Chapter 6 Flashcards
An economic event that affects the assets and equities of the firm is reflected in its accounts,
and is measured in monetary terms
Financial transaction
Business activities begin with the acquisition of
materials, property, and labor in exchange for
cash.
Expenditure Cycle
Firms sell their finished goods to customers
through the __________, which involves
processing cash sales, credit sales, and the
receipt of cash following a credit sale.
Revenue Cycle
describes the purpose of each type of accounting record used in transaction cycles.
Manual Systems
The accounting records described previously
provide an audit trail for tracing transactions from
source documents to the financial statements.
* The auditor’s responsibility involves, in part, the
review of selected accounts and transactions to
determine their validity, accuracy, and
completeness.
Audit Trail
allows transaction tracing.
Digital Audit Trail
- Input source or output destination of data
- external objects at the boundary of the system
being modeled. - labeled as nouns, such as customer or supplier.
A. Entities
- A ________ that is triggered or supported by data.
- should be labeled with a descriptive verb such
as Ship Goods, Update Records, or Receive
Customer Order.
B. Processes
A store of data such as a transaction file, a
master file, or a reference file
data stores
Direction of data flow
Arrow Symbol
✓ degree of relationship
✓ numerical mapping between entity
instances
✓ relationship can be:
▪ one-to-one (1:1)
▪ one-to-many (1:M)
▪ many-to-many (M:M
cardinality
usually shows the name, data type,
and length of each attribute (or field) in the record.
Layout diagram
tend to be client-server (network)–based and
process transactions in real time.
Modern Systems
Distinguishing features:
✓ they are mainframe-based applications;
✓ they tend to be batch oriented;
✓ early legacy systems use flat files for data
storage, but hierarchical and network
databases are often associated with laterera legacy systems.
Legacy Systems
Firms process large volumes of transactions that are
similar in their basic attributes.
* To process transactions accurately against the
correct accounts, the firm must be able to
distinguish one John Smith from anothe
System without Codes
These problems are solved, or at least greatly
reduced, by using codes to represent each item in the inventory and supplier accounts.
System with Codes
alphabetic characters in the form of acronyms
and other combinations that convey meaning
Mnemonic codes
classification schemes that are
compliant with XBRL specifications to
accomplish a specific information exchange or
reporting objective such as filing with the SEC.
Taxonomies
is the final step in the overall
accounting process that begins in the transaction
cycles
Financial reporting
It is vital to the integrity of the accounting
records that the journal vouchers be properly
authorized by a responsible manager at the
source department
Transaction Authorization
The task of updating the general ledger must be
separate from all accounting and asset custody
responsibility within the organization.
Segregation of Duties
Unauthorized access to the GL accounts can
result in errors, fraud, and misrepresentations in financial statements
Access Controls
This involves a network of documents, journals,
and ledgers designed to ensure that a
transaction can be accurately traced through
the system from initiation to final disposition.
Accounting Records
The general ledger function serves as an
independent verification step within the
accounting information system.
Independent Verification
provides relevant details about each journal
voucher posted to the GL.
Journal Voucher Listing
presents the effects of journal voucher postings
to the GL accounts.
General Ledger Change Report
Taxonomy may be generated incorrectly,
which results in an incorrect mapping between
data and taxonomy elements that could result
in material misrepresentation of financial data.
Taxonomy Creation
The process of mapping the internal database
accounts to the taxonomy tags needs to be
controlled.
Taxonomy Mapping Error
Independent verification procedures need to
be established to validate the instance
documents to ensure that appropriate
taxonomy and tags have been applied before
posting to a Web server
validation of Instance Documents
Manufacturing firms convert raw materials into
finished products.
Conversion Cycle
