The Accounting Cycle Quiz

The Accounting Cycle

• The accounting cycle is a series of steps used to record and report financial transactions.
• It begins with transactions (documents) and ends with financial statements.
• The steps in the cycle are:
  • 1. Journalization: Recording transactions in a journal.
  • 2. Posting: Transferring journal entries to ledger accounts.
  • 3. Trial balance: Verification that debits equal credits.
  • 4. Adjustments: Making necessary corrections for accruals, deferrals, etc.
  • 5. Adjusted trial balance: Adjusted balances of accounts.
  • 6. Financial Statements: Summarizing financial performance and position.
  • 7. Closing entries: Closing temporary accounts (revenues, expenses, dividends).
  • 8. Post-closing trail balance: Balance sheet accounts after closing.
  • 9. Reversing entries: Adjusting for accruals and deferrals from prior period.

Introduction to Transaction Processing

• A financial transaction affects assets and equities of the firm.
• It's recorded in the firm's accounts and measured in monetary terms.
• Transaction cycles include: Expenditure cycle, Conversion cycle, and Revenue cycle.
  • Expenditure cycle: Involves incurring expenditures for resources.
  • Conversion Cycle: Adding value to products or services.
  • Revenue Cycle: Involving revenue from outside sources.

Objectives for Chapter 2

• Understanding transaction cycles is essential.
• Recognizing types of transactions is important.
• Knowing basic accounting records in TPS is fundamental.
• Understanding the relationship between traditional and computer-based accounting records is vital.
• Familiarity with documentation techniques is useful.
• Understanding differences between batch and real-time processing is key.
• Knowing data coding schemes in AIS is a must.

Accounting Records: Manual Systems

• Source documents formalize transaction data capture.
• Product documents result from transactions, becoming source documents for other systems.
• Turnaround documents are product documents used as input for another system.
• Journals: chronological records of transactions.
  • Special journals record frequently occurring transactions.
  • Registers are specific types of special journals.
  • General journals record nonrecurring, infrequent, and dissimilar transactions.
• Ledgers are books of accounts reflecting financial effects of a firm's transactions.
  • General ledgers summarize account information.
  • Subsidiary ledgers provide details for each of the individual accounts within a particular control account.
• Accounting records provide an audit trail by tracing financial statement balances back to source documents.

Digital Accounting Records

• Master file stores account data.
• Transaction file is used to update master file data.
• Reference file provides standards for transactions.
• Archive file stores past transactions for reference.
• Digital records form an audit trail, although less visible than in hard-copy documents.

File Structures

• Flat-file model has data files not related to each other, causing data redundancy problems.
• Problems include issues with data storage, data updates and currency of information.
• Other challenges include task data dependency and data integration.

Data Coding Schemes

• Coding is used to efficiently process large numbers of transactions.

• Uncoded records are difficult to track, prone to error.

• Coding schemes (e.g. numeric, mnemonic) allow for efficient storage and reporting of data.

• Coding schemes help to manage and track vast quantities of transactions.