Chapter 2 Introduction to Transaction Processing

The Expenditure Cycle

- The expenditure cycle is the set of activities related to the acquisition of and payment for goods
and services. These activities include the determination of what needs to be purchased,
purchasing activities, the receipt of goods, and payments to suppliers.

The Conversion Cycle

- The conversion cycle is composed of two major subsystems: the production system and the cost
accounting system. The production system involves the planning, scheduling, and control of the
physical product through the manufacturing process. This includes determining raw material
requirements, authorizing the work to be performed and the release of raw materials into
production, and directing the movement of the work-in-process through its various stages of
manufacturing

The Revenue Cycle

- Firms sell their finished goods to customers through the revenue cycle, which involves processing
cash sales, credit sales, and the receipt of cash following a credit sale. Revenue cycle transactions
also have a physical and a financial component, which are processed separately.

ACCOUNTING RECORDS

Documents

- A document provides evidence of an economic event and may be used to initiate transaction
processing. Some documents are a result of transaction processing. In this section, we discuss
three types of documents: source documents, product documents, and turnaround documents

SOURCE DOCUMENTS

- Economic events result in some documents being created at the beginning (the source) of the
transaction. These are called source documents. Source documents are used to capture and
formalize transaction data that the transaction cycle needs for processing.

PRODUCT DOCUMENTS

- Product documents are the result of transaction processing rather than the triggering mechanism
for the process. For example, a payroll check to an employee is a product document of the payroll
system. We will study many other examples of product documents in later chapters

TURNAROUND DOCUMENTS

- Turnaround documents are product documents of one system that become source documents
for another system. A turnaround document contains important information about a customer’s
account to help the cash receipts system process the payment. One of the problems designers of
cash receipts systems face is matching customer payments to the correct customer accounts.