Transaction Cycles Flashcards
Categories of Major Transaction Cycles
- revenue and receipt
- expenditure and disbursement
- human resources and payroll
- production
- financing and investing
Yes
Auditor’s Objectives when it comes to Transaction Cycles
- obtain understanding of these TC to plan the audit and develop effective and efficient audit approach
- to determine reliability of financial reporting + fairness of presentation
Yes
For a company, what are the 2 objectives of transaction cycles?
- to promote segragation of incompatible duties
- to safeguard entity’s resources
The department that initiated the processing is the one who will approve the form. True or False?
True
The department that initiated the processing is the one who is accountable for unused forms. True or False?
True
Forms or documents initiated and processed
- access to such forms shall be limited to the department who initiated the processing
Yes
Basta nadaanan yung department, dapat mag retain siya ng copy ng document na yon (for filing)
Yes
In transaction cycles, the assumption is that sales and purchases are made through cash. True or False?
False
Major Assumptions in TC
1. sales on account + purchases on account
2. use of imprest and voucher system
Revenue and Receipt Cycle
- what is the start? end?
Start - acceptance of order from a customer
End - collected the receivable
Departments under the Revenue Cycle
- Sales Department
- ?
- Warehouse Department
- ?
- Billing Department
- ?
- Credit Department
- Shipping Department
- Accounting Department
Sales Department
- goal is to increase sales
How to control the possibility of being subjective of the sales people?
- give a standard price (RANGE)
- must have list of authorized customer
Sales Department
- Nag-order na si customer. Ano yung document kung saan nandon yung agreed terms (quantity, price, etc.)?
Sales Order
Sales Department
- Sino-sino yung pagbibigyan ng sales order?
- Una, syempre si customer
- credit department
- shipping department
- billing department
Walang warehouse kasi ang matatanggap ni warehouse is Approved SO (na galing kay Credit department)
Walang accounting kasi ang matatanggap ni accounting is SI = SO + Shipping Document (na galing kay billing)
Credit Department
- ang ginagawa dito is approval of credit request ng customer (approval of SO common term pero credit request talaga yung inaapprove)
Yes
Credit Department
- what is the goal?
- to control sales department
- minimize high risk customers
Credit Department
- pag na-approve yung credit request, SO will be marked “approved”. Then, ibibigay na sa next department which is warehousing.
Yes
Warehousing Department
- main task is inventory control / monitoring
Yes
Warehousing Department
- incoming goods → receiving dept
- receiving dept (RM) → warehouse
- warehouse (RM) → production
- production (FG) → warehouse
- warehouse (FG) → shipping
Makikita mo, lahat ng galaw ng inventory is dumaan sa warehouse.
Yes
Warehousing Department
- diba ang natanggap ni Warehouse is SO marked “approved”. Ngayon, kasama ng goods, ibibigay niya to sa next department (Shipping Department)
What is the objective of warehousing department when it comes to issuances of goods?
all issuances are authorized
Shipping Department
- ano yung mga documents na hawak ni shipping department sa simula?
SO - from Sales Department (diba binigyan siya)
Approved SO - from Warehousing Department
Goods - from Warehousing Department
Shipping Department
- Kanino ibibigay yung shipping document (SD)?
- next department (which is billing)
- carrier (na ibibigay rin kay customer “giving SD means passing the risk”)
Shipping Department
What is the objective of shipping department when it comes to issuances of goods?
all issuances are authorized (same as warehousing)
Billing Department
- ano yung mga documents na hawak ni billing department sa simula?
SO - from Sales Department (diba binigyan siya)
SD - from Shipping Department
Billing Department
- SO + SD = Sales Invoice (billing statement or SOA)
Kanino ibibigay yung SI?
- next department (which is AR and general accounting)
- customer (with remittance advice)
Accounting Department
- Diba si AR binigyan siya ng SI, ano gagawin ni AR don?
Post to SL of AR (gawa din ng daily summary)
[ SI + Daily Summary ] from AR → General Accounting
General Accounting → record to General Journal → post to General Ledger
Departments under the Receipt Cycle
- Receptionist or Mail Room
- Treasury Department
- Accounting Department
Yes
Receptionist or Mail Room
- makakatanggap siya ng mail
- sa loob ng mail, nandon yung check (since imprest system) + remittance advice (galing kay billing department)
Then icocollate yung mga natanggap na mail → list of receipts
If ever walang remittance advice → si receptionist yung magffill out non
Treasury Department
- pagbabanggain niya yung mga checks sa list of receipts
What is the document that the treasury department prepares, together with the money which will be deposited to the bank?
Deposit Slip
Treasury Department
- update cash records → daily summary → general accounting
Yes
AR Accounting Department
- pagbabanggain niya yung mga remittance advice sa list of receipts
- post to SL → daily summary → general accounting
Yes
General Accounting Department
- nakakuha na siya ng daily summaries from Treasury & AR
- General Accounting → record to General Journal → post to General Ledger
Yes
Sales Return, Sales Allowances, Uncollectible Accounts
- what department authorizes the return of goods / write off?
Sales Department (duh)
- will issue a credit memo (which will be given to customer, AR)
If sales return, since may goods na babalik → credit memo will also be given to warehouse, receiving
Expenditure and Disbursement Cycle
- what is the start? end?
Start - placing an order to a supplier
End - paid the payable
Departments under the Expenditure Cycle
- User Department
- Purchasing Department
- ?
- ?
- Receiving Department
- AP Department
Departments under the Disbursement Cycle
- AP Department
- Treasury Department
AP Department = may part na expenditure, may part na disbursement
User Department
- any department na nangangailangan ng something
- will make a Requisition Slip
Sino yung pagbibigyan ng Requisition Slip?
- purchasing (siya nga bibili e)
- AP (to account for it)
Purchasing Department
- what is the goal?
- quality materials
- efficiency
Purchasing Department
- diba nakatanggap siya ng RS from User Department
Anong document ipprepare niya ngayon?
Purchase Order (PO)
Purchasing Department
- Sino-sino pagbibigyan ng PO?
- una, supplier (sa kanya nga bibili e)
- receiving department (which is the next dept)
- AP (to account for it)
Receiving Department
- main task is to establish existence (quantity) as well as condition (quality) of goods
To do the following above, need magkaroon ng physical examination of goods. What is the internal control para mamake sure na talagang ineexamine ng receiving department yung goods?
Ang matatanggap nila is Blank PO which is sila yung mag fifill out
Receiving Department
- ano yung documents na hawak ni receiving department sa simula?
- first, approved PO
- shipping document from supplier (passing of risk)
- goods
Receiving Department
- ano yung document na pineprepare ni receiving department and sino pagbibigyan non?
Receiving Report
- kay purchasing ulit (para pagbanggain yung blank PO vs approved PO)
- AP department (to account for it)
Accounts Payable Department
- diba nakatanggap siya from all departments
- so, meron siyang RS, PO, RR + Seller’s Invoice
As part of expenditure department
- post to SL → daily summary → general journal
Yes
Accounts Payable Department
- diba nakatanggap siya from all departments
- so, meron siyang RS, PO, RR + Seller’s Invoice
As part of disbursement department
- will prepare a voucher
Anong document yung ipprepare niya and sino pagbibigyan non?
Voucher Package
- inclusions are RS, PO, RR, SI, Voucher
- will be given to the last department which is Treasury
Treasury Department
- rereview niya yung natanggap niya which is yung voucher package
- siya ang dapat na mag sign ng mga checks na pambayad
- cancel the voucher package to avoid duplicate payment
Yes
Treasury Department
- update cash records → daily summary → general accounting
same sa revenue and receipt cycle
Human Resources and Payroll Cycle
- in a way, a continuation of expenditure and disbursement cycle
Departments
- HR department
- User department
- ?
- Treasury department
- payroll department
From HR → personnel records
From user → time records
Ibibigay nila yang dalawang yan sa payroll para macompute yung salaries ng employees (can be called payroll register)
Yes
Treasury Department
- rereview niya yung natanggap niya which is yung payroll register
- siya ang dapat na mag sign ng mga checks na pambayad (sa ngayon, kadalasan is ATM na)
- siya din dapat magdistribute ng check
Yes
Treasury Department
- update cash records → daily summary → general accounting
same sa revenue and receipt cycle
Sa next 2 departments, ang concern na natin is yung incompatible duties (CAR)
- Production or Conversion Cycle
- Finance and Investment Cycle
Yes
Production or Conversion Cycle
- what is the objective?
proper valuation of inventories and COGS
Procedures to be Performed by Auditor (in case of production cycle)
Custody
- observe physical count and reconcile to records
- if held by 3rd parties → send confirmation requests
Authorization (BOD)
- review PO and documents
Recording
- review competency of the one who is making JE
- reconciliation of general ledger
Yes
Procedures to be Performed by Auditor (in case of finance cycle)
Custody
- inquire directly to assigned custodians
- observe accounting of unissued certificates
Authorization (BOD)
- review minutes of the meeting
Recording
- review competency of the one who is making JE
- reconciliation of general ledger
Yes
Procedures to be Performed by Auditor (in case of investment cycle)
Custody
- inquire directly to assigned custodians
- observe accounting for certificates held
Authorization (BOD)
- review minutes of the meeting
Recording
- review competency of the one who is making JE
- reconciliation of general ledger
Yes
