What Is A Packing Slip?

A packing slip is a shipping document that comes with an order inside the
shipping package or tucked inside a shipping pouch attached to the package.
Sometimes referred to as a waybill, packing list, or shipping list, a packing slip
itemizes product details so that the receiver can make sure the items in the
shipment match what they ordered.

An invoice is a request for payment. A receipt is proof that payment has been
made

In short, remittance advice is a proof of payment document sent by a customer to a business.

Generally, it's used when a customer wants to let a business know when an invoice has
been paid. In a sense, remittance slips are equivalent to cash register receipts.

A ledger is a book of accounts that reflects the financial effects of the firm’s transactions after they are
posted from the various journals

A ledger is a book of accounts that reflects the financial effects of the firm’s transactions after they are
posted from the various journals

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 advice and return it to the company along with their payment (typically a
check). A turnaround document contains important information about a customer’s account to help the
cash receipts system process the payment. One of the problems designers of cash receipts systems face
is matching customer payments to the correct customer accounts. Providing this needed information as
a product of the sales system ensures accuracy when the cash receipts system processes it.

Remittance advice is a document sent by a customer to a seller, informing the

seller that an invoice has been paid.
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 in 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.
TRANSACTION CYCLES Three transaction cycles process most of the firm’s economic activity: the
expenditure cycle, the conversion cycle, and the revenue cycle. These cycles exist in all types of
businesses—both profit-seeking and not-for-profit types. For instance, every business (1) incurs
expenditures in exchange for resources (expenditure cycle), (2) provides value added through its
products or services (conversion cycle), and (3) receives revenue from outside sources (

Cash disbursements system. When the obligation created in the purchases system is due, the cash
disbursements system authorizes the payment, disburses the funds to the vendor, and records the
transaction by reducing the cash and accounts payable accounts.

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 CHAPTER 2 Introduction to Transaction Processing 43 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

Journals A journal is a record of a chronological entry. At some point in the transaction process, when all
relevant facts about the transaction are known, the event is recorded in a journal in chronological order.
Documents are the primary source of data for journals. Figure 2-5 shows a sales order being recorded in
the sales journal (see the following discussion on special journals). Each transaction requires a separate
journal entry, reflecting the accounts affected and the amounts to be debited and credited. There is
often a time lag between initiating a transaction and recording it in the accounts. The journal holds a
complete record of transactions and thus provides a means for posting to accounts. There are two
primary types of journals: special journals and general journals.

SPECIAL JOURNALS. Special journals are used to record specific classes of transactions that occur in high
volume. Such transactions can be grouped together in a special journal and processed more efficiently
than a general journal permits. Figure 2-6 shows a special journal for recording sales transactions. As
you can see, the sales journal provides a specialized format for recording only sales transactions. At the
end of the processing period (month, week, or day), a clerk posts the amounts in the columns to the
ledger accounts indicated (see the discussion of ledgers in this chapter). For example, the total sales will
be posted to account number 401. Most organizations use several other special journals, including the
cash receipts journal, cash disbursements journal, purchases journal, and the payroll journal
GENERAL JOURNALS. Firms use the general journal to record nonrecurring, infrequent, and dissimilar
transactions. For example, we usually record periodic depreciation and closing entries in the general
journal. Figure 2-7 shows one page from a general journal. Note that the columns are nonspecific,
allowing any type of transaction to be recorded. The entries are recorded chronologically. As a practical
matter, most organizations have replaced their general journal with a journal voucher system. A journal
voucher is actually a special source document that contains a single journal entry specifying the general
ledger accounts that are affected. Journal vouchers are used to record summaries of routine
transactions, nonroutine transactions, adjusting entries, and closing entries. The total of journal
vouchers processed is equivalent to the general journal. Subsequent chapters discuss the use of this
technique in transaction processing.

Ledgers A ledger is a book of accounts that reflects the financial effects of the firm’s transactions after
they are posted from the various journals. Whereas journals show the chronological effect of business
activity, ledgers show activity by account type. A ledger indicates the increases, decreases, and current
balance of each account. Organizations use this information to prepare financial statements, support
daily operations, and prepare internal reports. Figure 2-8 shows the flow of financial information from
the source documents to the journal and into the ledgers. There are two basic types of ledgers: (1)
general ledgers, which contain the firm’s account information in the form of highly summarized control
accounts, and (2) subsidiary ledgers, which contain the details of the individual accounts that constitute
a particular control account.1

GENERAL LEDGERS. The general ledger (GL) summarizes the activity for each of the organization’s
accounts. The general ledger department updates these records from journal vouchers prepared from
special journals and other sources located throughout the organization. The general ledger presented in
Figure 2-9 shows the beginning balances, the changes, and the ending balances as of a particular date
for several different accounts. The general ledger provides a single value for each control account, such
as accounts payable, accounts receivable, and inventory. This highly summarized information is
sufficient for financial

SUBSIDIARY LEDGERS. Subsidiary ledgers are kept in various accounting departments of the firm,
including inventory, accounts payable, payroll, and accounts receivable. This separation provides better
control and support of operations. Figure 2-10 illustrates that the total of account balances in a
subsidiary ledger should equal the balance in the corresponding general ledger control account. Thus, in
addition to providing financial statement information, the general ledger is a mechanism for verifying
the overall accuracy of accounting data that separate accounting departments have processed. Any
event incorrectly recorded in a journal or subsidiary ledger will cause an out-of-balance condition that
should be detected during the general ledger update. By periodically reconciling summary balances from
subsidiary accounts, journals, and control accounts, the completeness and accuracy of transaction
processing can be formally assessed.

Types of Files Audit trails in computer-based systems are less observable than in traditional manual
systems, but they still exist. Accounting records in computer-based systems are represented by four
different types of magnetic files: master files, transaction files, reference files, and archive files. Figure 2-
11 illustrates the relationship of these files in forming an audit trail. MASTER FILE. A master file generally
contains account data. The general ledger and subsidiary ledgers are examples of master files. Data
values in master files are updated from transactions.

TRANSACTION FILE. A transaction file is a temporary file of transaction records used to change or update
data in a master file. Sales orders, inventory receipts, and cash receipts are examples of transaction files.
REFERENCE FILE. A reference file stores data that are used as standards for processing transactions. For
example, the payroll program may refer to a tax table to calculate the proper amount of withholding
taxes for payroll transactions. Other reference files include price lists used for preparing customer
invoices, lists of authorized suppliers, employee rosters, and customer credit files for approving credit
sales. The reference file in Figure 2-11 is a credit file. ARCHIVE FILE. An archive file contains records of
past transactions that are retained for future reference. These transactions form an important part of
the audit trail. Archive files include journals, priorperiod payroll information, lists of former employees,
records of accounts written off, and prior-period ledgers.

Remittance advices contain information needed to service individual customers’ accounts. This includes
payment date, account number, amount paid, and customer check number