AT 06-06 Transaction Cycles Part 1
AT 06-06 Transaction Cycles Part 1
AT 06-06 Transaction Cycles Part 1
Suggested Readings
Best practices implemented by different entities in their business processes.
No official standard/s governing the different transaction cycles.
Overview
Transaction Cycles means through which an accounting system process transaction of related activities
Conversion/
Revenue and Expenditure and
Payroll (Hire to Production Financing and
Receipt (Order Disbursement
Retire) (Plan to Investing
to Cash) (Procure to Pay)
Inventory)
Process Overview
Customer ➢ Customer Purchase Order – external file
Sales Department ➢ Direct Communication with the customer
➢ Prepares Sales Order (uniform) – internal file
Credit Department ➢ For credit review
➢ Credit Investigation – based on 5C’s of credit
➢ If existing Customer – check credit limit (automated control)
Warehouse or Storage ➢ For release of goods
Shipping Department ➢ Delivers the goods to customers
➢ Shipping Documents or Bill of Lading
Billing Department ➢ Prepares invoices
Accounting Department ➢ Forwarded invoices from Billing Department – for recording
➢ Verify the series or sequence of transactions before recording
Reception ➢ Receives check with the remittance advice containing the details of the
customer and the invoice being paid
Treasury ➢ For deposit of check
➢ Remittance Advice will be returned to Accounting Department
Documents used
Sales Order
Shipping Documents Note:
These are not uniform for all entities.
Sales Invoices
Considered as Minimum requirements
Remittance Advice based on Best Practices.
Transaction Summaries
Customers, Credit
Contains the details of the goods
Department, Shipping
Sales Order ordered (quantity, prices, and Sales Department
Forms or Documents Summary
Department, Billing
payment terms)
Department
Customers,
Describes the goods sold, amount
Sales Invoice Billing Department Accounting
due, and the terms of payment
Department
Process Overview
Production Planning ➢ Generates the production plan
Production Department ➢ Follows the production plan (bill of materials, prepares materials requisition
form)
Raw Materials Storage ➢ Approves MRF
Production Department ➢ Actual Production
➢ Adds Conversion Cost
➢ Upon completion, forwards to Finished Goods Storage
Finished Goods Storage ➢ Receives completed goods from Production Department
Cost Accounting Department ➢ Accumulating the cost of materials, labor, and overhead
Documents used
Bill of Materials
Production Plan Note:
These are not uniform for all entities.
Materials Requisition
Considered as Minimum requirements
Production Reports based on Best Practices.
Raw Materials Stock Cards
Finished Goods Stock Cards
Job/Departmental Cost Sheets
Physical Custody of
Accumulation of
materials and finished
Normal production runs materials, labor, and
goods – warehousing /
• Production department overhead costs – cost
Related controls and storage department
supervisor accounting
person/s assigned
Special production runs
Physical controls over
• Board of Directors Recording – general
work in process –
accounting
production department
Review entries made in
Review production orders
the general ledger with Observation of physical
and related documents
Audit Procedures daily summaries prepared inventory count and
supporting production runs
by cost accounting performing test counts.
to check authorization
department
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