SUPL. ACC306 LC.1.6

Overview of Transaction Cycles

The focus of this lesson is to explore transaction cycles in detail, following an introduction in the previous lesson.
Students who wish to skip this detailed overview may do so.
The lesson will cover five distinct transaction cycles, emphasizing the transactions and related activities within each.

Order Entry: Taking the customer's order and entering it into the accounting information systems.
Credit Review: Evaluating the customer's credit worthiness, which includes:
- Checking existing credit status
- Determining credit limits if extending credit.
Inventory Check: Verifying inventory levels to ensure the requested goods are in stock.
Goods Shipping: Shipping the ordered goods to the customer.
Billing: Issuing a bill to the customer if the goods are sold on account.
Payment Collection: Collecting payment from the customer and recording it by decreasing accounts receivable.
Returns and Allowances Handling: Managing any customer returns or allowances for goods purchased.

The tasks listed above are critical to the revenue transaction cycle, but other activities may also occur depending on the organization's operations.

Main Goal: To spend cash in order to acquire inventory, raw materials, or services.

Request Submission: Departments submit requisitions for goods or services to the purchasing department.
- This may involve filling out a purchase requisition.
Purchase Order Generation: The purchasing department converts the requisition into a purchase order (PO) and sends it to the supplier.
Goods Reception: The warehouse receives and verifies the goods, which involves:
- Cataloging the received goods
- Counting quantities and generating a receiving ticket for payment processing.
Invoice Management: Handling invoices received for the goods or services and preparing for payment.
Vendor Invoice Approval: Reviewing the vendor invoice package, which includes:
- Invoice
- Purchase order
- Shipping documents
- Warehouse receiving report, needed for issuing payments to vendors.

A variety of tasks occur in the expenditure transaction cycle, focused on acquisitions and payment processing.

Raw Material Request: Requesting necessary raw materials needed for production.
Labor Scheduling: Scheduling labor required for the manufacturing process.
Product Manufacturing: Transforming raw materials and labor into finished goods.
Cost Allocation Preparation: Allocating costs to each finished product to establish pricing strategies.
Cost Transfer to Finished Inventory: Transferring costs associated with finished goods from production to finished goods inventory.

There are numerous activities tied to the production cycle beyond the outlined tasks, especially as organizations vary.

Recruitment and Hiring: Recruiting, hiring, and (to a limited extent) training new employees.
Payroll Record Management: Maintaining accurate payroll records for employees.
Payroll Tax Calculation: Overseeing payroll taxes and employee benefits.
Payroll Processing: Typically outsourced to a payroll processor, which calculates deductions and prepares reports.
Payment Distribution: Distributing payroll via checks or direct deposits to employees.

This cycle emphasizes activities related to employee management and labor compensation.