Chapter 6  Transaction Processing and Financial Reporting Systems Overview.DOCX

Chapter 6 Transaction Processing and Financial Reporting Systems Overview

Chapter 6

Transaction Processing and Financial Reporting Systems Overview


Review Questions


1.         What three transaction cycles exist in all businesses?

            Response:  The expenditure cycle, conversion cycle, and revenue cycle.


2.         Name the major subsystems of the expenditure cycle.

            Response:  Purchases/accounts payable, cash disbursements, payroll, and fixed asset systems


3.         Identify and distinguish between the physical and financial components of the expenditure cycle.

            Response:  The physical component includes the acquisition of goods, while the financial component includes the recognition of a liability owed to the supplier and the transfer of the payment to the supplier.


4.         Name the major subsystems of the conversion cycle.

            Response:  production system and cost accounting system


5.         Name the major subsystems of the revenue cycle.

            Response:  sales order processing system and cash receipts system


6.         Name the three types of documents.

            Response:  source documents, product documents, and turnaround documents


7.         Name the two types of journals.

            Response:  special journals and the general journal


8.         Distinguish between a general journal and journal vouchers.

            Response: A general journal is used to record nonrecurring and infrequent transactions. Often, general journals are replaced with a journal voucher system. The journal voucher is used to record a single nonrecurring and infrequent transaction, and it is used as a special source document for the transaction. The total of journal vouchers processed is equivalent to the general journal.


9.         Name the two types of ledgers.

            Response:  general ledger and subsidiary ledger


10.       What is an audit trail?

                        Response: A trail that allows the auditor to begin with a summary total found on the financial statements and track it back to the individual transactions that make up this total. Conversely, an auditor should be able to track transactions from their source documents to their final impact on the financial statements.


11.       What is the confirmation process?

            Response:  The confirmation process entails selecting customers and contacting them to determine whether the transactions recorded in the financial statements actually took place and are valid.


12.       Computer-based systems employ four types of files. Name them.

            Response:  Master file, transaction file, reference file, and archive file


13.       Give an example of a record that might comprise each of the four file types found in a computer-based system.

            Response: Master files correspond to general ledger accounts and subsidiary ledgers. Examples include accounts receivable and customer subsidiary accounts, accounts payable and vendor subsidiary accounts, inventory, etc. Transaction files correspond to general and special journals. Examples include the general journal, sales journals, cash receipts journals, payroll journals, etc. Reference files include lists of vendors, delinquent customers, tax tables, sales tax rates, discount rates, lists of customers granted specific discounts, etc. Archive files are typically composed of records that have been processed but are retained for their history. Examples include payroll transactions, sales transactions, etc.


14.       What is the purpose of a digital audit trail?

                        Response: The digital audit trail, like the paper trail, allows us to trace transactions from the financial statement balance back to the actual transaction so we may: compare balances, perform reconciliations, select and trace samples of entries, and identify, pull, and verify specific transactions.


15.       Give an example of how cardinality relates to business policy.

            Response: Cardinality reflects normal business rules as well as organizational policy. For instance, the 1:1 cardinality in the first example in Figure 6-14 suggests that each salesperson in the organization is assigned one automobile. If instead the organization’s policy were to assign a single automobile to one or more salespeople that share it, this policy would be reflected by a 1:M relationship.
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