depreciation,

activities include the readying of products and services for market and the allocation of resources such as depreciation, building amortization, and prepaid

expenses to the proper accounting period. However, unlike manufacturing firms, merchandising companies do not process these activities through formal

conversion cycle subsystems.

The Revenue Cycle
Firms sell their finished goods to customers through the revenue cycle, which involves processing cash sales, credit sales, and the receipt of cash following a credit

sale. Revenue cycle transactions also have a physical and a financial component, which are processed separately. The primary subsystems of the revenue cycle,

which are the topics of Chapter 4, are briefly outlined below. Sales order processing. The majority of business sales are made on credit and involve tasks such as

preparing sales orders, granting credit, shipping products (or rendering of a service) to the customer, billing customers, and recording the transaction in the

accounts (accounts receivable, inventory, expenses, and sales). Cash receipts. For credit sales, some period of time (days or weeks) passes between the point of

sale and the receipt of cash. Cash receipts processing includes collecting cash, depositing cash in the bank, and recording these events in the accounts (accounts

receivable and cash).

Accounting Records
Manual Systems
This section describes the purpose of each type of accounting record used in transaction cycles. We begin with traditional records used in manual systems

(documents, journals, and ledgers) and then examine their magnetic counterparts in computer-based systems.

Documents
A document provides evidence of an economic event and may be used to initiate transaction processing. Some documents are a result of transaction processing. In

this section, we discuss three types of documents: source documents, product documents, and turnaround documents.

Source Documents. Economic events result in some documents being created at the
beginning (the source) of the transaction. These are called source documents. Source documents are used to capture and formalize transaction data that the

transaction cycle needs for processing. Figure 2-2 shows the creation of a source document. The economic event (the sale) causes the sales clerk to prepare a

multipart sales order, which is formal evidence that a sale occurred. Copies of this source document enter the sales system and are used to convey information to

various functions, such as billing, shipping, and accounts receivable. The information in the sales order triggers specific activities in each of these departments.

Product Documents. Product documents are the result of transaction processing rather
than the triggering mechanism for the process. For example, a payroll check to an employee is a product document of the payroll system. Figure 2-3 extends the

example
Chapter 2

Introduction to Transaction Processing

FIGURE 2-2
Customer’s Order

Creation of a Source Document
Source Document Data Collection Sales Order 1 2 3

Sales System

Figure 2-2 to illustrate that the customer’s bill is a product document of the sales system. We will study many other examples of product documents in later

chapters.

Turnaround Documents. Turnaround documents are product documents of one system
that become source documents for another system. This is illustrated in Figure 2-4. The customer receives a perforated two-part bill or statement. The top portion is

the actual bill, and the bottom portion is the remittance advice. Customers remove the remittance

FIGURE 2-3

A Product Document
Source Document 1 2 3

sto Cu der Or

r’ me

s

Data Collection

Sales Order

Customer

Bill Remittance Advice Product Document

Sales System