Review Questions- CHAPTER 2

Accounting Information System 7th Edition

James A. Hall
Pages 99-100

Rotsen M. Moldogo

1. What three transaction cycles exist in all businesses?

The three transaction cycles that exist in all businesses are the expenditure cycle,
conversion cycle, and revenue cycle. In an overview, the expenditure cycle is the acquisition of
materials, property, and labor in exchange for cash. The conversion cycle is the production of the
physical product and monitoring all cost related to it. The revenue cycle is the processing cash
sales, credit sales, and the receipt of cash following a credit sale.

3. Identify and distinguish between the physical and financial components of expenditure cycle.
The expenditure cycle has two components: physical component which refers to the
acquisition of the goods and a financial component which the cash disbursement to the supplier.
These two are easily distinguishable because most expenditure transactions are based on a credit
relationship between the trading parties. The actual disbursement of cash takes place at some point
after the receipt of the goods or services.

5. Name the major subsystems of the revenue cycle.

Sales order processing is the first major subsystem of revenue cycle which involves
preparing sales orders, granting credit, shipping products or rendering of a service to the customer,
billing customers, and recording the transaction in the accounts. Another subsystem is cash
receipts includes collecting cash, depositing cash in the bank, and recording these events in the
accounts.

7. Name the two types of journals.

The two types of journals are special and general journals. Special journals are used to
record specific classes of transactions that occur in high volume while general journal is often used
to record nonrecurring, infrequent, and dissimilar transactions.
9. Name the two types of ledgers.
There are two basic types of ledgers: general ledgers, which contain the firm’s account
information in the form of highly summarized control accounts, and subsidiary ledgers, which
contain the details of the individual accounts that constitute a particular control account

11. What is confirmation process?

Confirmation process is a procedure that s involves contacting selected customers to
determine if the transactions recorded in the accounts actually took place and that customers agree
with the recorded balance. This is done more often in the audit of accounts receivable.

13. Give an example of a record that might comprise each of the four file types found in a
computer-based system.
A sale of a product is a basic example of a record with the four file types; the master file
being the general ledger, transaction files such as the sales order and receipts, reference files could
be the price lists and credit files when approving customer credit and archive files which includes
any prior period records that shows information on the customer or the product sold.

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

Cardinality is the degree of relationship between entities. This reflects several business
policies. For example, the process of assigning a customer their own credit line as one is to one
cardinality, a customer to sales orders as one is to many and customers to discounts and rebates as
many to many cardinality.

17. What is meant by cardinality in entity relationship diagrams?

Cardinality represent the degree of relationship between entities. This could be one is to
one (1:1), one is to many (1:M) and many to many (M:M).

19. What is an entity?

An entity is any singular, identifiable and separate object. It refers to individuals,
organizations, systems, bits of data or even distinct system components that are considered
significant in and of themselves.
21. Distinguish between the sequential file and database approaches to data backup.
During the file update process, sequential master files are completely reproduced in the
form of a physically new file, thus creating a backup copy automatically. Databases use
destructive update procedures and require separate backup procedures.

23. Is a flowchart an effective documentation technique for identifying who or what performs a
particular task? Explain.
A flowchart can depict the physical system and demonstrates the type of task performed,
the location of the performed task, and the person performing the task. This makes it a very
effective documentation technique.

25. Why might an auditor use a program flowchart?

Auditors need details about internal logic to design the audit tests when testing an
application program, This information can be provided by the program flowchart.

27. What are the distinguishing features of a legacy system?

These are distinguishing features of legacy systems: they are mainframe-based
applications, they tend to be batch-oriented, and early legacy systems use flat files for data storage.
However, hierarchical and network databases are often associated with later-era legacy systems.
These highly structured and inflexible storage systems promote a single-user environment that
discourages information integration within business organizations.

29. How is backup of database files accomplished?

Backup of database is accomplished by replication of the database and can be done for a
database or database server. All the business should use backups to protect their important database
from disaster.

31. In one sentence, what does updating a master file record involve?
Updating a master file record involves changing the value of one or more of its variable
fields to reflect the effects of a transaction whether batch or real time processing is used.
33. Explain the technique known as destructive update.
When updating a balance of an entity, destructive update approach leaves no backup copy
of the original master file. Only the current value is available to the user. . To preserve adequate
accounting records in case the current master becomes damaged or corrupted, separate backup
procedures, must be implemented.

35. What are the advantages of real-time data processing?

As compared to batch processing, real-time data processing has the following advantages:
(1) It is ideal for processing large amounts of data, (2) Information will always be up to date, (3)
insight are immediately available from updated data and (4) fast real time analysis.

37. What are the some more common uses of data codes in accounting information systems?
Data coding involves creating simple numeric or alphabetic codes to represent complex
economic phenomena that facilitate efficient data processing. This is particularly useful to
accounting information systems in the following ways:
• Concisely represent large amounts of complex information that would otherwise be
unmanageable.
• Provide a means of accountability over the completeness of the transactions processed.
• Identify unique transactions and accounts within a file.
• Support the audit function by providing an effective audit trail.