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Chapter 2 Introduction to Transaction Processing
Accounting Information Systems 9e James A. Hall
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Objectives for Chapter 2
• Understand the broad objectives of transaction cycles. • Recognize the types of transactions processed by each of the three transaction cycles.
• Know the basic accounting records used in TPS. • Understand the relationship between traditional accounting records and their computer-‐based digital equivalents.
• Be familiar with documentation techniques. • Understand the differences between batch and real-‐time processing and their impact on transaction processing.
• Be familiar with data coding schemes used in AIS.
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An Overview of 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.
• Three transaction cycles: the expenditure cycle, the conversion cycle and the revenue cycle. Every business: – Incurs expenditures in exchange for resources (expenditure cycle). – Provides value added through its products or services (conversion cycle).
– Receives revenue from outside sources (revenue cycle).
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An Overview of Transaction Processing
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An Overview of Transaction Processing
• Expenditure Cycle: Time lag between components due to credit relationship 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 components due to credit relationship with customers. – physical component (sales order processing) – financial component (cash receipts)
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Accounting Records: Manual Systems
• Source documents are used to capture and formalize transaction data needed for transaction processing.
• Product documents are the result of transaction processing.
• Turnaround documents -‐ product documents of one system that becomes source documents for another.
• Journals are chronological records of transactions. – Special journals are used to record specific classes of transactions that occur in high frequency.
– Register denotes certain types of special journals. – General journal is used to record nonrecurring, infrequent, and dissimilar transactions.
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Accounting Records: Manual Systems
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Accounting Records: Manual Systems
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Accounting Records: Manual Systems
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Accounting Records: Manual Systems
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Accounting Records: Manual Systems
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Accounting Records: Manual Systems
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Accounting Records: Manual Systems
• Ledger is a book of accounts that reflects the financial effects of a firm’s transactions as they are posted from the various journals. – General ledgers contain account information in highly summarized control accounts.
– Subsidiary ledgers contain details for each 0f the individual accounts that constitute a particular control account.
• Together the accounting records provide an audit trail for tracing account balances contained in the financial statements back to the source documents and events that created them. – Important in the conduct of a financial audit.
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Accounting Records: Manual Systems
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Accounting Records: Manual Systems
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Accounting Records: Manual Systems
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Accounting Records: Manual Systems
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Digital Accounting Records
• Master file contains account data. • Transaction file is a temporary file of transaction records used to update data in a master file.
• Reference file stores data that are use as standards for processing transactions.
• Archive file contains records of past transactions retained for future reference – Form an important part of the audit trail.
• Digit record audit trails are less observable than those between hard-‐copy documents, but they still exist.
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Digital Accounting Records
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File Structures
• The flat-‐file model describes an environment where individual data files are not related to other files. Leads to three significant data redundancy problems:
• Data Storage: – Organizations must incur the costs of multiple collection and storage procedures.
• Data Updating: – Changes or additions must be performed multiple times which adds significantly to the task and cost of data management.
• Currency of Information: – If update information is not properly disseminated, changes will not be reflected in some users’ data, resulting in decisions based on outdated information.
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File Structures
• Other problems with the flat-‐file approach: • Task-‐Data Dependency: – User’s information set is constrained by the data user possess and controls. This leads to the inability to obtain additional information as needs change.
• Data Integration: – Separate files are difficult to integrate across multiple users.
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File Structures
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The Database Model
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Documentation Techniques
• Data flow diagram (DFD) uses symbols to represent entities, processes, data flows and data stores. – Used extensively by systems analysts to represent the logical elements of the system but does not depict the physical system.
• Entity relationship diagram (ER) is a technique used to represent the relationship between business entities. – The degree of the relationship (cardinality) is the numeric mapping between entities: one-‐to-‐one (1:1), one-‐to-‐many (1:M) or many-‐to-‐many (M:M).
– A data model is a blueprint for the physical database.
• DFDs and ER diagrams document different system aspects but are related. – DFDs model systems processes and ER diagrams system data.
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
• System flowchart is the graphical representation of the physical relationships among key elements of a system. – Elements include departments, manual activities, computer programs, hard-‐copy and digital accounting records.
– Also describe the physical computer media being employed. – Shows the processing of a single transaction only.
• Program flowchart provides operational details for every program represented in a system flowchart. – Sometimes used by accountants to verify the correctness of program logic.
• Record layout diagrams reveal the internal structure of digital records in a database table.
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
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Documentation Techniques
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Transaction Processing Models: Batch vs. Real-‐Time
• Information time frame: – Batch systems assemble transactions in groups, resulting in a time lag. Real-‐time systems process transactions individually as they occur with no time lag.
• Resources: – Generally fewer required with a batch system.
• Operational efficiency: – Batch processing of noncritical accounts eliminates unnecessary activities at critical points in the process.
• Designer must consider the trade-‐off between efficiency and effectiveness.
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Transaction Processing Models: Batch vs. Real-‐Time
• Updating master files from transactions: – Involves changing the value of one or more variable fields to reflect the effects of a transaction (batch and real-‐time).
• Master file backup is a standard procedure to maintain file integrity in the event that: – An update program error corrupts the master file being updated. – Undetected transaction errors result in corrupted balances. – A disaster physically destroys current master files.
• Batch processing using real-‐time data collection: – Popular approach that captures and processes some aspects of a transaction when in occurs and other aspects in batch mode.
• Real-‐time systems process entire transactions as they occur.
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Transaction Processing Models
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Transaction Processing Models
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Transaction Processing Models
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Transaction Processing Models
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Data Coding Schemes
• Involves creating simple codes to facilitate efficient data processing.
• Business organizations process large volumes of transactions with similar basic attributes. – Uncoded entries require extensive recording space, are time consuming to record and are error prone.
• Advantages of data coding in AIS: – Concisely represents large amounts of complex information that would otherwise be unmanageable.
– Provides accountability over transaction completeness. – Identifies unique transactions and accounts within a file – Supports the audit function by providing an effective audit trail.
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Data Coding Schemes
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Data Coding Schemes
• Numeric group codes are used to represent complex items or events involving two or more pieces of related data. – Zones or fields have specific meanings.
• For example, a coding scheme for tracking sales might be 04-‐09-‐476214-‐99, meaning:
• Facilitates representation of large amounts of diverse data. • Allows complex data to be logically represented. • Permits detailed analysis and reporting. • Disadvantages are overuse which can increase costs and linking of unrelated data.
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Store Number Dept. Number Item Number Salesperson 04 09 476214 99
Data Coding Schemes
• Alphabetic codes are used for many of the same purposes as numeric codes. – May use sequential, block or group coding techniques. – Dramatically increases the capacity to represent large numbers of items.
– Disadvantages are it is difficult to rationalize the meaning of the codes and they tend to be difficult for users to sort.
• Mnemonic codes are alphabetic character acronyms and other combinations that convey meaning. – Common application is the two code state abbreviations or college course coding (in combination with numeric codes).
– Codes convey a high degree of information. – Disadvantage is limited ability to represent items within a class.
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