Transaciton Process
Transaciton Process
converting economic events into financial transactions, recording financial transactions in the
accounting records (journals and ledgers), and distributing essential financial information to operations
personnel to support their daily operations. The TPS deals with business events that occur frequently. In
a given day, a firm may process thousands of transactions. To deal efficiently with such volume, similar
types of transactions are grouped together into transaction cycles. The TPS consists of three transaction
cycles: the revenue cycle, the expenditure cycle, and the conversion cycle. Each cycle captures and
processes different types of financial transactions. Chapter 2 provides an overview of transaction
processing. Chapters 4, 5, 6, and 7 examine in detail the revenue, expenditure, and conversion cycles.
General Ledger/Financial Reporting Systems The general ledger system (GLS) and the financial reporting
system (FRS) are two closely related subsystems. However, because of their operational
interdependency, they are generally viewed as a single integrated system—the GL/FRS. The bulk of the
input to the GL portion of the system comes from the transaction cycles. Summaries of transaction cycle
activity are processed by the GLS to update the general ledger control accounts. Other, less frequent,
events such as stock transactions, mergers, and lawsuit settlements, for which there may be no formal
processing cycle in place, also enter the GLS through alternate sources. The FRS measures and reports
the status of financial resources and the changes in those resources. The FRS communicates this
information primarily to external users. This type of reporting is called nondiscretionary because the
organization has few or no choices in the information it provides. Much of this information consists of
traditional financial statements, tax returns, and other legal documents. Management Reporting System
The MRS provides the internal financial information needed to manage a business. Managers must deal
immediately with many day-to-day business problems, as well as plan and control their operations.
Managers require different information for the various kinds of decisions they must make. Typical
reports produced by the MRS include budgets, variance reports, cost-volume-profit analyses, and
reports using current (rather than historical) cost data. This type of reporting is called discretionary
reporting because the organization can choose what information to report and how to present it.