In the discussion, Financial transaction was defined as an economic event that affects the assets

and equitiesof the firm, is ref lected in its accounts, and ismeasured in monetary terms. Financial
transacrtions are classifiee into three cycles, namely: expensiture cycle, conversion cycle, and
revenue cycle. Transactions under expenditure cycle includes purchasing on account, cash
disburesements and other expenses incurred for labor, materials, and overhead.

THREE CYCLES; each cycle has two subsystems; physical and financial component

Expenditure – purchasing, cash disbursements, payroll, fixed assets

Physical; acquisition of goods
Financial: cash disbursement

Conversion – production planning and control, cost accounting

Production system
Cost accounting system
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Revenue – sales order, cash receipt

We discussed the three transaction cycles: expenditure, conversion and revenue cycle.
Basically, these three cycles connect to one another. An expenditure cycle refers to expenses
incurred for labor, materials and physical plant. Afterwards, these materials and labors will go
through the conversion cycle to convert into finished goods. Lastly, the revenue cycle which
refers to the sales transactions of the company. The cash sales from this cycle will go back to
the expenditure cycle as the life of the business continues. 
 
We also discussed the difference between tracing and vouching. Tracing is the process of
looking at source documents such as sales receipts all the way to the financial statements. On
the other hand, vouching is commonly used by the auditors, they start first with the financial
statements and then find the original/source documents that support it. 
 
Lastly, we discussed common documentation techniques. The first one is the Entity
Relationship Diagram (ERD). It is used to show the relationship among entities within a
system. These entities are resources, events and agents. Under ERD are cardinalities which
represent the numerical mapping between entities: one-to-one, one-to-many, or many-to-many.
Second, Data Flow Diagrams (DFD) is the representation of the logical elements of the
system, and it does not represent the physical element. Third, Document Flowcharts which
depicts the separation of functions in a system. It is a manual system. Fourth, System
Flowchart is like document flowchart but a computer-based system. Lastly, Program Flowchart
which illustrates the logic used in programs.