INTRODUCTION TO TRANSACTION PROCESSING

CHAPTER 2

INTRODUCTION TO TRANSACTION PROCESSING

REVIEW QUESTIONS

• The expenditure cycle, conversion cycle, and revenue cycle.
• Purchases/accounts payable system, cash disbursements system, fixed

assets system, and payroll system.

• 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.

• Production system and cost accounting system.
• Sales order processing system and cash receipts system.
• Source documents, product documents, and turnaround documents.
• Special journals and the general journal.
• A general journal is 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.

• General ledger and subsidiary ledger.
• 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 Accounting Information Systems 9th Edition Hall Solutions Manual Visit TestBankDeal.com to get complete for all chapters

Chapter 2 Page 37 up this total. Conversely, an auditor should be able to track transactions to their final impact on the financial statements.

• 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.

• Master files, transaction files, reference files, and archive files.
• 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.

• 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: (1)

compare balances, (2) perform reconciliations, (3) select and trace samples of entries, and (4) identify, pull, and verify specific transactions.

• Cardinality reflects normal business rules as well as organizational policy. For

instance, the 1:1 cardinality in the first example in Figure 2-16 suggests that

each salesperson in the organization is assigned one automobile. If instead

Chapter 2 Page 38 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.

• Entity relationship diagrams represent the relationship between entities

(resources, events, and agents) in a system. Dataflow diagrams represent the logical elements (i.e. what is being done) of a system by illustrating processes, data sources, data flows, and entities. System flowcharts represent the physical elements being used (i.e., how the tasks are being conducted) by illustrating the relationship between input sources, program, and output products. System flowcharts can also represent both the logical and physical elements of manual systems and also illustrate the preparation and handling of documents.

• Cardinality refers to the numerical mapping between entity instances, and it is

a matter of organization policy. The relationship can be one-to-one, one-to- many, or many-to-many.

• An entity relationship (ER) diagram is a documentation technique used to

represent the relationship between entities. One common use for ER diagrams is to model an organization’s database, which we examine in detail in Chapter 9.

• Entities are physical resources (automobiles, cash, or inventory), events

(ordering inventory, receiving cash, shipping goods), and agents (salesperson, customer, or vendor) about which the organization wishes to capture data.

Chapter 2 Page 39

• Batch processing occurs when similar transactions are accumulated over time

and processed together. Real-time processing captures each event or transaction and processes it before engaging in another transaction. If transactions are independent of one another, such as the processing of daily cash receipts, then batch processing is appropriate. If transactions are dependent on one another, such as credit sales, ticket sales, etc., then real- time processing is more appropriate.

• A flat-file model is one in which individual data files are not related to other

files. End users in this environment own their data files rather than share them with other users. Data processing is thus performed by standalone applications rather than integrated systems.

• No. A DFD shows which tasks are being performed, but not who performs

them. It depicts the logical system.

• Yes, A flowchart depicts the physical system and illustrates what type of and

where a task is performed and who is performing it.

• A single transaction may affect several different accounts. Some of these

accounts, however, may not need to be updated in real time. In fact, the task of doing so takes time which, when multiplied by hundreds or thousands of transactions, can cause significant processing delays. Batch processing of non-critical accounts, however, improves operational efficiency by eliminating unnecessary activities at critical points in the process.

• When testing an application program, the auditor needs details about its