Harvard University

AUDIT 111

Chapter 6- Overview of Transaction Processing and Financial Reporting Systems

TRUE/FALSE

1)Processing more transactions at a lower unit cost makes batch processing more efficient than real-time systems.

2. The process of acquiring raw materials is part of the conversion cycle.

3. Directing work-in-process through its various stages of manufacturing is part of the conversion cycle.

4. The portion of the monthly bill from a credit card company is an example of a turn- around document.

5. The general journal is used to record recurring transactions that are similar in nature.

6. Document flowcharts are used to represent systems at different levels of detail.

7. Data flow diagrams represent the physical system.

8. System flowcharts are often used to depict processes that are handled in batches.

9. Program flowcharts depict the type of media being used (paper, magnetic tape, or disks) and terminals.

10. System flowcharts represent the input sources, programs, and output products of a computer system.

11. Program flowcharts are used to describe the logic represented in system flowcharts.

12. Batch processing systems can store data on direct access storage devices.

processes data efficiently.       

20. An inverted triangle with the letter “N” represents a file in “name” order.

21. Real-time processing in systems that handle large volumes of transactions each day can create operational inefficiencies.

22. Operational inefficiencies occur because accounts unique to many concurrent transactions need to be updated in real time.

23. Operational inefficiencies occur because accounts common to many concurrent transactions need to be updated in real time.

24. Batch processing of non-critical accounts improves operational efficiency.

25. Batch processing of accounts common to many concurrent transactions reduces operational efficiency.

26. The block code is the coding scheme most appropriate for a chart of accounts.

27. Sequential codes may be used to represent complex items or events involving two or more pieces of related data.

28. Block codes restrict each class to a pre-specified range.  
29. For a given field size, a system that uses alphabetic codes can represent far more situations than a system with that uses numeric codes.

30. Mnemonic codes are appropriate for items in either an ascending or descending sequence, such as the numbering of checks or source documents.

31. The most common means of making entries in the general ledger is via the journal voucher.

32. Individuals with access authority to general ledger accounts should not prepare journal vouchers.

33. The journal voucher is the document that authorizes entries to be made to the general

ledger.

34. Each account in the chart of accounts has a separate record in the general ledger

master file.

MULTIPLE CHOICE

1. 1. Which system is not part of the expenditure cycle?

1. 2. Which system produces information used for inventory valuation, budgeting, cost control, performance reporting, and make-buy decisions?

1. 3. Which of the following is a turn-around document?

1. 4. The order of the entries made in the ledger is by

1. 5. The order of the entries made in the general journal is by

1. 6. In general, a special journal would not be used to record

1. 7. Which account is least likely to have a subsidiary ledger?

1. 8. Subsidiary ledgers are used in manual accounting environments. What file is

comparable to a subsidiary ledger in a computerized environment?

1. 9. A journal is used in manual accounting environments. What file is comparable to a journal in a computerized environment?

1. 10. In a computerized environment, a list of authorized suppliers would be found in the

1. 11. Which of the following is an archive file?

1. 12. Which document is not a type of source document?

1. 13. The most important purpose of a turnaround document is to

1. 14. Which type of graphical documentation represents systems at different levels of

detail?

1. 15. Data flow diagrams

1. 16. System flowcharts

1. 17. When determining the batch size, which consideration is the least important?

1. 18. In contrast to a real-time system, in a batch processing system

1. 19. In contrast to a batch processing system, in a real-time system

1. 20. The type of transaction most suitable for batch processing is

1. 21. The type of transaction most suitable for real-time processing is

1. 22. Which step is not found in batch processing using sequential files?

1. 23. Both the revenue and the expenditure cycle can be viewed as having two key parts. These are

1. 24. All of the following can provide evidence of an economic event except

1. 25. Which method of processing does not use the destructive update approach?

1. 26. Which symbol represents a data store?

1. 27. Which symbol represents a manual operation?

1. 28. Which symbol represents accounting records?

1. 29. Which symbol represents a document?

1. 30. Which symbol represents a magnetic tape (sequential storage device)?

1. 31. Which symbol represents a decision?

1. 32. The characteristics that distinguish between batch and real-time systems include all of the following except

1. 33. A file that stores data used as a standard when processing transactions is

1. 34. Sequential storage means

1. 35. Real-time processing would be most beneficial in handling a firm’s

1. 36. Which accounting application is least suited to batch processing?

1. 37. Which accounting application is best suited to batch processing?

1. 38. Operational inefficiencies occur because

1. 39. Operational efficiencies can be improved by

1. 40. The coding scheme most appropriate for a chart of accounts is

42.          A common use for sequential coding is

42. The most important advantage of sequential coding is that

43. When a firm wants its coding system to convey meaning without reference to any other document, it would choose

44. The most important advantage of an alphabetic code is that

45. Which statement is not true/
    1. The journal voucher is the only source of input into the general ledger.
    2. A journal voucher can be used to represent summaries of similar transactions or a single unique transaction.
    3. Journal vouchers are not used to make adjusting entries and closing entries in the general ledger.
    4. Journal vouchers offer a degree of control against unauthorized general ledger entries.             
46. Entries into the General Ledger System (GLS) can be made using information from

47. Which statement is not correct? The general ledger master file

48. What type of data is found in the general ledger master file?

49. Which report is not an output of the Financial Reporting System (FRS)?

50. Which steps in the Financial Accounting Process are in the correct sequence?

51. Which statement is not correct?

52. What account appears on the post closing trial balance?

53. Financial statements are prepared from the

54. Risk exposures in the General Ledger and Financial Reporting Systems include all of the following except

55. Which situation indicates an internal control risk in the General Ledger/Financial Reporting Systems (GL/FRS)?

56. With a limited work force and a desire to maintain strong internal control, which combination of duties performed by a single individual presents the least risk exposure?

57. XBRL

58. An XBRL taxonomy:

SHORT ANSWER

1. List two of the three transaction cycles.

2. Documents that are created at the beginning of the transaction are called

                                                                .

3.                                                                                               are the two data processing approach- es used in modern systems.

4. Give a specific example of a turn-around document.

5. Explain when it is appropriate to use special journals.

6. What are the subsystems of the revenue cycle?

7. What are the subsystems of the expenditure cycle?

8. Most organizations have replaced the general journal with a

                                                                            .

9. Provide a specific example of a general ledger account and a corresponding subsidiary

ledger.

10. Name four documentation techniques?

11. Why is the audit trail important?

12. List a method of data processing that uses the destructive update approach?

13. Only four symbols are used in data flow diagrams. What are they?

14. Which documentation technique depicts data relationship in databases?

15. What are the three characteristics that are used to distinguish between batch and real- time systems.

16. Give one advantages of real-time data collection.

17. In one sentence, what does updating a master file record involve?

18. What is destructive update?

19..         Explain two types of coding schemes and give examples of their use.

20.                          List, in order, the steps in the Financial Accounting Process.

1. 21. List two duties that the general ledger clerk should not perform.

1. 22. Explain the purpose and contents of the general ledger master file.

1. 23. What is XML?

1. 24. Why do many firms no longer use a general journal? What has taken its place?

1. 25. What are the major exposures in the general ledger/financial reporting system?

1. 26. Why is the audit trail necessary?

ESSAY

1. Describe the key activities in the revenue, conversion, and expenditure cycles.

2. Categorize each of the following activities into the expenditure, conversion or revenue cycles and identify the applicable subsystem.

1. Preparing the weekly payroll for manufacturing personnel.
2. Releasing raw materials for use in the manufacturing cycle.
3. Recording the receipt of payment for goods sold.
4. Recording the order placed by a customer.
5. Ordering raw materials.
6. Determining the amount of raw materials to order.

3. What does an entity-relationship diagram represent? Why do accountants need to understand them?

4. Time lag is one characteristic used to distinguish between batch and real-time systems. Explain. Give an example of when each is a realistic choice.

5. The revenue cycle has two subsystems. What are they and what occurs within each?

6. Resource use is one characteristic used to distinguish between batch and real-time systems. Explain.

7. Give a brief description of each of the following documentation techniques: systems flowchart, and program flowchart.

8. Give an example of how cardinality relates to business policy?

9. For what purpose are ER diagrams used?

10. With regard to an entity relationship diagram, what is an entity?

11. Is a DFD an effective documentation technique for identifying who or what performs a particular task? Explain.

12. Is a flowchart an effective documentation technique for identifying who or what performs a particular task? Explain.

13. How may batch processing be used to improve operational efficiency?

14. If an organization processes large numbers of transactions that use common data records, what type of system would work best (all else being equal)?

15. Why might an auditor use a program flowchart?

16. How are computer system flowcharts and program flowcharts related?

17. What are the key distinguishing features of legacy systems?

18. What information is provided by a record layout diagram?

19. Comment on the following statement: “Legacy systems use flat file structures.”

20. What factor influences the decision to employ real-time data collection with batch updating rather that purely real-time processing? Explain.

21. How is backup of database files accomplished?

22. What are the reasons companies use coding schemes in their accounting information systems?