Question

Review Questions 1. What three transaction cycles exist in all businesses? 2. Name the major subsystems of the expenditure cycle. 3. Identify and distinguish between the physical and financial components of the expenditure cycle. 4. Name the major subsystems of the conversion cycle. 5. Name the major subsystems of the revenue cycle. 6. Name the three types of documents 7. Name the two types of journals. 8. Distinguish between a general journal and journal vouchers 9. Name the two types of ledgers. 10. What is an audit trail? 11. What is the confirmation process! 12. Computer-based systems employ four types of files. Name them. 13. Give an example of a record for each of the four file types found in a computer-based system. 14. What is the purpose of a digital audit trail? 15. Give an example of how cardinality relates to business policy 16. Distinguish between entity relationship diagrams, data flow diagrams, and system flowcharts. 17. What is meant by cardinality in entity relationship diagrams? 18. For what purpose are entity relationship diagrams used? 19. What is an entity? 20. Distinguish between batch and real-time processing 21. What is the flat-file model? 22. Is a data flow diagram an effective documentation technique for identifying who or what performs a particular task? Explain. 23. Is a flowchart an effective documentation tech- nique for identifying who or what performs a particular task? Explain. 24. How may batch processing be used to improve operational efficiency? 25. Why might an auditor use a program flowchart? 26. How are system flowcharts and program flow- charts related? 27. What are the three general problems associated with data redundancy? 28. What is task-data dependency?

Answer 1

1. What are the three transaction cycles which exists in all businesses?

There are commonly three type of transaction cycles which exists in any type of business, be it profit or non-profit organization which are as follows :

a) Expenditure cycle

b) Conversion cycle

c) Revenue cycle

Brief description of the above mentioned cycles is as follows :

a) Expenditure cycle : This cycle involves a set of activities which involves acquisition of goods and services and making payment for the same.

b) Conversion cycle : Also known as the "Cash conversion cycle" it is the cycle which calculates the time it takes an entity to convert it's investment in inventory into cash.

c) Revenue cycle : It is the cycle which begins with providing goods/services to the customer and ends when the customer makes payment for the same.

The correlation between above cycles can also be explained with the help of graph below :

2. Name the major sub-systems of expenditure cycle.

The 3 major sub-systems of an expenditure cycle are as follows :

a) Purchase / AP system : The Accounts Payable system is extremely important for any organization as it involves almost all of the payments of the company apart from payroll. The main aim of the system is to pay for only those business expenses which are legitimate and accurate. Accounts Payable system often uses a process known as 3-way match wherein it matches the company's purchase order, receiving report and the vendor invoice to ensure accuracy.

b) Cash disbursements system : Every organization needs an effective and efficient cash disbursements system to manage all of it's cash payments. The above mentioned AP system is closely tied to this system as for most transactions processed through the AP system, a cash payment is required to be made.

c) Payroll System : A payroll system is all about the payments which are made to employees including the payment of salary to employees, any incentives provided to employees, filing of employee taxes etc.

3. Identify and distinguish between physical and financial components :

The physical component of an expenditure cycle involves acquisition of goods whereas financial component of expenditure cycle relates to making payment of goods acquired to the supplier. Hence physical component is concerned with acquisition of goods whereas finance component is considered with making payment for such acquisition to the suppliers.

4. Name the major subsystems of Conversion cycle

a) Production system : It is a system which involves all the operations required to gather the inputs(raw materials), store and convert them into output (finished goods) to be able to sell such output to the customers.

b) Cost Accounting system : It is a system used by the organization to estimate the cost of it's products, perform a profitability analysis of it's current products, decide whether to launch new products on the basis of performing a cost-profit analysis etc.