COMPARISON OF THE TRANSACTION CYCLES

Transaction Cycle Base Major Transaction Revenue/Receipt 1. Goods and services are sold to customers in exchange other assets 2. Cash is collected from cash or account customers 1. 2. 3. 4. 5. 6. 7. Customer orders Credit approval Inventory control Shipping/delivery Billing Recording Cash collection and deposits 8. Sales returns Purchase/Disburseme nts 1. Goods and services are acquired from suppliers resulting to a decrease in assets or creation of obligation 2. Settlement of the liability 1. Purchasing 2. Receiving of good or services 3. Recording 4. Payment, which includes authorization and preparation of checks Production Raw materials are used and transformed Payroll 1. Services are acquired from employees resulting to the decrease in assets or creation of obligation 2. Settlement of the obligation 1. Preparation and update of personnel records 2. Prepare and record payroll 3. Distribution of paychecks 1. 2. Investing and Financing On fixed assets, resources are used On other investments in securities; receipt of funds and its utilization. On Fixed assets: additions, disposals, retirements, recording, depreciation allocation On Investments: recording, issuance, interest, dividends, custody, valuation, sales, income.

Detail Transactions

1. Maintenance of perpetual records 2. Cost accounting 3. Physical control over inventory

1.

2.

Journal entries

1. Sales 2. Sales discounts 3. Sales returns and allowances 4. Cash receipts 5. Allowance for doubtful accounts 6. Writing-off of worthless receivables 1. Customer order 2. Sales order 3. Shipping document/delivery report 4. Sales invoice 5. Checks from

1. 2. 3. 4. 5.

Purchases Purchase discounts Purchase returns Account distribution Prepaid and accrued expenses 6. Adjustments for ending inventory 7. Cash disbursements 1. Purchase requisitions 2. Purchase orders 3. Receiving reports 4. Suppliers invoices 5. Vouchers

1. Processing of transaction related to raw materials, work in process, finished goods 2. Cost of good sold 3. Writing down of inventory

1. Payment to employees 2. Salary deductions 3. Account distribution 4. Accrued payroll

On Fixed assets: Depreciation, overhead applied, addition, disposals, retirements

Business forms

1. Job sheets 2. Labor charge reports 3. Materials requisition form 4. Move tickets 5. Work order

1. 2. 3. 4.

Personnel records Time cards Payroll register Employee earnings records

1. On Fixed assets: depreciation schedules, overhead applications 2. Bond certificates, notes, stock

customers/remittan ce advice Critical internal control areas 1. Credit granted by a credit approval department 2. Sales orders and invoices are prenumbered and controlled 3. Sales returns are supported by an approved credit memorandum 4. Subsidiary ledgers for customers are reconciled to the control ledger regularly 5. Review of customer billings which are generated monthly 6. Write-offs of receivables by an independent officer 7. Cash goes to cashier; forms to accounting 8. Over the counter cash receipts are supported by tapes 9. Daily deposit of cash 10. Employees handling cash are bonded Bank recon is prepared by employees independent of recording and authorization 1. Prenumbered POs 2. Separate purchasing department makes purchases 3. Suppliers monthly statements compared with recorded payables 4. Mathematical accuracy of suppliers invoices 5. Comparison of receiving report, PO, and invoice 6. Two signatories for large amount of checks 7. Treasurer signs checks and mails them 8. Support for checks are voided after payment 9. Physical control over unused checks

6. Route sheet 7. Bill of materials 1. Perpetual record kept for expensive items 2. Prenumbered receiving reports 3. Adequate standard cost system 4. Physical controls against theft 5. Written inventory requisitions used 6. Proper authorization of purchases 1. Segregate timekeeping, payroll preparation, personnel, paycheck distribution 2. Time clocks are used 3. Rates of pay are reviewed 4. Job tome tickets reconciled to time clock cards 5. Time clock cards approved by supervisors for overtime hours 6. Treasurer signs paychecks 7. Unclaimed paychecks controlled by someone independent of payroll function 8. Personnel department sends termination notices to the payroll department. 1.

certificates, commercial paper, treasury bills Debt and equity transactions are properly approved by the BOD 2. An independent trustee handles bond transactions 3. A stock register is maintained 4. Canceled stock certificates are defaced 5. Securities in the custody of an independent custodian be under the joint control of the treasurer and another officer 6. Registration of securities under the name of the company, not officer 7. Major assets acquisitions should be approved first 8. Detailed records on depreciation 9. Written policies for capitalization and expensing items 10. Retirements are authorized 11. Physical control 12. Periodic inspection