Accounting Information Systems, 6th

edition
James A. Hall

ADMAS UNIVERSITY
Warsame Djamal
Objectives for Chapter 2
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:
 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:
 physical component (sales processing)
 financial component (cash receipts)
Manual System Accounting Records
Source Documents – original record
containing the details for the transaction that
has been recorded.
Product Documents - the result of
transaction processing “ employee record”
Turnaround Documents - a product
document of one system that becomes a
source document for another system “
Customer Bill”
Manual System Accounting Records
Journals - a record of chronological entry
special journals - specific classes of
transactions that occur in high frequency
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
 Audit Trail
Source General Financial
Journal Statements
Document Ledger

Financial General Source

Statements Journal Document
Ledger

Accountants should be able to trace in both directions.

Sampling and confirmation are two common techniques.
Computer-Based Systems
The audit trail is less observable in computer-
based systems than traditional manual
systems.
The data entry documents and computer
programs are the physical audit trail of the
transaction.
The data are stored in magnetic files in
computer systems.
 Computer Files
Accounting records in computer based systems are
represented by four different types
Master File - generally contains account data
(e.g., general ledger and subsidiary file)
Transaction File - a temporary file containing
transactions since the last update
Reference File - contains relatively constant
information used in processing “Customer Address”
Archive File - contains past transactions for
reference purposes
Documentation Techniques
Documentation in a CB environment is
necessary for many reasons.
Five common documentation techniques:
Entity Relationship Diagram
Data Flow Diagrams
Document Flowcharts
System Flowcharts
Program Flowcharts
1. Entity Relationship Diagram (ERD)…
is a documentation technique to
represent the relationship  between
entities  in a system.
The REA model version of ERD is widely
used in AIS. REA uses 3 types of entities:
resources (cash, raw materials)
events (release of raw materials into the
production process)
agents (inventory control clerk, vendor,
production worker)
2. Data Flow Diagrams (DFD)…
use symbols to represent the processes, data
sources, data flows, and entities in a system
represent the logical elements of the
system
do not represent the physical system
Data Flow Diagram Symbols

Entity Data Store

Name Name

N
Process
Description Direction of
data flow
3. Documents Flowcharts…
illustrates the relationship among processes
and the documents that flow between them
contain more details than data flow diagrams
clearly depict the separation of functions in a
system
Symbol Set for Document Flowcharts

Terminal showing source Calculated batch total

or destination of documents
and reports

Source document or
report
On-page connector

Manual operation
Off-page connector

File for storing source Description of process

documents and or comments
reports

Accounting records
Document flowline
(journals, registers,
logs, ledgers)
Sales Department Credit Department Warehouse Shipping Department

Customer

Customer
Order

Prepare
Sales
Orders

Sales
Order #1
Sales
Sales
Order #1
OrderSales
#1
Order #1

First Stages in Constructing Document Flowchart Showing Areas

of Activity
Sales Department Credit Department Warehouse Shipping Department
Sales
Customer
Order #1 Sales
Order 1
Customer
Checks
Order Credit
Credit
Records
Picks Stock
Prepare Records
Goods
Sales
Orders Signed Sales
Order #1
Customer Sales Picks
Order Order1 Goods
Sales
Order #1
Sales
Sales
Order #1
OrderSales
#1 File
Order #1
Signed Sales
Order #1
Sales
Order1
Distribute
SO and
File
Sales Customer
Order 3
Sales Finished Document Flowchart
Order2
Showing Areas of Activity
File Signed Sales
Order #1
Computer-Based Accounting
Systems
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.
Batch Processing/Sequential File
Unedited
Sales Keying Transactions
Orders

catches clerical errors

Errors Edit
Run
correct errors and
resubmit
Edited
Transactions

rearranges the transaction data by

Sort key field so that it is in the same
Run sequence as the master file

Transactions

AR

Update changes the values in the master file to

Run reflect the transactions that have occurred

Transactions (eventually transferred to an archive file)

 Steps in Batch Processing/Sequential File
Keystroke - source documents are transcribed by
clerks to magnetic tape for processing later
Edit Run - identifies clerical errors in the batch
and places them into an error file
Sort Run - places the transaction file in the same
order as the master file using a primary key
Update Run - changes the value of appropriate
fields in the master file to reflect the transaction
Backup Procedure - the original master
continues to exist and a new master file is created
Advantages of Batch
Processing
Organizations can increase efficiency by
grouping large numbers of transactions into
batches rather than processing each event
separately.
Batch processing provides control over the
transaction process via control figures.
 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; however,
these cost differentials are decreasing
oftentimes have longer systems
development time
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.
 The Most Common Accounting
Documents
1. Sales Invoice
2. Cash Invoice
3. Cash Receipt
4. Payment Voucher
5. Petty Cash Voucher
6. Sales Order
7. Purchase Order
8. Goods Dispatching Note
9. Goods Receiving Note
10. Sales Return Form - Credit Memo
11. Purchase Return Form – Debit Memo
12. Journal Voucher
13. Bank Deposits
14 Bank Statement.