Chapter 2 - Introducon to Transacon Processing

Financial transacon - An economic event that Payroll system - collects labor usage data or
afects the assets and equies o the rm, is each
each emp
emploloye
yee,
e, comp
compututes
es the
the pa
payr
yrol
oll,
l, an
and
d
reect
reected
ed in its accounts
accounts,, and is mea
measur
sured
ed in disburses paychecks to the employees.
monetary terms.
Fi
Fixed
xed asset
asset syste
system
m - proces
processes
ses transaco
transacons
ns
Economic excha
Economic exchanges
nges with external
external pares
pares - pertaining to the acquision, maintenance, and
The most common nancial transacons. disposal o its xed assets.

Transacon Cycles 2. Conversio

Conversion
n cycl
cycle
e - Cycle composed o the
producon system and tth he cost acco
accounng
unng
system.

Prod
Produc
uco
onn syst
system
em invo
involv
lves
es the
the
planning, scheduling, and control o the
physical product through the
manuacturing process.

Cost accou
accounng
nng system
system moni
monitors
tors the
ow o cost inormaon including labor,
overhead,
overhead, and raw materials related to
producon.

in
incu
curs
rs expe
expend
ndit
itur
ures
es in exch
exchan
ange
ge or
or
resources (expenditure cycle), 3. Rev
Revenu
enue
e cyc
cycle
le - Cyc
Cycle
le composed
composed o sales
sales
 pr
prov
ovid
ides
es valu
value
e ad
adde
ded
d thro
throug
ugh
h its
its order processing and cash receipts.
products
products or services (conversion cycle),
cycle),
Primary subsystems
subsystems o the revenue cycle
and
 receives revenue rom outside sources  Sales order processing
(revenue cycle).
cycle).  Cash receipts

1. Expenditure cycle - Acquision o materials, Accounng

Accounn g record
record - Docu
Documen
ment, t, jour
journa
nal,
l, or
property, and labor in exchange or cash. ledger used in transacon cycles.

A busi
business-
ness-to-bu
to-busine
siness
ss transacon
transacon has Manual Systems
two parts: a ph
phys
ysic
ical
al co
comp
mpon
onen
entt (the
ac
acqu
quis
isi
ion
on o th
the
e good
goodss or servi
services
ces)) an
and
d a 1. Documents - ma mayy ini
iniat
ate
e tran
transa
saco
con
n
fnancial component (the cash disbursement to processing or be the output o a process;
the supplier). provide auditors with evidence o economic
events.
Primary expenditure cycle subsystems
subsystems

Purchase
Purcha ses/a
s/acco
ccount
untss pay
payabl
able
e (AP)
(AP) sy syste
stem
m - Three types o documents
re
reco
cogn
gniz
izes
es the
the need
need to ac acqu
quir
ire
e phys
physic
ical
al  Sour
urcce Docucum
ment
ntss - Documents
invent
inventory
ory (su
(such
ch as raw materi
materials
als),
), places
places an that capture and ormalize
orde
orderr wi
with
th the
the vend
vendor
or an
and
d esta
establblis
ishe
hess an transac
coon data neede eded or
account payable to be paid later. proc
proces
essi
sing
ng by thei
theirr re
resp
spec
ecv
vee
transacon cycles.
Cash disburse
disbursement
mentss system
system - author
authorize
izess the
paymen
paymentt when
when the obl
obliga
igaon
on created
created in the
purchases system becomes due.
Chapter 2 - Introducon to Transacon Processing

The primary sources o data entry into journals

are documents .

Journa
Journals
ls all
all into
into two class
classes:
es: special journals
and general journals.

Prod
Produc
uctt docu
docume
ment
ntss - Documents Speci
Special
al journa
journals
ls - are used to record specic
that resu
esult rom transac
co
on clas
classe
sess o tran
transa
sac
con
onss that
that occu
occurr in high
high
processing. volume.

Re
Regi
gist
ster
er - Oen
Oen us used
ed to de
deno
note
te cert
certai
ain
n
types o special journals and to denote a
log. For example, the payroll journal is oen
called the payroll register.

Genera
Generall journa
journall – are used to record

nonr
nonrec
ecur
urri
ring
ng,, inr
inreq
eque
uent
nt,, an
andd diss
dissim
imil
ilar
ar
transa
transacon
conss (e.(e.g.,
g., dep
depreci
reciao
aon
n and clo
closin
singg
entries).

Journal vouchers - Accounng journal

Turnaroun
Turnaround d doc
docum
ument
entss - Product
entrie
ent riess into
into an acc
accoun
ounng
ng sys
system
tem or
docu
docume
ment
ntss o one
one sy
syst
stem
em that
that
the purposes o making correcons or
beco
become
me so sour
urce
ce do
docu
cume
ment
ntss o
orr
adjust
adjustmen
mentsts to the accoun
accounng
ng dat
data;
a;
another system.
should be approved by the appropriate
designated authority.

General ledger
General ledger - sum
summar
marize
izess the acvi
acvity
ty or
each o the organizaon’s nancial accounts.

Subsidiary ledgers - are kept in various

accoun
accounng
ng dep
depart
artmen
ments
ts o the rm,
rm,
including
including inven
inventory,
tory, accounts
accounts payab
payable,
le,
payroll, and accounts receivable.

Journal - is a chronologi
Journal chronological
cal record o
o nancial
nancial
transacons.
Chapter 2 - Introducon to Transacon Processing

Relaonship
Relaonsh ip between
between the Subsidiar
Subsidiary
y Ledger
Ledger
and the General Ledger
Modern accounng systems

Four
Four type
typess o digi
digita
tall comp
comput
uter
er l
les
es:: master
fles, transacon fles, reerence fles, and
archive fles.

1. Master fle - File containing account data

(ex: general ledger and subsidiary ledgers).
2. Transacon fle - Temporary le that holds
transa
transaco
con
n rec
record
ordss tha
thatt wil
willl be use
used
d to
change or update data in a master le (ex:
Sales orders, inventory receipts, and cash
receipts).
3. Reer
Reerence
ence fle - Fil
File
e tha
thatt sto
stores
res the data
use d as standards or processing
transacons.
4. Archive fle - File that contains records o
past
past tra
trans
nsac
acon
onss that
that ar
are
e reta
retain
ined
ed o
orr
uture reerence.
Audit trail - Acc
Accoun
ounng
ng records
records tha
thatt tra
trace
ce
transa
tra nsaco
cons
ns rom
rom thetheir
ir sou
source
rce docume
documents
nts to Two classes o fle structures
the nancial statements; o utmost importance
 at les
in the conduct o a nancial audit.
 databases

Legacy systems
Legacy systems - larg
large
e ma
main
inr
ram
amee sy
syst
stem
emss
implem
implement
ented
ed in the late
late 1960s
1960s thr
throug
ough
h the
1980s.

Flat-fle model (Distributed Data Processing) -

serves an environment where end users own
their
their dat
data
a le
less rat
rather
her tha
than
n sha
share
re them
them wit
with
h
other users; envir
environmen
onmentt in which individ
individual
ual
data les are not related to other les.

Thre
Three
e sign
signi
ica
cant
nt prob
proble
lems
ms in the
the at-
at-l
le
e
environment: data storage, data updang, and
currency o inormaon.

 Da
Data
ta Ca
Capt
ptur
ure
e anandd St
Stor
orag
age
e – Som
Somee
commonly used data may be duplicated
Confrmaon - in invol
volves
ves contac
contacng
ng sel
select
ected
ed sinc
since
e a sing
single
le soururce
ce may
may not be
custom
customers
ers to determ
determine
ine i the tra
transa
nsaco
consns available to all users.
recorded
recorded in the account
accountss actual
actually
ly too
took
k place
place  Data Updang – Per Period
iodic
ic upd
updan
ang
g o
an
and
d i cust
custom
omer
erss ag
agre
ree
e with
with the
the reco
record
rded
ed data stored in the les o an
balance. organizaon.
Chapter 2 - Introducon to Transacon Processing

 Currency o Inorma
Currency Inormaon
on – Failu
Failure
re to
update all the user les afected by a
change in status; may result in decisions
based on outdated inormaon.

Addional problems in the at fle

environment

 Task-data dependency - User’s inability

to obtain addional inormaon as his
or her needs change.
 Flat Files Limit Data Integraon

Database model (Centralized Data Processing)-

Symbol
Sym bolic
ic model
model o the structur
structure
e o, and the
associaon
associaonss between,
between, an organizao
organizaon’s
n’s data
enes.
Enty relaonship diagram -
Da
Data
taba
base
se ma
mananage
geme
mentnt syst
system
em (D(DBM
BMS)S) - Docu
Docume
ment
nta
aon
on tech
techni
niqu
que
e used
used to
Soware
Soware system
system tha
thatt contro
controls
ls access
access to the represent the relaonship among data

data
ata res
resourc
ource;
e; perermi
mits
ts users
sers to acc
cces
esss enes in a system.
authorized data only.
An enty may be:
Documentaon
Documentaon techniques  physical resource (automobile, cash, or
inventory)
Five
Five ba
basi
sicc do
docu
cume
ment
nta
aon
on tech
techni
niqu
ques
es are
are
 event (cus
(custo
tome
merr orde
order,
r, purc
purcha
hase
se
introduced in this secon: data ow diagrams,
inventory, or receive payment)
enty relaonship diagrams, system owcharts,
program owcharts, and record layout  agent (sal
(sales
esper
perso
son,
n, cust
custom
omer,
er, or
diagrams. vendor)

Two comm
Two common
only
ly used
used syst
system
emss desi
design
gn an
and
d Car
ard
din
inal
alit
ity
y - degegre
ree
e o ththe
e rel
ela
aon
onsship;
hip;
documentaon techniques numerical
numer ical mappi
mapping
ng between enty instances
instances
(ex: one-to-one (1:1), one-to-many (1:M), and

Data ow diagram (DFD) - uses symbols many-to-many (M:M)).
to represe
represent
nt the en
enes
es,, process
processes,
es,
data ows, and data stores that pertain
to a system.
Chapter 2 - Introducon to Transacon Processing

Data model - Blueprint or what ulmately will  Re

Real
al-
-me
me proc
proces
essi
sing
ng - process
become the physical database. individual transacons connuously as
they occur.
System owchart - Flowcharts used to show the
relaonship between the key elements—input Characterisc Dierences between Batch
sources
sou rces,, program
programs,
s, and out
output
put produ
products—
cts—o
o and Real-Time Processing
computer systems. Data Processing Methods
Disnguishin Batch Real-Time
g Feature
Inormaon Lag exists No me la lag
g
me rame between me exists.
when the Processing
economic take
takess plac
placee
event
eve nt occ
occurs
urs when the
and when it is economic
recorded. event
occurs.
Program owchart - Diag Diagra
ram
m prprov
ovid
idin
ing
g a Resources Generally, More
ewer resources
de
deta
tail
iled
ed de
descr
scrip
ipo
on
n o ththe
e seque
sequen
nal
al an
and
d
resources are required
logical operaons o the program.
(e.g., than or
hardware, batch
programming processing.
, and training)
are required.
Operaonal Certain Operaonal
eciency rec
ecor
ordds are
are delays are
Accountants somemes use program owcharts
processed not an issue.
to veriy the correctness o program logic. aer the Al
Alll re
reco
cord
rdss
Record layo
Record layout
ut diagra
diagrams
ms - Used to reveal the event to pertaining
avoid to the event
internal structure o the records that constute
operaonal are
a le or databa
database
se table.
table. The layou
layoutt dia
diagra
gram
m
delays. processed
usually shows the name, data type, and length
o each aribute (or eld) in the record. immediately
.

When immediate access to current inormaon

is crical to the user’s needs, real-me
Transacon Processing Models processing is the logical choice.
Two types o alt
altern
ernav
ave
e transa
transaco
con
n When m
When mee lags
ags in ino
norm
rma
aon
on hahav
ve no
processing models detrimental efects on the user’s perormance,
and operaonal eciencies can be achieved by
 Batch processin
processing
g - involves
involves gathering
gathering
process
processing batches,, batch processi
ing data in batches processing
ng
transacons into groups or batches and
may be the best choice.
then processing the enre batch as a
single event.
Chapter 2 - Introducon to Transacon Processing

Master fle backup - is a standard procedure in  Su

Sup
ppo
por
rng
ng th
the
e aud
udiit unc
unco
on
n by
transa
transaco
con
n process
processing
ing system
systemss to mai
mainta
ntain
in providing an efecve audit trail.
master le integrity in the event.
Numeric and Alphabec Coding Schemes
De
Deadl
adlock
ock - “Wait” state that occurs between
Sequenal codes - Codes that represent items
sites when data are locked by mulple sites that
in some sequenal order. A common
are waing or the removal o the locks rom
the other sites. applicaon
applicaon o nume
numeric
ric sequenal
sequenal codes is the
prenumbering
prenumberin g o source documents.
Data coding - involves
involves creang
creang simple
simple numer
numeric
ic
Advantages - I the transacon
or al
alph
phab
abec
ec code
codess to repr
repres
esenentt comp
comple
lexx
pr
proce
ocess
ssin
ing
g syst
system
em dedete
tect
ctss an
any
y gaps
gaps in the
the
economic
econo mic phenomena
phenomena that acilitate
acilitate ecie
ecient
nt
se
sequ
quenc
encee o tran
transa
sac
con
on numb
number
ers,
s, it al
aler
erts
ts
data processing.
management to the possibility o a missing or
A System Without Codes misplaced transacon.

The negave efects o this approach may be Disadvantages - Sequenal codes carry
seen in many parts o the organizaon: no inormaon content beyond their order in
the sequence.
 Sales sta
Sales sta.
. Proper
Properlyly iden
idenyin
ying
g the
items sold requires
requires the transcripon
transcripon o - sequenal coding schemes are
large
large amount
amountss o detail
detail onto
onto sou
source
rce dicult to change. Inserng a new
docume
doc uments
nts.. Apa
Apart
rt rom
rom the me and item
item at some
some midp
midpoi
oint
nt re
requ
quir
ires
es
efort involved, this tends to promote
involved, renumberin
renumbering
g the subs
subsequent
equent items
clerical errors and incorrect shipments. in the class accordingly.
 Warehouse
Wareh ouse personne
personnel.l. Loc
Locan
angg and
pick
pickin
ing
g goo oods
ds or shi hip
pment areare
impeded and shipping errors will likely Block code - Coding scheme that assigns ranges
result. o values to specic aributes such as account
 Accou
ccoun
nnng pepers
rson
onne
nel.
l. Po
Pos
sng
ngss to classicaons. A common applicaon o block
ledger accounts will require
require searching
searching coding is the co nstrucon o a ch
con char
artt o
thro
throug
ughh the
the su
subs
bsid
idia
iary
ry l
les
es usin
using
g accounts.
lengthy descripons as the key. This will
be painully slow, and posngs to the Advantages - Blo
Block
ck cod
coding
ing allo
allows
ws or
th
the
e inse
inser
ron
on o ne
new
w code
codess with
within
in a bloc
block
k
wrong accounts will be common.
without having to reorganize the enre coding
A System with Codes structure.

Advantages o data coding in AIS are: Disadvantages - As with the sequenal

codes,
codes, the inorm
inormao
aon
n con
conten
tentt o the blo
block
ck
 Concisely represenng large amounts o
code is not readily apparent.
co
com
mpl
plex
ex in
ino
orm
rma
aon
on th
that
at wo
woul
uld
d
otherwise be unmanageable.
 Providing
Provid ing a means
means o accoun
accountab
tabil
ility
ity
Group codes - Codes used to represent complex
ov e r the completeness o the
items or events involving two or more pieces o
transacons processed.
related data.

Iden
Idenyi
ying
ng un
uniq
ique
ue tran
transa
sac
con
onss an
and
d
accounts within a le.
Chapter 2 - Introducon to Transacon Processing

Advantages - They
They aci
acili
lita
tate
te the
the ite
items,
ms, they
they hav
have
e limit
limited
ed abilit
ability
y to rep
represe
resent
nt
repres
represent
entao
aon
n o lar
large
ge amo
amount
untss o div
divers
erse
e items within a class.
data.

- They
They a
all
llow
ow com
compl
plex
ex d
dat
ata
a st
stru
ruct
ctur
ures
es
to be represented in a hierarchical
orm that is logical and more easily
remembered by humans.
- They pe
perm
rmiit det
etai
ailled anal
analy
ysis
sis and
and
reporng both within an item class
an
and
d ac
acro
ross
ss dife
difere
rent
nt clas
classe
sess o
items.

Disadvantages - Because group codes

can efecve
efecvely
ly presen
presentt div
divers
erse
e inorm
inormao
aon,
n,
they tend to be overused. Unrelated data may
be linked simply because it can be done. This
can lead to unnecessarily complex group codes
that cannot be easily interpreted.

Alphabec
Alphab codes -
ec codes Alph
Alphab
abec
ec ch
char
arac
acter
terss
assigned sequenally.

Advantages - The capacity to represent

large numbers o items is increased dramacally
us
usin
ing
g pure
pure al
alph
phab
abe
ecc code
codess or alph
alphab
abe
ecc
characters embedded within numeric codes.

Disadvantages - as with numeric codes,

there is diculty raonalizing the meaning o
codes that have been sequenally assigned, and

- user
userss ten
tend
d to have
have d
di
icu
cult
lty
y ssor
orn
ng
g
records that are coded
alphabecally.

Mnemonic codes - Alphabec characters in the

orm o acronyms that convey meaning.

Advantages - ThThee mnem

mnemononic
ic codi
coding
ng
scheme does not require the user to memorize
meaning; the code itsel conveys a high degree
o in
inorm
ormao
aonn about
about the item that
that is being
being
represented.

Disadvantages - Altho
Although
ugh mnemo
mnemonicnic
codes
codes are us
useu
eull or rep
repres
resen
enng
ng cla
classe
ssess o