Transaction Cycles

Question 1

Categories of Major Transaction Cycles
- revenue and receipt
- expenditure and disbursement
- human resources and payroll
- production
- financing and investing

Answer 1

Yes

Question 2

Auditor’s Objectives when it comes to Transaction Cycles
- obtain understanding of these TC to plan the audit and develop effective and efficient audit approach
- to determine reliability of financial reporting + fairness of presentation

Answer 2

Yes

Question 3

For a company, what are the 2 objectives of transaction cycles?

Answer 3

1. to promote segragation of incompatible duties
2. to safeguard entity’s resources

Question 4

The department that initiated the processing is the one who will approve the form. True or False?

Answer 4

True

Question 5

The department that initiated the processing is the one who is accountable for unused forms. True or False?

Answer 5

True

Question 6

Forms or documents initiated and processed
- access to such forms shall be limited to the department who initiated the processing

Answer 6

Yes

Question 7

Basta nadaanan yung department, dapat mag retain siya ng copy ng document na yon (for filing)

Answer 7

Yes

Question 8

In transaction cycles, the assumption is that sales and purchases are made through cash. True or False?

Answer 8

False

Major Assumptions in TC
1. sales on account + purchases on account
2. use of imprest and voucher system

Question 9

Revenue and Receipt Cycle
- what is the start? end?

Answer 9

Start - acceptance of order from a customer
End - collected the receivable

Question 10

Departments under the Revenue Cycle
- Sales Department
- ?
- Warehouse Department
- ?
- Billing Department
- ?

Answer 10

• Credit Department
• Shipping Department
• Accounting Department

Question 11

Sales Department
- goal is to increase sales

How to control the possibility of being subjective of the sales people?

Answer 11

• give a standard price (RANGE)
• must have list of authorized customer

Question 12

Sales Department
- Nag-order na si customer. Ano yung document kung saan nandon yung agreed terms (quantity, price, etc.)?

Answer 12

Sales Order

Question 13

Sales Department
- Sino-sino yung pagbibigyan ng sales order?

Answer 13

• Una, syempre si customer
• credit department
• shipping department
• billing department

Walang warehouse kasi ang matatanggap ni warehouse is Approved SO (na galing kay Credit department)

Walang accounting kasi ang matatanggap ni accounting is SI = SO + Shipping Document (na galing kay billing)

Question 14

Credit Department
- ang ginagawa dito is approval of credit request ng customer (approval of SO common term pero credit request talaga yung inaapprove)

Answer 14

Yes

Question 15

Credit Department
- what is the goal?

Answer 15

• to control sales department
• minimize high risk customers

Question 16

Credit Department
- pag na-approve yung credit request, SO will be marked “approved”. Then, ibibigay na sa next department which is warehousing.

Answer 16

Yes

Question 17

Warehousing Department
- main task is inventory control / monitoring

Answer 17

Yes

Question 18

Warehousing Department
- incoming goods → receiving dept
- receiving dept (RM) → warehouse
- warehouse (RM) → production
- production (FG) → warehouse
- warehouse (FG) → shipping

Makikita mo, lahat ng galaw ng inventory is dumaan sa warehouse.

Answer 18

Yes

Question 19

Warehousing Department
- diba ang natanggap ni Warehouse is SO marked “approved”. Ngayon, kasama ng goods, ibibigay niya to sa next department (Shipping Department)

What is the objective of warehousing department when it comes to issuances of goods?

Answer 19

all issuances are authorized

Question 20

Shipping Department
- ano yung mga documents na hawak ni shipping department sa simula?

Answer 20

SO - from Sales Department (diba binigyan siya)
Approved SO - from Warehousing Department
Goods - from Warehousing Department

Question 21

Shipping Department
- Kanino ibibigay yung shipping document (SD)?

Answer 21

• next department (which is billing)
• carrier (na ibibigay rin kay customer “giving SD means passing the risk”)

Question 22

Shipping Department

What is the objective of shipping department when it comes to issuances of goods?

Answer 22

all issuances are authorized (same as warehousing)

Question 23

Billing Department
- ano yung mga documents na hawak ni billing department sa simula?

Answer 23

SO - from Sales Department (diba binigyan siya)
SD - from Shipping Department

Question 24

Billing Department
- SO + SD = Sales Invoice (billing statement or SOA)

Kanino ibibigay yung SI?

Answer 24

• next department (which is AR and general accounting)
• customer (with remittance advice)

Question 25

Accounting Department - Diba si AR binigyan siya ng SI, ano gagawin ni AR don?

Answer 25

Post to SL of AR (gawa din ng daily summary) [ SI + Daily Summary ] from AR → General Accounting General Accounting → record to General Journal → post to General Ledger

Question 26

Departments under the Receipt Cycle - Receptionist or Mail Room - Treasury Department - Accounting Department

Answer 26

Yes

Question 27

Receptionist or Mail Room - makakatanggap siya ng mail - sa loob ng mail, nandon yung check (since imprest system) + remittance advice (galing kay billing department) Then icocollate yung mga natanggap na mail → list of receipts

Answer 27

If ever walang remittance advice → si receptionist yung magffill out non

Question 28

Treasury Department - pagbabanggain niya yung mga checks sa list of receipts What is the document that the treasury department prepares, together with the money which will be deposited to the bank?

Answer 28

Deposit Slip

Question 29

Treasury Department - update cash records → daily summary → general accounting

Answer 29

Yes

Question 30

AR Accounting Department - pagbabanggain niya yung mga remittance advice sa list of receipts - post to SL → daily summary → general accounting

Answer 30

Yes

Question 31

General Accounting Department - nakakuha na siya ng daily summaries from Treasury & AR - General Accounting → record to General Journal → post to General Ledger

Answer 31

Yes

Question 32

Sales Return, Sales Allowances, Uncollectible Accounts - what department authorizes the return of goods / write off?

Answer 32

Sales Department (duh) - will issue a credit memo (which will be given to customer, AR) ## Footnote If sales return, since may goods na babalik → credit memo will also be given to warehouse, receiving

Question 33

Expenditure and Disbursement Cycle - what is the start? end?

Answer 33

Start - placing an order to a supplier End - paid the payable

Question 34

Departments under the Expenditure Cycle - User Department - Purchasing Department - ? - ?

Answer 34

- Receiving Department - AP Department

Question 35

Departments under the Disbursement Cycle - AP Department - Treasury Department

Answer 35

AP Department = may part na expenditure, may part na disbursement

Question 36

User Department - any department na nangangailangan ng something - will make a Requisition Slip Sino yung pagbibigyan ng Requisition Slip?

Answer 36

- purchasing (siya nga bibili e) - AP (to account for it)

Question 37

Purchasing Department - what is the goal?

Answer 37

- quality materials - efficiency

Question 38

Purchasing Department - diba nakatanggap siya ng RS from User Department Anong document ipprepare niya ngayon?

Answer 38

Purchase Order (PO)

Question 39

Purchasing Department - Sino-sino pagbibigyan ng PO?

Answer 39

- una, supplier (sa kanya nga bibili e) - receiving department (which is the next dept) - AP (to account for it)

Question 40

Receiving Department - main task is to establish existence (quantity) as well as condition (quality) of goods To do the following above, need magkaroon ng physical examination of goods. What is the internal control para mamake sure na talagang ineexamine ng receiving department yung goods?

Answer 40

Ang matatanggap nila is Blank PO which is sila yung mag fifill out

Question 41

Receiving Department - ano yung documents na hawak ni receiving department sa simula?

Answer 41

- first, approved PO - shipping document from supplier (passing of risk) - goods

Question 42

Receiving Department - ano yung document na pineprepare ni receiving department and sino pagbibigyan non?

Answer 42

Receiving Report - kay purchasing ulit (para pagbanggain yung blank PO vs approved PO) - AP department (to account for it)

Question 43

Accounts Payable Department - diba nakatanggap siya from all departments - so, meron siyang RS, PO, RR + Seller's Invoice As part of **expenditure** department - post to SL → daily summary → general journal

Answer 43

Yes

Question 44

Accounts Payable Department - diba nakatanggap siya from all departments - so, meron siyang RS, PO, RR + Seller's Invoice As part of **disbursement** department - will prepare a voucher Anong document yung ipprepare niya and sino pagbibigyan non?

Answer 44

Voucher Package - inclusions are RS, PO, RR, SI, Voucher - will be given to the last department which is Treasury

Question 45

Treasury Department - rereview niya yung natanggap niya which is yung voucher package - siya ang dapat na mag **sign** ng mga checks na pambayad - cancel the voucher package to avoid duplicate payment

Answer 45

Yes

Question 46

Treasury Department - update cash records → daily summary → general accounting

Answer 46

same sa revenue and receipt cycle

Question 47

Human Resources and Payroll Cycle - in a way, a continuation of expenditure and disbursement cycle Departments - HR department - User department - ? - Treasury department

Answer 47

- payroll department

Question 48

From HR → personnel records From user → time records Ibibigay nila yang dalawang yan sa payroll para macompute yung salaries ng employees (can be called payroll register)

Answer 48

Yes

Question 49

Treasury Department - rereview niya yung natanggap niya which is yung payroll register - siya ang dapat na mag **sign** ng mga checks na pambayad (sa ngayon, kadalasan is ATM na) - siya din dapat magdistribute ng check

Answer 49

Yes

Question 50

Treasury Department - update cash records → daily summary → general accounting

Answer 50

same sa revenue and receipt cycle

Question 51

Sa next 2 departments, ang concern na natin is yung incompatible duties (CAR) - Production or Conversion Cycle - Finance and Investment Cycle

Answer 51

Yes

Question 52

Production or Conversion Cycle - what is the objective?

Answer 52

proper valuation of inventories and COGS

Question 53

Procedures to be Performed by Auditor (in case of production cycle) Custody - observe physical count and reconcile to records - if held by 3rd parties → send confirmation requests Authorization (BOD) - review PO and documents Recording - review competency of the one who is making JE - reconciliation of general ledger

Answer 53

Yes

Question 54

Procedures to be Performed by Auditor (in case of finance cycle) Custody - inquire directly to assigned custodians - observe accounting of unissued certificates Authorization (BOD) - review minutes of the meeting Recording - review competency of the one who is making JE - reconciliation of general ledger

Answer 54

Yes

Question 55

Procedures to be Performed by Auditor (in case of investment cycle) Custody - inquire directly to assigned custodians - observe accounting for certificates held Authorization (BOD) - review minutes of the meeting Recording - review competency of the one who is making JE - reconciliation of general ledger

Answer 55

Yes