F.1. Information Systems and Transaction Cycles

Question 1

What is a company’s value chain?

Answer 1

The set of business processes it uses to add value to its products and services.

Question 2

How does an accounting information system (AIS) add value to an organization?

Answer 2

By providing accurate and timely information so that all the value chain activities can be performed efficiently and effectively.

Question 3

What is the difference between a value chain and a supply chain?

Answer 3

• A value chain focuses on internal processes a company uses to add value to its products and services.
• A company’s supply chain describes the flow of goods, services, and information from the suppliers of materials and services to the organization all the way through to delivery of finished products to customers.

Question 4

What are automated accounting information systems?

Answer 4

Computer-based systems that transform accounting data into information using electronic processing.

Question 5

What is the role of journals in an accounting information system?

Answer 5

They are used to record accounting transactions in chronological order.

Question 6

What is the general ledger in an accounting information system?

Answer 6

It maintains the record of all the financial transactions that have taken place.

Question 7

What is a chart of accounts in an accounting information system?

Answer 7

A list of general ledger accounts used by an organization. In an automated system, account numbers are used along with account names so that input is done in a consistent manner.

Question 8

What are master files in an automated accounting information system (AIS)?

Answer 8

Files that store permanent information, such as general ledger account numbers and customer account numbers.

Question 9

What is the purpose of transaction files in an automated accounting information system (AIS)?

Answer 9

To store detailed information about business activities such as detail about sales transactions or purchases of inventory.

Question 10

What are block codes in an automated accounting information system (AIS)?

Answer 10

Sequential codes with specific blocks of numbers reserved for specific uses such as a general ledger account numbering system that is used to organize the accounts according to assets, liabilities, equity, incomes, and expenses.

Question 11

What is a responsibility accounting system?

Answer 11

A system that uses codes to identify the responsibility center that is the source of a transaction. The responsibility center code is part of the transaction input to the AIS.

Question 12

What are input devices in an automated accounting information system (AIS)?

Answer 12

• Keyboards and mice
• Bar code scanners
• Point-of-sale systems
• Tablet computers

Question 13

What are output devices in an automated accounting information system (AIS)?

Answer 13

• Printers and plotters
• Headphones and speakers
• Computer monitors and projectors

Question 14

What characteristics should good reports from an accounting information system have?

Answer 14

• A date or dates
• Consistency over time and across segments
• Be in a convenient format and contain useful information that is easy to identify

Question 15

What are transaction cycles in an accounting information system?

Answer 15

Grouped business processes for which the transactions are interrelated.

Question 16

What are some examples of transaction cycles in an accounting information system?

Answer 16

• Revenue to cash cycle
• Purchasing and expenditures cycle
• Production cycle
• Human resources and payroll cycle
• Financing cycle
• Fixed asset cycle
• General ledger and reporting systems

Question 17

What is the primary function of the revenue to cash cycle?

Answer 17

It involves activities related to the sale of goods and services and the collection of customers’ cash payments.

The cycle begins with a customer order and ends with the collection of the cash from the customer.

Question 18

What are the key activities in the revenue to cash cycle in an accounting information system?

Answer 18

• Receipt of customer orders and creation of sales orders
• Checking inventory availability
• Credit checks for orders requesting credit
• Preliminary credit card authorization for credit card orders
• Input to the AIS for invoice and packing slip
• Shipping and processing of orders
• The credit card charge is released or the invoice is sent to the customer
• Updating accounts receivable, inventory, and the general ledger
• Handling returns
• Processing payments

Question 19

What are the outputs of the revenue to cash cycle in an accounting information system?

Answer 19

• Internal management reports such as sales reports
• Customer statements
• Customer aging reports
• Collection reports
• Information for cash receipts forecasting
• Information for closing entries and external financial statements

Question 20

What is the purpose of the purchasing and expenditures cycle?

Answer 20

• Obtaining items and services in a timely manner at the lowest price consistent with the quality required
• Managing the inventory
• Ensuring payment is made for items purchased and services received

Question 21

What are the activities in the purchasing and expenditures cycle in an accounting information system?

Answer 21

• Preparation of internal purchase requisitions/transmission to Purchasing
• Vendor selection and purchase order preparation/transmission of P.O. to vendor and receiving department
• Receiving and recording items/updating inventory records
• Comparison of invoice with P.O. and receiving report and discrepancy investigation
• Invoice information input into accounts payable module
• Updating accounts payable and general ledger

Question 22

What are the outputs of the purchasing and expenditures cycle in an accounting information system after receipt of the product or service?

Answer 22

• Discrepancy reports noting differences among the purchase order, the receiving report, and the vendor’s invoice; or duplicate invoice numbers or duplicate amounts on a vendor’s invoice
• Payment prepared/check or payment advice
• Payment register
• Forecast of cash requirements

Question 23

What does the production cycle involve and what is its goal?

Answer 23

It involves the conversion of raw materials into finished goods. The goal is to do that as efficiently as possible.

Question 24

What are the key activities in the production cycle in an accounting information system?

Answer 24

• Production managers issue materials requisition forms
• Physical inventory of raw materials reconciliation to inventory records
• Automated purchase requisition issuance
• Use of bill of materials and master production schedule
• Labor time tracking
• Data entry with automated technology such as Enterprise Resource Planning systems

Question 25

What are the outputs of the production cycle in an accounting information system?

Answer 25

* Materials price lists * Usage reports of raw materials * Raw materials inventory reconciliations * Raw materials inventory status reports to monitor inventory levels * Production cost reports * Manufacturing status reports

Question 26

What is the primary function of the human resources and payroll cycle in an accounting information system?

Answer 26

Involves hiring, training, paying, and terminating employees.

Question 27

What are the inputs to the human resources and payroll cycle in an accounting information system?

Answer 27

* Personnel action forms * Timesheets or timecards * Payroll deduction authorization forms * Tax withholding forms

Question 28

What are the outputs of the human resources and payroll cycle in an accounting information system?

Answer 28

* Employee listings * Payroll payment registers * Preparation of paychecks or direct deposits * Deduction reports * Payroll summaries * Tax reports for remitting payroll taxes * Tax reporting to employees

Question 29

What is the primary function of the financing cycle in an accounting information system?

Answer 29

It is responsible for acquiring financial resources by borrowing cash or selling stock and for investing financial resources.

Question 30

What is the primary objective of the financing process?

Answer 30

Managing cash effectively, minimizing the cost of capital, investing in a manner that balances risk and reward, and making cash flow projections to be able to make any adjustments necessary to have cash on hand when it is needed for operations, investing, and repaying debt.

Question 31

Managing cash effectively is an objective of the financing cycle in an accounting information system. What are some methods used to manage cash effectively?

Answer 31

* Collecting cash quickly, sometimes using lockbox arrangements * Paying invoices as they are due * Taking advantage of discounts for prompt payment * Using electronic funds transfer for payments to help control the timing of funds being deducted from operating and payroll accounts.

Question 32

# Fill in the blanks: In the financing cycle of an accounting information system, management often uses \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ to help determine the optimum strategies for acquiring and investing financial resources.

Answer 32

Financial planning models

Question 33

For control purposes, what responsibilities should be segregated from the finance responsibilities?

Answer 33

Accounting responsibilities ## Footnote A common approach is to have a controller manage accounting and a treasurer or CFO manage finance.

Question 34

What are the outputs of the financing cycle in an accounting information system?

Answer 34

* Interest revenue and expense * Dividend revenue and dividends paid * Summaries of cash collections and disbursements * Balances in investment accounts and in debt and equity * Cash budget showing projected cash flows ## Footnote These outputs draw on general ledger information about the financing processes.

Question 35

What does the fixed asset management system in an accounting information system manage?

Answer 35

The purchase, valuation, maintenance, and disposal of the organization’s fixed assets.

Question 36

What information is recorded in the fixed asset module of an accounting information system?

Answer 36

* Newly purchased fixed assets * Depreciation schedules * Deferred tax records to track differences between depreciation as calculated for book purposes and depreciation as calculated for tax purposes * Physical locations of fixed assets * Repair costs and distinguishing between those that are expensed and those that are capitalized * Impairment of fixed assets * Disposal of fixed assets

Question 37

The general ledger module of an accounting information system obtains data from the other transaction cycles and processes it so that financial reports may be prepared. One of the outputs of the general ledger is a trial balance. What is the purpose of a trial balance?

Answer 37

To check preliminary balances before adjusting entries are made and confirm adjusted balances are correct.

Question 38

What is the primary purpose of the financial reporting system of an accounting information system?

Answer 38

To produce external financial statements for stakeholders and other external users.

Question 39

Detailed internal statements are produced by an automated accounting information system. What is a cost accounting system in an automated accounting information system used for?

Answer 39

It collects labor, material, and overhead costs used to determine the inventory costs of manufactured goods and reports variances from anticipated costs that production managers need to control production.

Question 40

What is the purpose of profitability and responsibility reporting systems in an automated accounting information system?

Answer 40

They involve comparisons between actual and planned amounts and variances and are usually prepared according to responsibility center.