Activity 8 - Transaction Processing and Financial Reporting

Transaction Processing and Financial Reporting
ACTIVITY No. 8
I. Transaction Cycle Identification
Categorize each of the following activities into the expenditure, conversion, or revenue cycles and
identify the applicable subsystem.
a. preparing the weekly payroll for manufacturing personnel
b. releasing raw materials for use in the manufacturing cycle
c. recording the receipt of payment for goods sold
d. recording the order placed by a customer
e. ordering raw materials
f. determining the amount of raw materials to order
II. Types of Files
For each of the following records, indicate the appropriate related file structure: master file, transaction
file, reference file, or archive file.
a. customer ledgers
b. purchase orders
c. list of authorized vendors
d. records related to prior pay periods
e. vendor ledgers
f. hours each employee has worked during the current pay period
g. tax tables
h. sales orders that have been processed and recorded
III. Internal Control
Leslie Epstein, an employee of Bormack Manufacturing Company, prepares journal vouchers for
general ledger entries. Because of the large number of voided journal vouchers caused by errors, the
journal vouchers are not prenumbered by the printer; rather, Leslie numbers them as she prepares
each journal voucher. She does, however, keep a log of all journal vouchers written so that she does
not assign the same number to two journal vouchers. Bi weekly, Leslie posts the journal vouchers to
the general led ger and any necessary subsidiary accounts. Bimonthly, she reconciles the subsidiary
accounts to their control accounts in the general ledger and makes sure the general ledger accounts
balance.
Required: Discuss any potential control weaknesses and problems in this scenario.
IV. System Documentation - Payroll
The following describes the payroll procedures for a hypothetical company. Every Thursday, the
timekeeping clerk sends employee time cards to the payroll department for processing. Based on the
hours worked reflected on the time cards, the employee pay rate and withholding information in the
employee file, and the tax rate reference file, the payroll clerk calculates gross pay, withholdings, and
net pay for each employee. The clerk then manually prepares paychecks for each employee, files hard
copies of the pay checks in the payroll department, and posts the earnings to the hard-copy employee
records.
Finally, the clerk manually prepares a payroll summary and sends it and the paychecks to the cash
disbursements department. The cash disbursements clerk reconciles the payroll summary with the
paychecks and manually records the transaction in the hard-copy cash disbursements journal. The
clerk then files the payroll summary and sends the paychecks to the treasurer for signing. The signed
checks are then sent to the pay master, who distributes them to the employees on Friday morning.
Required: Prepare a data flow diagram and a system flowchart of the payroll procedures previously
described.
V. Multiple Choice
1. Which statement is not true?

a. Business activities begin with the acquisition of materials, property, and labor in exchange for cash.
b. The conversion cycle includes the task of determining raw materials requirements.
c. Manufacturing firms have a conversion cycle but retail firms do not.
Transaction Processing and Financial Reporting
ACTIVITY No. 8
d. A payroll check is an example of a product document of the payroll system.
e. A journal voucher is actually a special source document.
2. A documentation tool that depicts the physical flow of information relating to a particular trans action
through an organization is a
a. system flowchart.
b. program flowchart.
c. decision table.
d. work distribution analysis.
e. systems survey.
3. Sequential file processing will not permit

a. data to be edited on a separate computer run.
b. the use of a database structure.
c. data to be edited in an offline mode.
d. batch processing to be initiated from a terminal.
e. data to be edited on a real-time basis.
4. The production subsystem of the conversion cycle includes all of the following EXCEPT
a. determining raw materials requirements.
b. make or buy decisions on component parts.
c. release of raw materials into production.
d. scheduling the goods to be produced.
5. Which of the following files is a temporary file?

a. transaction file
b. master file
c. reference file
d. none of the above

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Transaction Processing and Financial Reporting

I. Transaction Cycle Identification

II. Types of Files

III. Internal Control

IV. System Documentation - Payroll

1. Which statement is not true?

3. Sequential file processing will not permit

5. Which of the following files is a temporary file?

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