Multiple Choice Questions
The following questions concern internal controls in the inventory and warehousing cycle. Choose the best response.
a. Which of the following controls will most likely justify a reduced assessed level of control risk for the occurrence assertion for purchases of inventory?
(1) Receiving reports for inventory additions are accounted for and entry of received goods into the purchases system is verified by accounting clerks.
(2) The purchases system automatically updates the perpetual inventory master file when transactions are entered into the purchases journal.
(3) The perpetual inventory system will not allow an addition of inventory to be posted without entry of a valid receiving report number.
(4) At the close of each day, the system reconciles the perpetual inventory master file to the inventory general ledger account and generates an exception report when differences exist.
b. For control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order that is
(1) Returned to the requisitioner.
(2) Forwarded to the receiving department.
(3) Forwarded to the accounting department.
(4) Retained in the purchasing department's files.
c. Which of the following procedures will best detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?
(1) Maintain a perpetual inventory master file of only the more valuable items with frequent periodic verification of the validity of the perpetuals.
(2) Have an independent CPA firm prepare an internal control report on the effectiveness of the administrative and accounting controls over inventory.
(3) Have separate warehouse space for the more valuable items with sequentially numbered tags.
(4) Require an authorized officer's signature on all requisitions for the more valuable items.