CHAPTER 2

What three transaction cycles exist in all businesses?

the three transaction cycles exist in all businesses are the Expenditure cycle, Conversion
Cycle, and the Revenue Cycle.
Name the major subsystems of the expenditure cycle.
The major subsystems of the expenditure cycle are Purchases or Accounts Payable
System, Cash Disbursement Cycle, and Payroll System
Identify and distinguish between the physical and financial components of the expenditure
cycle.
The physical component includes the acquisition of goods, while the financial component
includes the recognition of liability owed to supplier and the transfer of the payment to the
supplier.
Name the major subsystems of the conversion cycle.
The major subsystem of the conversion cycle are Production System and the Accounting
System.
Name the major subsystems of the revenue cycle.
The major subsystems of the revenue cycle are the Sales order processing and the Cash
receipts system.
Name the three types of documents.
The three types of documents are the Source documents, Product document, and the
Turnaround document.
Name the two types of journals.
The two types of journals are Special journals and the General journal.
Distinguish between a general journal and journal vouchers.
General journals used to record nonrecurring and infrequent transactions. Oftentimes,
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.
Name the two types of ledgers.
The two types of ledgers are General ledger and Subsidiary ledger.
What is an audit trail?
An audit trail is a trail that allows the auditor to begin with a summary total found on the
financial statements and track it back to the individual transaction that make up this total.
Conversely, an auditor should be able to track transactions to their final impact on the financial
statements.
What is the confirmation process?
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.
Computer-based systems employ four types of files. Name them.
Computer-based systems employ four types of files namely, Master files, Transaction
files, Reference files, and Archive files.
Give an example of a record that might comprise each of the four file types found in a
computer based system.
Master files correspond to general ledger accounts and the subsidiary ledger. Example
includes accounts receivable and customer subsidiary accounts, accounts payable and vendor
subsidiary accounts, inventory, etc. transaction files correspond to general and special journals,
payroll journals, etc. reference files includes list of vendors, tax tables, sales tax rates, and
discount rates. Archive files are typically composed of records that have been processed but are
retained for their history. Examples include, payroll transaction, sales transaction, etc.
What is the purpose of a digital audit trail?
The digital audit trail, like the paper trail, allows ua to trace transaction from the financial
statement balance back to the actual transaction so we may compare balances, perform
reconciliation, select and trace sample entries, and identify, pull and verify specific transaction.
Give an example of how cardinality relates to business policy.
Cardinality reflects normal business rules as well as organizational policy. For instance
the 1:1 cardinality in the first example in the figure 2-12 suggest 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 salesperson that share it, this policy would be reflected y a 1:M
relationship.
Distinguish between entity relationship diagrams, data flow diagrams, document
flowcharts, and system flowcharts.
Entity relationship diagrams represents the relationship between entities in a system.
Dataflow diagrams represent the logical elements of a system by illustrating processes, data
sources, data flows, and entity. System flowcharts represents the physical elements being used by
illustrating the relationship between input sources, program, and output product. System
flowchart can also represent both the logical and physical elements of mutual system and also
illustrates and handling of documents.