Explain the four common cycles of a business activity?

A Management Information System ICT Revision Questions and Answers

Answer
A transaction cycle is an interlocking set of business transactions. Most business transactions can be aggregated into a relatively small number of transaction cycles related to the sale of goods, payments to suppliers, payments to employees, and payments to lenders. We explore the nature of these transaction cycles in the following bullet points:

1. Revenue Cycle: Events related to the distribution of goods and services to other entities and the collection of related payments. It includes application system involving customer order entry,

billing, accounts receivable and sales reporting. A company receives an order from a customer, examines the order for creditworthiness, ships goods or provides services to the customer, issues an invoice, and collects payment. This set of sequential, interrelated activities is known as the sales cycle, or revenue cycle

2. Expenditure Cycle: Events related to the acquisition of goods and services from other entities and the settlement of related obligations. It includes application system involving vendor selection and requisitioning, purchasing, accounts payable and payroll. A company issues a purchase order to a supplier for goods, receives the goods, records an account payable, and pays the supplier. There are several ancillary activities, such as the use of petty cash or procurement cards for smaller purchases. This set of sequential, interrelated activities is known as the purchasing cycle, or expenditure cycle.

3. Production Cycle: Events related to the transformation of resources into goods and services. It includes application systems involving production control and reporting, product costing, inventory control and property accounting.

4. Finance Cycle: Events related to the acquisition and management of capital funds, including cash. It includes application systems concerned with cash management and control, debt management and the administration of employee benefit plans. A company issues debt instruments to lenders, followed a series of interest payments and repayments of the debt. Also, a company issues stock to investors, in exchange for periodic dividend payments and other payouts if the entity is dissolved. These clusters of transactions are more diverse than the preceding transaction cycles, but may involve substantially more money.



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