Financial – financing the company resources – cash

Cash – most liquid asset; the management should know to manage cash to avoid consequences
e.g. if the company runs out of cash to pay obligations.
Start of the transaction cycle – expenditure cycle
Purchase Payment
1. Materials – Direct Cost – COS/COGS ex: Manufacturing – raw materials Ex 2: Beauty
Salon – hair dye, nail polish and other materials to render service.
2. Supplies – Indirect Cost – Operating Expense ex: Office Supplies, Cleaning Supplies

Personnel Payroll – cash outflow

Labor
1. Direct – factory worker
2. Indirect – Administrative personnel ex: secretary, driver, supervisor, manager

Capital Acquisition then there is obligation for Payment – cash outflow

- Assets – machineries, equipment, land

CONVERSION CYCLE
Production
- Planning
- Control process – inventory control

Conversion cycle has

o Cash outflow – finished good available for sale
o Cash inflow

REVENUE CYCLE
1. Sales Cash Receipts - Collection
- Sales order process
- Sales System – availability of the product
- Sales order temporary source document while sales invoice is a permanent source document
Accounting Documents and Records
1. Source – documents used to capture the transaction
2. Product – result from transaction process
3. Turnaround – product documents that become source document from another system
- Remittance advice to know if customer paid; the customer should let the company know that
they paid like email
Special Journal – is optional, as it is intended on specific transactions ex: sales on account and purchases
on account
General Journal - adjusting and correcting entries. It has post references (account code), page number,
date, debit and credit
Sales Journal – by Date; debit and credit accounts are established. Place only amounts, invoice number
and accounting number. Page number should be placed; it is useful in cross-referencing in transactions.

Audit Trail – important when we are verifying/reviewing the validity, accuracy, and completeness of
transactions – Done by external or internal auditors. They cannot perform without source documents and
accounting records. Tracing – complete; Vouching – Valid
Transaction is valid if it has source documents
- The transaction is valid if the transaction exists and it is recorded by the accountant and if it
is recorded then it is complete. All transactions with source documents (all valid source
documents) should be recorded in the accounting record.
Digital Accounting Records
1. Master file – permanent file. Contains account data. Ex: General Ledger, Customer Master File
(less detailed), Vendor Master File (more details like personal information)
2. Transaction file – temporary or current
3. Reference file - a file that stores the data used as standards for processing transactions
4. Archive file – if you want to trace past transactions. Ex: Journals and subsidiary ledgers