DISCUSSION QUESTIONS
1. Cash flows into the firm from sales made to customers. The sales order processing subsystem of
the revenue cycle captures the intent of customers to exchange cash for services or goods
manufactured. Typically sales are made on credit. The cash receipts subsystem of the revenue cycle
captures the actual receipt of cash. Depending on the credit terms and promptness of payment by the
The cash inflow allows the organization to purchase raw materials, pay workers, and buy capital assets
necessary to manufacture the product (or to provide services). The raw materials requirements are
determined by the production planning subsystem of the conversion cycle. These requirements trigger
2. Initially, the cost accounting system was used for the valuation of inventory and cost of goods
3. The conversion cycle activities for service and retailing entities include planning the items to
4. Yes. For example, the remittance advice of a bill that is returned with the payment serves as a
5. This type of transaction is recorded in the general journal since it is nonrecurring, infrequent,
6. Sometimes the terms are used interchangeably, such as the sales journal is sometimes called the
sales register. The term journal is appropriate when the information needs to be ultimately posted to the
7. The balance in the general ledger is considered a control account. This amount is an aggregated
number representing the total amount owed to creditors listed in the accounts payable journal. The
accounts payable subsidiary ledger details the exact amount owed to each creditor. The sum of the
8. Confirmation is most typically used for confirming the accounts receivable account as reported
on the balance sheet. The audit trail is used to trace from the general ledger accounts receivable control
9. In theory, the digital audit trail functions the same as a manual audit trail. In practice, the steps
are slightly different. The archive file that consists solely of valid transactions is the file to which the
10. Small batches have the advantage of fewer transactions to sort through for error detection, but
they are not processed as efficiently. Further, computing facilities and constraints might dictate whether
11. Not all modern organizations use entirely modern information systems. Some firms employ
12. Large-scale systems that process high volumes of transactions often use real-time data
collection and batch updating. Master file records that are unique to a transaction, such as customer
13. Real-time processing is better suited to systems that process lower transaction volumes and
14. The most striking difference between the database model and the flat-file model is the pooling
15. The flat-file approach is a single-view model. Files are structured, formatted, and arranged to
suit the specific needs of the owner or primary user of the data. Such structuring, however, may
exclude data needed by other users, thus preventing successful integration of data across the
organization. For example, because the accounting function is the primary user of accounting data,
16. The data update problem in a flat-file model occurs because organizations have a great deal of
data stored in files that require periodic updating to reflect changes. For example, a change to a
Information currency problems occur because user failing to update all the user files
17. The auditor should examine the system flowchart since it clearly depicts the separation of
18. Uncoded data takes a great deal of recording space, is time-consuming to record and is prone to
many types of errors. Consider a firm that manufactures bicycles and carries in its inventory reflector
lights. The lights come in six sizes, 2 colors, and 4 different grades of material. Thus, 48 different
Inventory-2”, yellow, metal reflector light 75
Inventory-3”, orange, plastic reflector light 120
A/P-Collins Mnf-Roanoke, VA 195
Some problems this approach may produce are 1. the sales staff will have a more tedious job in writing
up orders, and more errors may occur (i.e. what if they forget to write the color or material type?), 2.
19. a. state codes—alphabetic code, i.e. PA, this method is appropriate because it corresponds
with the postal services abbreviation and is meaningful to humans.
d. inventory item number—alpha-numeric. The numeric portion allows the items to be easily sorted
e. bin number (inv warehouse location)—group codes since certain digits may be used to represent
which warehouse, certain digits may be used to represent floor, certain digits may be used to represent
g. vendor code—alpha-numeric. The alphabetic portion allows more meaningful codes to be used and
found. The numeric portion allows different firms with similar names to be distinguished. i.e. ALPH01,
i. customer number—same as for vendor code.
MULTIPLE CHOICE
1. B
2. A
16. B
17. B
22. C