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Chapter 1 Accounting Information Systems: An Overview 1.1 Distinguish data from information, discuss the characteristics of useful information, and explain how to determine the value of information. 1) Which of the following statements below shows the contrast between data and information? A) Data is the output of an AIS. B) Information is the primary output of an AIS. C) Data is more useful in decision making than information. D) Data and information are the same. Answer: B 2) Information is best described as A) raw facts about transactions. B) data that has been organized and processed so that it is meaningful to the user. C) facts that are useful when processed in a timely manner. D) the same thing as data. Answer: B 3) The value of information can best be determined by A) its usefulness to decision makers. B) its relevance to decision makers. C) the benefits associated with obtaining the information minus the cost of producing it. D) the extent to which it optimizes the value chain. Answer: C 4) An accounting information system (AIS) processes ________ to provide users with ________. A) data; information B) data; transactions C) information; data D) data; benefits Answer: A 5) ________ information reduces uncertainty, improves decision makers' ability to make predictions, or confirms expectations. A) Timely 1B) Reliable C) Relevant D) Complete Answer: C 6) Information that is free from error or bias and accurately represents the events or activities of the organization is A) relevant. B) reliable / Faithful Representation. C) verifiable. D) timely. Answer: B 7) Information that does not omit important aspects of the underlying events or activities that it measures is A) complete. B) accessible. C) relevant. D) timely. Answer: A 8) Information is ________ when two knowledgeable people independently produce the same information. A) verifiable B) relevant C) reliable D) complete Answer: A 9) Data must be converted into information to be considered useful and meaningful for decision making. There are six characteristics that make information both useful and meaningful. If information is free from error or bias and accurately represents the events or activities of the organization, it is representative of the characteristic of A) relevancy. B) timeliness. C) understandability. D) reliability. 2Answer: D 10) Inventory information is provided in real time by a firm's accounting information system. The accuracy of this information is questionable, however, since the production manager often reports stock outs of components that the system indicates are in stock. Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: B 11) Cheryl Metrejean has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Ms. Metrejean. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: F 12) In 2003, Singh Manufacturing implemented a Web-based information system that allows all employees to access mission-critical information. The intention was to increase production efficiency. Unfortunately, it had the opposite effect, as deliveries fell behind schedule and costs increased. Shaman Gupta, the director of information technology services, asked Ashlee Wells to come in and talk with him about the system. Ashlee is a long-time employee of Singh, and her opinion is valued by her peers and by her supervisor. "So Ashlee, how's it going down there in the shop?" "Not so good, Shaman. Used to be we got a weekly pick list so we knew how to plan production. Now, we got that computer system. Most of us can't figure out how to use it to do our jobs. Is there some way to print out a pick list?" 3Shaman thought for a while before responding. "Well, Ashlee, to tell you the truth, I'm not so sure how to do it myself, but there must be a way. We'll bring in the consultants that helped us build the system. Maybe they can help." Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: E 13) Wisconsin Dells, Wisconsin, is a popular tourist destination. During the winter months, the population dwindles to a meager few, but when summer comes, the size of the town surges. Hunter Jackson is the town sanitation engineer. When the size of the town surges, so do his responsibilities. Among them is management of the sewage processing volume. In an interview with the local paper, Hunter complained that a report on tourist population that he uses to adjust processing volume refers to data that was collected four days ago and it takes him a week to make adjustments. Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: D 14) A frantic Barney Rubble lost a large sale because he could not access the system to verify the inventory was in stock and ready to be shipped. Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable 4G) accessible Answer: G 15) Message left on voicemail: "Hi Nikki! Just landed at the airport. How about dinner this evening if you're available. Call me!" Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: C 16) Chopra, Limited, is an Indian company operating in New York state. It offers stylized, boutique public relations services to upscale retailers in quaint New England towns. A major source of revenue is a weekly newsletter that reports on current and projected tourist travel and spending patterns. Preparation of the newsletter requires study and analysis of weather conditions, economic activity, and travel costs. It is available at an annual subscription rate of $299.99. There are currently 190 subscribers. Preparation and distribution of the newsletter costs $12,000 annually. The value of information to subscribers is A) $236.83. B) $44,998.10. C) less than $63.16. D) at least $300.00. Answer: D 17) Baggins Incorporated identifies new product development and product improvement as the top corporate goals. An employee developed an innovation that will correct a shortcoming in one of the company's products. Although Baggins current Return on Investment (ROI) is 15%, the product innovation is expected to generate ROI of only 12%. As a result, the employee fails to follow up. As a result, awarding bonuses to employees based on ROI resulted in A) goal conflict. B) information overload. C) goal congruence. D) decreased value of information. 5Answer: A 18) Which of the following tradeoffs between characteristics of useful information is least objectionable? A) incomplete information received on a timely basis B) irrelevant information received in an understandable format C) unreliable information easily accessible D) verifiable information received in unreadable format Answer: A 19) Which of the following is not one of the three basic types of data about a specific sales transaction that should be captured by an Accounting Information System? A) name of the employee who completed the sale B) daily sales quota C) product sold D) date Answer: B 1.2 Explain the decisions an organization makes and the information needed to make them. 1) Paid time-off policies, job descriptions, and procedures manuals are examples of information needed to support key decisions in what business process? A) hire and train employees B) acquire inventory C) sell merchandise D) collect payment from customers Answer: A 2) Before a firm can identify the information needed to effectively manage a process, the firm must A) understand the process . B) hire programmers. C) purchase computers and/or workstations. D) obtain internet access. Answer: A 3) Identify the piece of information below that is typically needed to acquire a building. A) job descriptions 6B) vendor performance C) market coverage D) capacity needs Answer: D 4) Identify the piece of information below that is typically needed to acquire inventory. A) job descriptions B) vendor performance C) market coverage D) capacity needs Answer: B 5) Identify the piece of information below that is typically needed to hire and train employees. A) job descriptions B) vendor performance C) market coverage D) capacity needs Answer: A 6) How can query languages be used to help make better decisions? A) They can suggest a course of action. B) They can gather relevant data for decision making. C) They can help the decision maker to interpret results. D) They can model choose among alternative courses of action. Answer: B 7) What is a key decision that needs to be made with regards to selling merchandise? A) which credit cards to accept B) which employees to hire C) which public accounting firm to employ D) how much capital to acquire Answer: A 8) What is a key decision that needs to be made with regards to acquiring inventory? A) which credit cards to accept B) which employees to hire 7C) which vendors to use D) how much capital to acquire Answer: C 9) What is a key decision that needs to be made with regards to acquiring equipment? A) the location B) pro forma income statement C) how much capital to acquire D) job descriptions Answer: A 1.3 Identify the information that passes between internal and external parties and an AIS. 1) One group that relies on both the adequate collection and transformation of data for decision-making purposes for an organization is A) management. B) interested outsiders. C) competitors. D) the government. Answer: A 2) Who of the following is not a stakeholder with whom an accounting information system typically communicates directly? A) Wall Street industry analyst B) venture capitalist C) company that supplies raw materials D) company that purchases finished goods for resale to consumers Answer: A 3) In which transaction cycle would customer sales transaction information be most likely to pass between internal and external accounting information systems? A) the revenue cycle B) the expenditure cycle C) the human resources / payroll cycle D) the financing cycle Answer: A 4) In which transaction cycle would information for inventory purchases be most likely to pass 8between internal and external accounting information systems? A) the revenue cycle B) the expenditure cycle C) the human resources / payroll cycle D) the financing cycle Answer: B 5) In which transaction cycle would information for paying employees be most likely to pass between internal and external accounting information systems? A) the revenue cycle B) the expenditure cycle C) the human resources / payroll cycle D) the financing cycle Answer: C 6) In which transaction cycle would information for paying interest be most likely to pass between internal and external accounting information systems? A) the revenue cycle B) the expenditure cycle C) the human resources / payroll cycle D) the financing cycle Answer: D 7) In which transaction cycle would information for borrowing money be most likely to pass between internal and external accounting information systems? A) the revenue cycle B) the expenditure cycle C) the human resources / payroll cycle D) the financing cycle Answer: D 8) In which transaction cycle would information for hiring employees be most likely to pass between internal and external accounting information systems? A) the revenue cycle B) the expenditure cycle C) the human resources / payroll cycle D) the financing cycle 9Answer: C 9) Identify the party below that is not external to the firm. A) customer B) vendor C) government agencies D) CEO Answer: D 10) Identify the party below that is not internal to the firm. A) customer B) management C) employees D) CEO Answer: A 1.4 Describe the major business processes present in most companies. 1) Obtaining financing from outside investors is part of which cycle? A) the revenue cycle B) the financing cycle C) the production cycle D) the payroll cycle Answer: B 2) The ________ is not a transaction cycle. A) general ledger and reporting cycle B) expenditure cycle C) revenue cycle D) human resources cycle Answer: A 3) Identify the false statement below. A) Retail stores do not have a production cycle. B) Financial institutions have installment-loan cycles. C) Every organization should implement every transaction cycle module. D) A service company does not have an inventory system. 10Answer: C 4) Transaction cycles can be summarized on a high level as "give-get" transactions. An example of "give-get" in the revenue cycle would be A) give cash, get goods. B) give goods, get cash. C) give cash, get labor. D) give cash, get cash. Answer: B 5) Groups of related business activities such as the acquisition of merchandise and payment of vendors are called A) transaction cycles. B) economic cycles. C) business events. D) transactions. Answer: A 6) The transaction cycle that includes the events of hiring employees and paying them is known as the A) revenue cycle. B) expenditure cycle. C) human resources cycle. D) financing cycle. Answer: C 7) The transaction cycle approach yields efficiencies when processing of a large number of transactions because A) a large number of transactions within a given cycle can be categorized into a relatively small number of distinct types. B) transaction cycles are easier to computerize. C) the transaction cycle approach represents the natural order of business. D) transaction cycles are easy to understand. Answer: A 8) Paying state payroll taxes is part of which transaction cycle? A) human resources/payroll B) expenditure 11C) financing D) revenue Answer: A 9) Who of the following would not be involved in the revenue cycle? A) accounts payable clerk B) customer C) cashier D) credit manager Answer: A 1.5 Explain what an accounting information system (AIS) is and describe its basic functions. 1) An accounting information system must be able to perform which of the following tasks? A) collect transaction data B) process transaction data C) provide adequate controls D) all of the above Answer: D 2) Which of the following is not an example of a common activity in an AIS? A) buy and pay for goods and services B) sell goods and services and collect cash C) summarize and report results to interested parties D) record sales calls for marketing purposes Answer: D 3) Which of the following is not one of the components of an AIS? A) internal controls and security measures B) people C) procedures and instructions D) hardware Answer: D 4) The primary objective of accounting is to A) implement strong internal controls. B) provide useful information to decision makers. 12C) prepare financial statements. D) ensure the profitability of an organization. Answer: B 5) Many modern accounting software packages offer separate transaction cycle modules. What is the reason for this? A) Every organization does not need to implement all of the available transaction cycle modules. B) Most businesses do not need the revenue cycle module as part of their AIS. C) The nature of a given transaction cycle is the same irrespective of the type of organization. D) A properly designed AIS does not use the concept of separate business transaction cycles to process transactions. Answer: A 1.6 Discuss how an AIS can add value to an organization. 1) The American Institute of Certified Public Accountants (AICPA) has recognized the importance of AIS and the major impact information technology has on the area of accounting. To recognize individual CPAs who have met educational and experiential requirements in this area, the group formally created the designation known as A) the Certified Information Auditor. B) the Certified Internal Auditor. C) the Certified Information Technology Professional. D) the Certified Data Processing Professional. Answer: C 2) The AIS must include controls to ensure A) safety and availability of data. B) marketing initiatives match corporate goals. C) information produced from data is accurate. D) both A and C Answer: D 3) An AIS provides value by A) improving products or services through information that increases quality and reduces costs. B) providing timely and reliable information to decision makers. C) creating new products. D) both A and B 13Answer: D 4) A good example of how an AIS is used to share knowledge within an organization is A) the use of a corporate database to help staff identify the relevant experts who can help with a particular client. B) the use of tablets to access a network for messaging worldwide. C) the monitoring of production equipment to watch for defects. D) the use of point-of-sale data to determine hot-selling items. Answer: A 5) When the AIS provides information in a timely and accurate manner, it stands as an example of A) improved decision making. B) improving the quality and reducing the costs of products or services. C) improving efficiency. D) all of the above Answer: D 6) Accounting information plays major roles in managerial decision making by A) identifying situations requiring management action. B) reducing uncertainty. C) providing a basis for choosing among alternative actions. D) all of the above Answer: D 7) A well-designed AIS can improve the decision making in an organization. Identify the statement below that describes a situation where an AIS may actually inhibit effective decision making. A) An AIS provides to its users an abundance of information without any filtering or condensing of such information. B) An AIS identifies situations requiring management action. C) An AIS reduces uncertainty, and therefore accounting information can provide a basis for choosing among alternative courses of action. D) An AIS provides information about the results of previous decisions which provides decision makers with feedback that can be used in future decision making. Answer: A 8) Which of the following is not an example of how an AIS adds value to an organization? 14A) All employees at a hospital can access and update patient records from any computer terminal in the hospital. B) A customer service representative can find a customer's account data, purchase history, payment history, and salesperson's name while on the phone with the customer, to resolve issues quickly. C) Suppliers are able to access sales data directly from the point-of-sale system of a retailer and deliver inventory automatically when needed. D) Client tax files are encrypted and made available on the CPA firm's network to any employee with an access code. Answer: A 1.7 Explain how an AIS and corporate strategy affect each other. 1) A change in the AIS that makes information more easily accessible and widely available within an organization is most likely to first influence the A) organizational culture. B) customer base. C) external financial statement users. D) production activity. Answer: A 2) In Chapter 1, Figure 1-4 shows the factors that influence the design of AIS. The diagram shows a bi-directional arrow between the organizational culture and the AIS. The reason for this two-way interchange between organizational culture and AIS is A) that the AIS should not influence the values of the organizational culture. B) because the organization's culture influences the AIS, and likewise the AIS influences the organization's culture by controlling the flow of information within the organization. C) due to the transfer of managers between the two corporate elements. D) the AIS impacts the organization's key strategies. Answer: B 3) Which of the following is a true statement? A) Business strategy directly influences AIS, but not information technology. B) Information technology directly influences organizational culture, but not business strategy. C) Organizational culture directly influences business strategy, but not AIS. D) AIS directly influences information technology, but not business strategy. Answer: A 15