M2

• Transaction cycles


  Three main cycles that process most of the firm's economic activity: expenditure cycle, conversion cycle, and revenue cycle
• Transaction cycles


  • Expenditure cycle
  • Conversion cycle
  • Revenue cycle
• Expenditure cycle


  • Acquisition of materials, property, and labor in exchange for cash
  • Involves a physical component (acquisition of goods) and a financial component (cash disbursement)
• Subsystems of expenditure cycle

  • Purchases/accounts payable system
  • Cash disbursements system
  • Payroll system
  • Fixed asset system
• Conversion cycle


  • Composed of production system and cost accounting system
  • Production system involves planning, scheduling, and control of physical product
  • Cost accounting system monitors flow of cost information related to production
• Revenue cycle


  • Involves processing cash sales, credit sales, and receipt of cash following credit sale
  • Has a physical component (shipping products/rendering service) and a financial component (billing and cash receipt)
• Subsystems of revenue cycle

  • Sales order processing
  • Cash receipts

  
• Documents


  Provide evidence of an economic event and may be used to initiate transaction processing
• Types of documents


  • Source documents
  • Product documents
  • Turnaround documents
• Journals


  Chronological record of transactions
• Types of journals


  • Special journals
  • General journals
• Ledgers


  Books of accounts that reflect the financial effects of the firm's transactions
• Types of ledgers


  • General ledgers
  • Subsidiary ledgers
• Audit trail


  Accounting records that allow tracing transactions from source documents to financial statements
• The audit of accounts receivable often includes a procedure called confirmation, where the auditor contacts selected customers to verify the recorded balance
• Audit trails in computer-based systems are less observable than in traditional manual systems, but they still exist
• Types of files in computer-based accounting systems

  • Master files
  • Transaction files
  • Reference files
  • Archive files

  
• Master file


  Generally contains account data, such as the general ledger and subsidiary ledgers. Data values are updated from transactions.
• Transaction file


  A temporary file of transaction records used to change or update data in a master file, such as sales orders, inventory receipts, and cash receipts.
• Reference file


  Stores data used as standards for processing transactions, such as tax tables, price lists, authorized supplier lists, employee rosters, and customer credit files.

  
• Archive file


  Contains records of past transactions retained for future reference, such as journals, prior period payroll information, lists of former employees, records of accounts written off, and prior-period ledgers.
• A written description of a system can be wordy and difficult to follow, but a visual image can convey vital system information more effectively and efficiently than words

  
• Documentation techniques used by accountants

  • Data flow diagrams
  • Entity relationship diagrams
  • System flowcharts
  • Program flowcharts
  • Record layout diagrams

  
• Data flow diagram (DFD)


  Uses symbols to represent the entities, processes, data flows, and data stores that pertain to a system. Shows what logical tasks are being done, but not how they are done or who (or what) is performing them.

  
• Entity relationship (ER) diagram


  Represents the relationship between entities, which are physical resources, events, and agents about which the organization wishes to capture data.

  
• System flowchart


  The graphical representation of the physical relationships among key elements of a system, including organizational departments, manual activities, computer programs, hard-copy accounting records, and digital records.

  
• Program flowchart


  Describes the operational details of a computer program, providing a level of documentation beyond what is shown in a system flowchart.

  
• Every program represented in a system flowchart should have a supporting program flowchart that describes it

  
• Transcribing written facts into visual format using system documentation techniques

  1. Identify the entities, processes, data flows, and data stores

  2. Select appropriate symbols from the documentation technique sets

  3. Systematically construct the visual representation by transcribing each fact
• Batch processing permits the efficient management of a large volume of transactions by grouping similar transactions together and processing them as a unit of work
• Batch processing provides control over the transaction process by periodically reconciling the batch against a control figure
• This high level of documentation, however, does not provide the operational details that are sometimes needed
• An auditor wishing to assess the correctness of the edit program's logic cannot do so from the system flowchart

  
• Every program represented in a system flowchart should have a supporting program flowchart that describes its logic

  
• Program flowchart


  • A separate symbol represents each step of the program's logic
  • Each symbol represents one or more lines of computer program code
  • The connector lines between the symbols establish the logical order of execution

  
• Record layout diagrams


  • Used to reveal the internal structure of the records that constitute a file or database table
  • Usually shows the name, data type, and length of each attribute (or field) in the record

  
• Detailed data structure information is needed for such tasks as identifying certain types of system failures, analyzing error reports, and designing tests of computer logic for debugging and auditing purposes
• Record layout diagram


  • Shows the content of a record
  • Each data attribute and key field is shown in terms of its name and relative location

  
• Computer-based accounting systems fall into two broad classes: batch systems and real-time systems
• Systems designers base their configuration choices on a variety of considerations