE
After posting entries in a sales journal to the general ledger, the Accounts Receivable
balance in the general ledger should equal the sum of the individual customer balances in
the accounts receivable subsidiary ledger.
Answer: TRUE
A special journal is:
A) an accounting journal designed to record a specific type of transaction.
B) an accounting journal that holds individual accounts that support a specific general
ledger account.
C) a record of accounts that provides supporting details on individual balances, the total of
which appears in a general ledger account.
D) a created list of the accounts used by a business entity to define each class of items for
which cash is spent or received.
Answer: A
Adjusting entries are recorded in the ________.
A) cash payments journal
B) purchases journal
C) cash receipts journal
D) general journal
Answer: D
A subsidiary ledger is:
A) an accounting journal designed to record a specific type of transaction.
B) a created list of the accounts used by a business entity to define each class of items for
which cash is spent or received.
C) a complete record of business transactions recorded in a ledger over the life of a
company.
D) a record of accounts that provide supporting details on individual balances, the total of
which appears in a general ledger account.
Answer: D
Which of the following is true of an accounts payable subsidiary ledger?
A) It does not indicate the amount owed to each vendor.
B) It shows only a single total for the amount owed on account.
C) It lists vendors in alphabetical order, along with amounts paid to the vendors and the
remaining amounts owed to them.
D) Its format is entirely different from an accounts receivable subsidiary ledger.
Answer: C
Which of the following is true of a control account?
A) It is a valuation account from which balances are added to another account.
B) Its balance equals the sum of the balances in a group of related accounts in a subsidiary
ledger.
, C) It is equivalent to a contra account and represents the offsetting nature of debits and
credits on a firm's financial statements.
D) It holds individual accounts that support a general ledger account.
Answer: B
Which of the following is true of an accounts receivable subsidiary ledger?
A) It does not include a receivable account for each customer, but includes a cumulative
account for all customers.
B) It contains information about the amount each customer purchased on credit, but
excludes the customer name.
C) The total of the accounts in the accounts receivable subsidiary ledger must equal the
accounts receivable balance in the general ledger.
D) Companies keep an accounts payable subsidiary ledger that is entirely different than the
accounts receivable subsidiary ledger.
Answer: C
Assume that a company has only four customers: A, B, C, and D. The accounts receivable
balance in the general ledger is $7,983 and the accounts receivable subsidiary ledger of
customers A, C, and D have $1,246, $2,596 and $3,240 respectively. Calculate the amount
in the accounts receivable subsidiary ledger account of customer B.
A) $7,082
B) $2,147
C) $1,391
D) $901
Answer: D
Explanation: D) The accounts receivable balance of $7,983 in the general ledger equals the
sum of the accounts in the accounts receivable subsidiary ledger ($1,246 + $2,596 + ? +
$3,240). Therefore, the amount in the accounts receivable subsidiary ledger account of
customer B = $7,983 - ($1,246 + $2,596 + $3,240) = $901
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