CHAPTER 2

Question 1

Business activities begin with the acquisition of materials, property, and labor in exchange for cash

Answer 1

expenditure cycle.

Question 2

This system recognizes the need to acquire physical inventory (such as raw materials) and places an order with the vendor. When the goods are received, the purchases system records the event by increasing inventory and establishing an account payable to be paid
at a later date.

Answer 2

Purchases/accounts payable system.

Question 3

When the obligation created in the purchases system is due, the cash disbursements system authorizes the payment, disburses the funds to the vendor, and records the transaction by reducing the cash and accounts payable accounts

Answer 3

Cash disbursements system

Question 4

The payroll system collects labor usage data for each employee, computes the payroll,
and disburses paychecks to the employees. Conceptually, payroll is a special-case purchases and cash disbursements system. Because of accounting complexities associated with payroll, most firms have a separate system for payroll processing

Answer 4

Payroll system

Question 5

A firm’s fixed asset system processes transactions pertaining to the acquisition,
maintenance, and disposal of its fixed assets. These are relatively permanent items that collectively often represent the organization’s largest financial investment. Examples of fixed assets include land,
buildings, furniture, machinery, and motor vehicles.

Answer 5

Fixed asset system

Question 6

is composed of two major subsystems: the production system and the cost accounting system

Answer 6

conversion cycle

Question 7

involves the planning, scheduling, and control of the physical product
through the manufacturing process.

Answer 7

production system

Question 8

monitors the flow of cost information related to production. Information this system produces is used for inventory valuation, budgeting, cost control, performance reporting, and management decisions, such as make or-buy decisions.

Answer 8

cost accounting system

Question 9

which involves processing cash
sales, credit sales, and the receipt of cash following a credit sale

Answer 9

revenue cycle

Question 10

The majority of business sales are made on credit and involve tasks such as
preparing sales orders, granting credit, shipping products (or rendering of a service) to the customer,
billing customers, and recording the transaction in the accounts (accounts receivable, inventory,
expenses, and sales)

Answer 10

Sales order processing

Question 11

For credit sales, some period of time (days or weeks) passes between the point of sale
and the receipt of cash. Cash receipts processing includes collecting cash, depositing cash in the bank, and recording these events in the accounts (accounts receivable and cash)

Answer 11

Cash receipts

Question 12

This section describes the purpose of each type of accounting record used in transaction cycles.

Answer 12

MANUAL SYSTEMS

Question 13

provides evidence of an economic event and may be used to initiate transaction processing

Answer 13

A document

Question 14

are used to capture and formalize transaction data that the transaction cycle needs for processing

Answer 14

Source documents

Question 15

are the result of transaction processing rather than the triggering mechanism for the process

Answer 15

Product documents

Question 16

are product documents of one system that
become source documents for another system

Answer 16

Turnaround documents

Question 17

is a record of a chronological entry

Answer 17

journal

Question 18

are used to record specific classes of transactions that occur in
high volume

Answer 18

Special journals

Question 19

often used to denote certain types of special journals

Answer 19

register

Question 20

Firms use the ____ to record nonrecurring, infrequent, and dissimilar transactions.

Answer 20

GENERAL JOURNALS

Question 21

is a book of accounts that reflects the financial effects of the firm’s transactions after they are
posted from the various journals

Answer 21

A ledger

Question 22

summarizes the activity for each of the organization’s accounts

Answer 22

general ledger

Question 23

are kept in various accounting departments of the firm, including inventory, accounts payable, payroll, and accounts receivable.

Answer 23

Subsidiary ledgers

Question 24

The accounting records described previously provide an ___ for tracing transactions from source documents to the financial statements.

Answer 24

audit trail

Question 25

are less observable than in traditional manual systems, but they still exist.

Answer 25

Audit trails

Question 26

generally contains account data

Answer 26

master file

Question 27

is a temporary file of transaction records used to change or update data in a master file. Sales orders, inventory receipts, and cash receipts are examples of this.

Answer 27

transaction file

Question 28

stores data that are used as standards for processing transactions

Answer 28

reference file

Question 29

contains records of past transactions that are retained for future reference

Answer 29

archive file

Question 30

uses symbols to represent the entities, processes, data flows, and data
stores that pertain to a system.

Answer 30

data flow diagram (DFD)

Question 31

a documentation technique used to represent the relationship between entities.

Answer 31

entity relationship (ER) diagram

Question 32

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

Answer 32

Entities

Question 33

The labeled connecting line represents the nature of the relationship between two entities.

Answer 33

cardinality

Question 34

is the blueprint for what ultimately will become the physical database.

Answer 34

data model

Question 35

is the graphical representation of the physical relationships among key elements of a
system.

Answer 35

system flowchart