1. Which statement is NOT true?

a. Business activities begin with the acquisition of materials, property, and labor in
exchange for cash.
b. The conversion cycle includes the task of determining raw materials requirements.
c. Manufacturing firms have a conversion cycle but retail firms do not.
d. A payroll check is an example of a product document of the payroll system.
e. A journal voucher is actually a special source document

2. A documentation tool that depicts the physical flow of information relating to

a particular transaction through an organization is a
a. system flowchart.
b. program flowchart.
c. decision table.
d. work distribution analysis.
e. systems survey.

3. Sequential file processing will not permit

a. data to be edited on a separate computer run.
b. the use of a database structure.
c. data to be edited in an offline mode.
d. batch processing to be initiated from a terminal.
e. data to be edited on a real-time basis.

4. The production subsystem of the conversion cycle includes all of the following
EXCEPT
a. determining raw materials requirements.
b. make or buy decisions on component parts.
c. release of raw materials into production.
d. scheduling the goods to be produced

5. Which of the following files is a temporary file?

a. transaction file
b. master file
c. reference file
d. none of the above

6. A documentation tool used to represent the logical elements of a system is a(n)

a. programming flowchart.
b. entity relationship diagram.
c. system flowchart.
d. data flow diagram.

7. Which of the following is NOT an advantage of real-time processing files over

batch processing?
a. shorter transaction processing time
b. reduction of inventory stocks
c. improved customer service
d. all are advantages

8. Which of the following is NOT true of turn-around documents?

a. They may reduce the number of errors made by external parties.
b. They are commonly used by utility companies (gas, power, water, etc.).
c. They are documents used by internal parties only.
d. They are both input and output documents.
9. Which of the following is NOT a true statement?
a. Transactions are recorded on source documents and are posted to journals.
b. Transactions are recorded in journals and are posted to ledgers.
c. Infrequent transactions are recorded in journals and are posted to ledgers.
d. Frequent transactions are recorded in special journals.

10. Which of the following is true of the relationship between subsidiary

ledgers and general ledger accounts?
a. The two contain different and unrelated data.
b. All general ledger accounts have subsidiaries.
c. The relationship between the two provides an audit trail from the financial
statements to the source documents.
d. The total of subsidiary ledger accounts usually exceeds the total in the
related general ledger account.

11. Real-time systems might be appropriate for all of the following EXCEPT
a. airline reservations.
b. payroll.
c. point-of-sale transactions.
d. air traffic control systems.
e. all of these applications typically utilize real-time processing.

12. Is the system flowchart symbol for?

a. on-page connector?
b. off-page connector?
c. home base?
d. manual operation?
e. document?

13. A chart of accounts would best be coded using a(n) _______________ coding
scheme.
a. alphabetic
b. mnemonic
c. block
d. sequential

14. Which of the following statements is NOT true?

a. Sorting records that are coded alphabetically tends to be more difficult for
users than sorting numeric sequences.
b. Mnemonic coding requires the user to memorize codes.
c. Sequential codes carry no information content beyond their order in the
sequence.
d. Mnemonic codes are limited in their ability to represent items within a
class.

15. A coding scheme in the form of acronyms and other combinations that convey
meaning is a(n)
a. sequential code.
b. block code.
c. alphabetic code.
d. mnemonic code.

16. Sequential access means that

a. data are stored on magnetic tape.
b. the address of the location of data is found through the use of either an
algorithm or an index.
 c. to read any record on the file, all of the preceding records must first be
read.
d. each record can be accessed in the same amount of time.

17. Which file has as its primary purpose to provide historical financial data
for comparative financial reports?
a. journal voucher history file
b. budget master file
c. responsibility file
d. general ledger history file

18. Which of the following statements is true?

a. Journal vouchers detailing transaction activity flow from various
operational departments into the GLS, where they are independently reconciled
and posted to the journal voucher history file.
b. Journal vouchers summarizing transaction activity flow from the accounting
department into the GLS, where they are independently reconciled and posted to
the general ledger accounts.
c. Journal vouchers summarizing transaction activity flow from various
operational departments into the GLS, where they are independently reconciled
and posted to the general ledger accounts.
d. Journal vouchers summarizing transaction activity flow from various
operational departments into the GLS, where they are independently reconciled
and posted to the journal voucher history file.

19. Which of the following statements best describes a computer-based GL/FRS?

a. Most firms derive little additional benefit from a real-time FRS.
b. Batch processing is typically not appropriate for transaction processing of
GLS.
c. The sequential file approach is an inefficient use of technology.
d. A batch system with direct access files recreates the entire database each
time the file is updated.

20. Which of the following is NOT a potential exposure of the FRS?

a. a defective audit trail
b. general ledger accounts that are out of balance with subsidiary accounts
c. unauthorized access to the check register
d. unauthorized access to the general ledge

21. Which task should the general ledger perform?

a. update the general ledger
b. prepare journal vouchers
c. have custody of physical assets
d. have record-keeping responsibility for special journals of subsidiary
ledgers.

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

a. cash disbursements
b. payroll
c. production planning/control
d. purchases/accounts payable

23. A journal is used in manual accounting environments. What files is

comparable to a journal in a computerized environment?
a. archive file
 b. reference file
c. transaction file
d. master file

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

a. a lag occurs between the time of the economic event and when the transaction
is recorded
b. relatively fewer hardware, programming, and training resources are required
c. a lesser resource commitment per unit of output is required
d. processing takes place when the economic event occurs

25. Real-time processing would be most beneficial in handling a firm's

a. fixed asset records
b. retained earnings information
c. merchandise inventory
d. depreciation records

26. Operational inefficiencies occur because

a. accounts both common and unique to many concurrent transactions need to be
updated in real time.
b. accounts common to many concurrent transactions need to be updated in real
time.
c. accounts unique to many concurrent transactions need to be updated in real
time.
d. None of the above are true statements

27. Which accounting application is most suited to batch processing?

a. general ledger
b. vendor payments
c. sales order processing
d. payroll

28. The most important advantage of sequential coding is that

a. missing or unrecorded documents can be identified
b. the code itself lacks informational content
c. items cannot be inserted
d. deletions affect the sequence

29. When a firm wants its coding system to convey meaning without reference to
any other document, it would choose
a. an alphabetic code
b. a mnemonic code
c. a group code
d. a block code

30. Which situation indicates an internal control risk in the General

Ledger/Financial Reporting Systems (GL/FRS)?
a. the employee who maintains the cash journal computes depreciation expense
b. the cash receipts journal voucher is approved by the Treasurer
c. the cash receipts journal vouchers are prenumbered and stored in a locked
safe
d. the employee who maintains the cash receipts journal records transactions in
the accounts receivable subsidiary ledger
Reviewer: Chapter 2 - Introduction to Transaction Processing
Financial Transactions
- Defined as economic events affecting a firm's assets and equities, measured in
monetary terms.
- Grouped into three transaction cycles:
- Expenditure Cycle
- Conversion Cycle
- Revenue Cycle

Transaction Cycles
Each cycle consists of two primary subsystems:
Expenditure Cycle:
- Physical component: acquisition of goods.
- Financial component: cash disbursements to suppliers.

Conversion Cycle:
- Production system: planning, scheduling, and control of manufacturing
processes.
- Cost accounting system: monitors cost information flow related to production.

Revenue Cycle:
- Physical component: sales order processing.
- Financial component: cash receipts.

ACCOUNTING RECORDS
Manual System Records
Source Documents: Capture transaction data for processing.
Product Documents: Results from transaction processing.
Turnaround Documents: A product document that serves as a source document for
another system.

Journals and Ledgers

Journals: Chronological records of transactions.
- Special journals for high-frequency transactions.
- General journal for infrequent transactions.

Ledgers:
- General ledger shows activity per account.
- Subsidiary ledger provides detailed activity by account type.
COMPUTER-BASED SYSTEMS
Types of Files
Master File: Contains account data (e.g., general ledger).
Transaction File: Temporary file with transactions since the last update.
Reference File: Contains constant information (e.g., tax tables).
Archive File: Past transactions for reference.

DOCUMENTATION TECHNIQUES
Common techniques include:
1. Entity Relationship Diagrams (ERD)
2. Data Flow Diagrams (DFD)
3. Document Flowcharts
4. System Flowcharts
5. Program Flowcharts

BATCH VS. REAL-TIME PROCESSING

Batch Processing
- Groups similar transactions for collective processing.
- Time lag exists between event occurrence and processing.

Real-Time Processing
- Processes transactions immediately as events occur.
- Requires more resources but offers no time lag.

CODING IN AIS
Coding serves several purposes:
- Represents large amounts of complex information concisely.
- Provides accountability over transaction completeness.
- Identifies unique transactions/accounts within files.
Types of Coding Schemes
1. Sequential Codes: Represent items in order; useful for tracking documents but
can be arbitrary.
2. Block Codes: Assign ranges to classes; allows easy insertion but lacks
apparent information content.
3. Group Codes: Represent complex items using multiple fields; facilitate
detailed analysis but can become complex.
4. Alphabetic Codes: Used similarly to numeric codes; sorting can be difficult.
5. Mnemonic Codes: Informative abbreviations that don't require memorization;
limited usability.