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Liu Ais CH 2

The document provides an overview of transaction processing including: 1) It describes the three transaction cycles - expenditure, conversion, and revenue - and how each cycle has physical and financial components with time lags. 2) It outlines the traditional manual accounting records like source documents, journals, and ledgers and their electronic equivalents like transaction files, master files, and reference files. 3) It discusses batch and real-time processing models and how technologies have impacted transaction processing workflows.

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hassan nassereddine
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49 views36 pages

Liu Ais CH 2

The document provides an overview of transaction processing including: 1) It describes the three transaction cycles - expenditure, conversion, and revenue - and how each cycle has physical and financial components with time lags. 2) It outlines the traditional manual accounting records like source documents, journals, and ledgers and their electronic equivalents like transaction files, master files, and reference files. 3) It discusses batch and real-time processing models and how technologies have impacted transaction processing workflows.

Uploaded by

hassan nassereddine
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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You are on page 1/ 36

Chapter 2

Introduction to Transaction
Processing
Objectives for Chapter 2
• Broad objectives of transaction cycles
• Types of transactions processed by each of the three
transaction cycles
• The basic accounting records used in TPS
• The traditional accounting records and their magnetic
equivalents
• Documentation techniques
• Batch and real-time processing and the impact of
these technologies on transaction processing
A Financial Transaction is...
• an economic event that affects the assets
and equities of the firm, is reflected in its
accounts, and is measured in monetary
terms.
• similar types of transactions are grouped
together into three transaction cycles:
– the expenditure cycle,
– the conversion cycle, and
– the revenue cycle.
Relationship between Transaction Cycles
Each Cycle has Two Subsystems
• Expenditure Cycle: time lag between the two due to credit relations
with suppliers:
– physical component (acquisition of goods)
– financial component (cash disbursements to the supplier)
• Conversion Cycle :
– the production system (planning, scheduling, and control of
the physical product through the manufacturing process)
– the cost accounting system (monitors the flow of cost
information related to production)
• Revenue Cycle: time lag between the two due to credit relations
with customers :
– physical component (sales order processing)
– financial component (cash receipts)
Manual System Accounting
Records
• Source Documents - used to capture and
formalize transaction data needed for
transaction processing
• Product Documents - the result of
transaction processing
• Turnaround Documents - a product
document of one system that becomes a
source document for another system
Manual System Accounting
Records
• Journals - a record of chronological entry
– special journals - specific classes of transactions that
occur in high frequency (register)
– general journal - nonrecurring, infrequent, and
dissimilar transactions
• Ledger - a book of financial accounts
– general ledger - shows activity for each account listed
on the chart of accounts
– subsidiary ledger - shows activity by detail for each
account type
Flow of Economic Events Into
the General Ledger
Computer-Based Systems

• The audit trail is less observable in


computer-based systems than traditional
manual systems.
• The data entry and computer programs
are the physical trail.
• The data are stored in magnetic files.
Audit Trail
Source General Financial
Journal
Document Ledger Statements

Financial General Source


Statements Journal Document
Ledger

Accountants should be able to trace in both directions.


Sampling and confirmation are two common techniques.
Example of Tracing an Audit Trail
Verifying Accounts Receivable

Accounts Receivable Control Account-General Ledger

Accounts Receivable Subsidiary Ledger


(sum of all customers’ receivables)

Sales Journal Cash Receipts Journal

Sales Order Deposit Slip


Shipping Notice
Remittance Advice
Computer Files
• Master File - generally contains account data (e.g.,
general ledger and subsidiary file)
• Transaction File - a temporary file of transactions
records used to update the master file
• Reference File - contains relatively constant
information used in processing (e.g., tax tables,
customer addresses)
• Archive File - contains past transactions for
reference purposes
File Structures
• File technologies fall in two classes:
- The Flat-File model (legacy System)
- The Database Model
The Flat-File model
• Individual data files are not related to other files
• End users own their data files rather than share them
with other users
• Data redundancy demonstrated 4 problems in flat-file
environment:
- Data Storage
- Data Updating
- Currency of information
- Task-Data dependency
• Data Storage:
Some commonly used data may be duplicated dozens, hundreds
or even thousands of times.
• Data Updating:
users keep separate files, all changes must be made separately
for each user, which add more costs and tasks to the data
management.
• Currency of information:
update information is not properly distributed, the change will
not be reflected in some user’s data, resulting in decisions
based on outdated information.
• Task-Data dependency:
the user’s inability to obtain additional information as his needs
change.
The Database Model
• Centralize data into a common database
that is shared by other users.
• All users have access to the data they
need to achieve their respective
objectives.
• Access to the data resource is controlled
by a database management system
DBMS.
Transaction Processing Models
• Two broad classes of systems:
– batch systems
– real-time systems
Batch Processing
• A batch is a group of similar transactions
that are accumulated over time and then
processed together.
• The transactions must be independent of one
another during the time period over which the
transactions are accumulated in order for
batch processing to be appropriate.
• A time lag exists between the event and the
processing.
• Example: Payroll processing.
Advantages of Batch
Processing
• Organizations can increase efficiency by
grouping large numbers of transactions
into batches rather than processing each
event separately.
Real-Time Systems…
• process transactions individually at the
moment the economic event occurs
• have no time lag between the economic event
and the processing
• generally require greater resources than batch
processing since they require dedicated
processing capacity
• oftentimes have longer systems development
time
• Example: sales order can be captured and
shipped the same day
Master File Backup Procedures
Maintain master file integrity in case:
1- An update program error corrupt the
master files
2- Undetected errors in the transaction data
result in corrupted master files balance
3- A disaster such as a fire or flood
physically destroys current master files
Updating Master Files From Transactions
(Batch / Real Time Processing)

It involves changing the value of one or more of


variable fields to reflect the effect of a transaction.
(Figure 2-30 Page 62)
Batch Processing Using Real-
Time Data Collection
Digitally capture and process aspects of the
transaction at the source as they occur, and
process other aspects of the transaction in
batch mode.
Figure 2-31 Page 64 Sales
Order System
1. Sales clerk captures customer sales data
2. The system checks the customer’s credit
limit and update the balance
3. The system updates the quantity-on-hand
field in the inventory record to provide up-
to-date information
4. A record of the sale is then added to the
sales order file which is processed in
batch mode
Why Do So Many AIS Use Batch
Processing?
• AIS processing is characterized by high-volume,
independent transactions, such are recording
cash receipts checks received in the mail.
• The processing of such high-volume checks can
be done during an off-peak computer time.
• This is one reason why batch processing maybe
done using real-time data collection.
Uses of Coding in AIS
• Represent large amounts of complex
information that would otherwise be
unmanageable
• Provide a means of accountability over the
completeness of the transactions processed
• Identify unique transactions and accounts
within a file
• Support the audit function by providing an
effective audit trail
30
Sequential Codes
• Represent items in sequential order
• Used to prenumber source documents
• Track each transaction processed
• Identify any out-of-sequence documents
• Disadvantages:
– No information content
– hard to make changes and insertions

31
Block Codes
• Represent whole classes by assigning
each class a specific range within the
coding scheme
• Used for chart of accounts
– The basis of the general ledger
• Allows for the easy insertion of new codes
within a block
– Don’t have to reorganize the coding structure
• Disadvantage:
– Information content is not readily apparent32
Group Codes
• Represent complex items or events
involving two or more pieces of data using
fields with specific meaning
• For example, a coding scheme for
tracking sales might be 04-09-476214-99,
meaning:
Store Number Dept. Number Item Number Salesperson
04 09 476214 99

• Disadvantages:
– Overused (unrelated and unnecessary data)
33
Alphabetic Codes
• Used for many of the same purposes as
numeric codes
• Can be assigned sequentially or used in block
and group coding techniques
• May be used to represent large numbers of
items
– Can represents up to 26 variations per field
• Disadvantage:
– Difficulty in sorting records that are coded
alphabetically 34
Mnemonic Codes
• Alphabetic characters used as abbreviations,
acronyms, and other types of combinations
• Do not require users to memorize the meaning
since the code itself is informative – and not
arbitrary
– NY = New York
• Disadvantages:
– Quickly exhaust meaningful combinations of
alphabetic characters (A/R not always accounts
receivable!)
35
Thank you!

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