Chapter 6: Transaction Processing and Financial Reporting Systems Overview Flashcards
The most common financial transactions are
economic exchanges with external
parties.
Three transaction cycles process most of the firm’s economic activity:
the expenditure cycle, the conversion cycle, and the revenue cycle
In this cycle, business activities begin with the acquisition of materials, property, and labor in exchange
for cash.
expenditure cycle
This system recognizes the need to acquire physical inventory (such as raw materials) and places an order with the vendor. When the goods are received, this system records the event by increasing inventory and establishing an account payable to be paid at a later date.
Purchases/accounts payable system.
When the obligation created in the purchases system
is due, the _____________ authorizes the payment, disburses the funds to the vendor, and records the transaction by reducing the cash and accounts payable accounts.
cash disbursements system
The _______________ collects labor usage data for each employee, computes the payroll, and disburses paychecks to the employees.
payroll system
A firm’s ______________ processes transactions pertaining to the acquisition, maintenance, and disposal of its fixed assets. These are relatively permanent items that collectively often represent the organization’s largest financial investment.
fixed asset system.
The conversion cycle is composed of two major subsystems:
the production system
and the cost accounting system.
This system of the conversion cycle involves the planning, scheduling, and control of the physical product through the manufacturing process.
production system
This system of the conversion cycle monitors the flow of cost information related to production. Information this system produces is used for inventory valuation, budgeting, cost control, performance reporting, and management decisions, such as make-or-buy decisions.
cost accounting system
Firms sell their finished goods to customers through the _________________, which involves processing cash sales, credit sales, and the receipt of cash following a credit sale.
revenue cycle
This is a subsystem of the revenue cycle where majority of business sales are made on credit and involve tasks such as preparing sales orders, granting credit, shipping products (or rendering of a service) to the customer, billing customers, and recording the transaction in the accounts (accounts receivable [AR], inventory, expenses, and sales).
Sales order processing
This is a subsystem of the revenue cycle. For credit sales, some period of time (days or weeks) passes between the point of sale and the receipt of cash. This processing includes collecting cash, depositing cash in the bank, and recording these events in the accounts (AR and cash).
Cash receipts
A ____________ provides evidence of an economic event and may be used to initiate transaction processing.
document
Economic events result in some documents being created at the
beginning (the source) of the transaction. These are called _____________________.
source documents
___________________ are documents used to capture and formalize transaction data that the transaction cycle needs for processing.
Source documents
_____________________ are the documents that are result of transaction processing rather than the triggering mechanism for the process.
Product documents
These are product documents of one system that become source documents for another system.
Turnaround Documents.
A ______________ is a record of a chronological entry. At some point in the transaction process, when all relevant facts about the transaction are known, the event is recorded in this in chronological order.
Journal
___________ are the primary source of data for journals.
Documents
______________ are used to record specific classes of transactions
that occur in high volume.
Special journals
The term ___________ is often used to denote certain types of special journals.
register
Firms use the _____________ to record nonrecurring, infrequent,
and dissimilar transactions
general journal
A _________ is a book of accounts that reflects the financial effects of the firm’s transactions after they are posted from the various journals.
ledger
A ___________ indicates the increases, decreases, and current balance of each account.
ledger
There are two basic types of ledgers:
(1) general ledgers, which contain the firm’s account information in the form of highly summarized control accounts, and
(2) subsidiary ledgers, which contain the details of the individual accounts that constitute a particular control account.
The ______________ summarizes the activity for each of the organization’s accounts.
general ledger
_______________ are kept in various accounting departments
of the firm, including inventory, accounts payable, payroll, and AR.
Subsidiary ledgers
A ___________ generally contains account data. The general ledger and
subsidiary ledgers are examples of this.
master file
A _______________ is a temporary file of transaction records used
to change or update data in a master file. Sales orders, inventory receipts, and cash receipts are examples of this.
transaction file
A ______________ stores data that are used as standards for processing
transactions. For example, the payroll program may refer to a tax table to calculate the proper amount of withholding taxes for payroll transactions.
reference file
An ______________ contains records of past transactions that are retained for future reference. These transactions form an important part of the audit trail. These include journals, prior-period payroll information, lists of former employees, records of accounts written off, and prior-period ledgers.
archive file
The _______________ uses symbols to represent the entities, processes, data flows, and data stores that pertain to a system.
data flow diagram (DFD)
An ___________________ is a documentation technique used to represent the relationship between entities.
entity relationship (ER) diagram
