Schemes in Various Business Cycles (I.

E Inventory, HR, Disbursement)

These are the documentation needed for different Transaction Cycles

TRANSACTION CYCLES

• REVENUE & COLLECTION CYCLE

• Activities involved: (1) Exchange of goods and services with customers; (2) collection of revenue
in cash

• Accounts affected: (1) Sales and related sales adjustments; (2) Cash in bank; (3) Accounts
receivable and related allowances; (4) Uncollectible accounts expense; and (5) Inventories

Documentations

• Accounting records employed: (1) Sales journal; (2) Sales returns and allowances journal; (3)
Cash receipts journal; (4) General journal; (4) accounts receivable ledgers; and (5) Accounts
receivable TB

Documents Significance

Customer’s purchase order - Provides evidence that a customer actually ordered the
goods.

PO numbers are recorded on sales invoices to determine to

which PO an invoice relates.

Sales order - Contains the seller’s understanding of the terms.

Numerical sequence helps ensure that shipments are made for

sale orders and all sales are billed.

Bill of Lading (Shipping Documents) - Signature of carrier provides evidence that goods have
been shipped.

Numerical sequence helps ensure that all shipments are

recorded as sales.

Credit memo - Provides evidence that the seller has reduced the
amount billed to a customer.

Numerical sequence helps ensure that CMs are recorded.

Remittance Advice - Indicates date and amount of payment and the invoices
paid.

Uncollectible account authorization - Numerical sequence helps ensure that all write – offs
form are recorded.

Monthly statements - Reports the beginning balance and transactions that

occurred during the period.
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EXPENDITURE AND DISBURSEMENT CYCLE

• Activities involved: (1) Acquisition of goods and services; (2) payment for these
acquisitions

• Accounts affected: (1) Purchases and related adjustments, (2) Accounts payable and
trade notes payable, (3) cash in bank, (4) inventories, and (5) manufacturing and
operating expenses

Documents  

Purchase requisition - Provides evidence about a purchase of goods or services

Purchase order - Provides evidence that the purchasing department was authorized
to initiate purchase.

Receiving report - Provides evidence that goods were received.

Vendor’s invoice - Contains Signature of an Employee who authorized purchase from

a vendor

Debit Memo - Provides evidence that the amount owed to vendor has been
reduced.

Voucher - Provides documentation for recording of a transaction.

Check - A canceled check provides evidence about payments that the

entity has made.

Vendor’s statement - Used to determine that all transactions recorded on the

statements have been recorded in the books.

Documentations
PAYROLL TRANSACTION
Activities involved: (1) acquisition of employee services; (2) compensation
Accounts affected: (1) Salaries Payable; (2) Cash in bank; and (3) Payroll expenses

• Accounting records employed: (1) Payroll register; (2) Employee Earnings Record; (3) Labor
Distribution journal; (4) and General journal

Documents Significance

Time Card - Provides evidence about the validity of the hours employee is
paid for working.

Deduction authorization - Indicates that the employee authorized an amount to be

withheld from a paycheck.

Certification of Taxes withheld - Indicates that taxes withheld were reported to the various
taxing authorities.

Labor ticket and labor ticket - Records specific activity of a laborer and the labor used in
summary production on any given day.

Payroll tax returns - Provides evidence that amount withheld are paid to the
appropriate authorities.

Other personnel records - Numerical sequence helps ensure that all write – offs are
recorded.

FINANCING AND INVESTING TRANSACTION CYCLES

A. FINANCING AND INVESTING TRANSACTION CYCLES

Activities involved: (1) planning the cash need; (2) raising capital; and (3) investing funds

*cover the non – operating activities of the company

Financing Transactions:

1. Borrowing from third parties excluding open trade accounts with creditors (short – term and
long – term)

2. Share capital and dividend transactions share issuance and reacquisition, shares returned and
dividend declarations *Authorizing, executing, and recording transaction

Investing Transactions:

1. Acquisitions and disposals of financial assets

 2. Lending to third parties, other than open trade accounts with customers

Accounts affected:

• (1) Notes Payable (non – trade);

• (2) Bonds Payable;

• (3) Mortgage Payable

• (4) Long – term Liability (finance lease)

• (5) Share capital

• (6) Investment in securities

• (7) Accounts Receivable (non – trade)

• (8) PPE and related adjustment

• (9) Intangible assets

• (10) Cash in Bank

• (11) Interest Expense (Payable)

• (12) Share premium

• (13) Retained earnings

• (14) Treasury Shares

• (15) Dividends

• (16) Capital Account

Documents used and Audit Significance

Document Significance
s

Share - Shows the number of shares owned by a shareholder.

Certificate

Bond - Shows the number of binds owned by a bondholder

Certificate

Bond - (contract) States the terms of the bond issue

Indenture

Broker’s - Specifies the details of an investing transaction.

Advice