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BAGUINON, GMELINA

CORONA, ANGELA AIS


OLIVEROS, CRISELYN ASSIGNMENT #1

TRANSACTION PROCESS SYSTEM

To understand the transaction system, we must first understand the concept


of the traditional accounting cycle which incurs the following steps: (1) transaction
incurs; (2) analyse transactions; (3) journalize transaction; (4) post journal to ledger;
(5) prepare trial balance; (6) adjust entries; (7) adjust trial balance; (8) close entries;
(9) prepare financial statements. In a nutshell, data about an organizations
financial activities are recorded (input) and processed (process) into meaningful
reports (output) in which users base their decisions.

A transaction process system (TPS) is a system designed to capture and


record events that occur in business operations. There are certain processes or
activities that are usually found in business environment which are essential to
realization of objectives, usually to obtain profit, of the business. Sales (Revenue
cycle), purchasing (Expenditure cycle), production (Production cycle), human
resource management (HR management and payroll cycles), and financial
reporting (General ledger and financial reporting cycle) are examples of these
crucial activities within a business. Each of these cycles have their corresponding
activities embedded in them that are aimed to achieve a particular goal or solving a
particular problem within the organization. These activities mentioned are
examples of TPS and will be discussed more in detail in the succeeding paragraphs.

1. Revenue Cycle

The Revenue Cycle pertains to generation of cash. The main objective is to


sell goods whether on cash or on credit. For credit sales, the aim is to turn these
receivables to cash as quickly as possible. Otherwise, the firm will run out of cash
and have liquidity problems. Revenue process usually starts with: (1) Processing
the sales order by checking first the inventory levels, credit checking, and creating
sales order; (2) Pick, pack and ship the goods; (3) Bill the customer by checking
sales completion and creating invoice; and lastly (4) Receive and record payment.

2. Expenditure Cycle

The Expenditure cycle pertains the purchasing activities of the organization.


The main objective is to acquire goods from suppliers that is enough to meet the
demand of consumers. This process also includes the management of payments to
suppliers as they fall due. Expenditure process usually starts with: (1)
determination of demand for goods by collecting requests and creating purchase
requisition; (2) Ordering goods by choosing the supplier and creating purchase
order; (3) Receiving ordered goods thru acceptance and recording receipt of goods;
and lastly (4) Paying for the goods by approving the transaction for payment and
actual payment.

3. Production Cycle

The Production cycle is basically the manufacturing of goods of the business


organization. It is concerned with the management of raw materials needed to
produce the finished goods, scheduling production to ensure stock availability, and
BAGUINON, GMELINA
CORONA, ANGELA AIS
OLIVEROS, CRISELYN ASSIGNMENT #1

ensuring appropriate costings are recorded. The accounting information system is


crucial for this process. The cost management of production should allocate cost to
goods manufactured and handling variances for standard and actual costs. Sales
information is also needed to plan production schedules and how much to produce.
This process affects the financial statements in terms of valuation of inventory level,
as well as calculation of cost of goods manufactured and cost of sales. The
production cycle is usually starts with: (1) Determination of product production
requirements (a. new product notification and b. calculating production
requirements; (2) Planning the production schedule and identifying material
requirements; (3) Producing the product by assembling required resources and
execution of production schedule; (4) Calculating costs and recording costs incurred.

4. HR management and payroll cycle

The Human Resource (HR) management and payroll cycle is responsible for
acquiring the services of employees, managing employees, paying wages,
determining benefits, and securing replacement for those employees who resigned.
This process has impact on the financial statements as the salaries, over-time pay,
and other benefits are considered as expenses. The HR process usually starts with:
(1) Identifying employee recruitment by selecting from pool of applicants and
employee induction; (2) Calculating payroll liabilities and disbursements; (3)
Handling employee performances; and lastly (4) Assessing reasons for employee
termination and managing employee transitions.

5. General ledger and financial reporting cycle

The General ledger and financial reporting cycle summarizes, adjusts and
reports on data from the four mentioned process. It produces management reports,
which are used within the organization, and a general purpose financial statements,
which are distributed externally. This process usually begins with: (1) Preparation of
budget by first determining budget values and recording budget details; (2)
Updating the general ledger by extracting and validating data and posting the
transactions; (3) Preparing and posting adjustments; (4) Producing management
and financial statement reports.

Figure 1 shows the interrelationship between the TPS identified. This


supports the concept that information or data sharing is necessary across the
organization. How does all these TPS processes relate to the accounting process
discussed? Figure 2, answers this question. Figure 2, traces the documents
produced by each cycle and how it is processed into information.

Figure 1. Process relationships


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CORONA, ANGELA AIS
OLIVEROS, CRISELYN ASSIGNMENT #1

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Source:

CONSIDINE, B., PARKES, A., OLESEN, K., BLOUNT, Y., and SPEER, D. 2012.
Accounting Information Systems Understanding Business Processes 4 th Ed.
John Wiley & Sons Australia, Ltd.