Unit 2 - Module 2

Question 1

The three transaction cycles:

Answer 1

(1)incurs expenditures in exchange for resources (expenditure cycle),
(2)provides value added through its products or services (conversion cycle), and
(3)receives revenue from outside sources (revenue cycle).

Question 2

Purchases/accounts payable (AP) system

Answer 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.

Question 3

Cash disbursements system

Answer 3

When the obligation created in the purchases system becomes 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.

Question 4

Payroll system

Answer 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.

Question 5

Fixed asset system

Answer 5

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

Question 6

Conversion Cycle

Answer 6

Cycle composed of the production system and the cost accounting system.

Question 7

Revenue Cycle

Answer 7

Cycle composed of sales order processing and cash receipts.

Question 8

Sales order processing

Answer 8

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).

Question 9

Cash receipts

Answer 9

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).

Question 10

Master File

Answer 10

File containing account data.

Question 11

Reference File

Answer 11

File that stores the data used as standards for processing transactions.

Question 12

Archive File

Answer 12

File that contains records of past transactions that are retained for future reference.

Question 13

Auditor AR Audit Trail

Answer 13

1. Compare the AR balance in the balance sheet with the master file AR control account balance.
2. Reconcile the AR control figure with the AR subsidiary account total.
3. Select a sample of updated entries made to accounts in the AR subsidiary ledger and trace these to transactions in the sales journal (archive file).
4. From these journal entries, identify specific source documents that can be pulled from their files and verified. If necessary, the auditor can confirm the accuracy and propriety of these source documents by contacting the customers in question.

Question 14

Two types of file structures

Answer 14

(1)flat files and
(2)databases.

Question 15

Legacy Systems

Answer 15

Large mainframe systems implemented in the late 1960s through the 1980s.

Question 16

System Flowchart

Answer 16

Flowcharts used to show the relationship between the key elements—input sources, programs, and output products—of computer systems.

Question 17

Manual Procedures Symbols

Answer 17

Question 18

Batch Systems

Answer 18

Systems that assemble transactions into groups for processing.

Question 19

Real-Time Systems

Answer 19

Systems that process transactions individually at the moment the economic event occurs.

Question 20

Master file backup is a standard procedure in transaction processing systems to maintain master file integrity in the event that any of the following problems should occur:

Answer 20

1)An update program error corrupts the master files being updated.
2)Undetected errors in the transaction data result in corrupted master file balances.
3)A disaster such as a fire or flood physically destroys current master files.

Question 21

Deadlock

Answer 21

“Wait” state that occurs between sites when data are locked by multiple sites that are waiting for the removal of the locks from the other sites.

Question 22

Sequential Codes

Answer 22

Codes that represent items in some sequential order.

Question 23

Block Code

Answer 23

Coding scheme that assigns ranges of values to specific attributes such as account classifications.

Question 24

Chart of Accounts

Answer 24

Listing of an organization’s accounts showing the account number and name.

Question 25

Group Codes

Answer 25

Codes used to represent complex items or events involving two or more pieces of related data.

Question 26

Alphabetic Codes

Answer 26

Alphabetic characters assigned sequentially.

Question 27

Alphanumeric Codes

Answer 27

Codes that allow the use of pure alphabetic characters embedded within numeric codes.

Question 28

Mnemonic Code

Answer 28

Alphabetic characters in the form of acronyms that convey meaning.