Electronic Data Processing Systems

Electronic Data
Processing Systems
Chapter 10
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood 10 - 1
Overview
 Data processing systems vary in the

degree to which they are computerized.
 Some systems rely heavily on paper
documents.
 Other systems can process transactions
from beginning to end without a shred of
paper.
Learning Objectives
1 Describe how application controls are

used in data processing systems to ensure
accuracy and integrity.
2 Characterize the various types of electronic
systems used for transaction processing.
3 Describe the basic functions and operation
of a computerized accounting application.
Learning Objective 1
Describe how application

controls are used in data
processing systems to ensure
accuracy and integrity.
Paper-Based Input System
 In paper-based input systems, inputs to the

accounting system are based on handwritten
or typed source documents.
 These documents are then collected and
forwarded to computer operations for error
checking and processing.
 The source document, such as sales orders,

are prepared manually.
 Errors that might occur at this stage can be
minimized if the source document is well
designed and easy to understand.
 Batch control totals and data transfer

registers are fundamental controls over data
transfer between user departments and data
processing.
 Submission of input data should be
accompanied by the completion of an
input document control form.
 Document counts are a simple form of

batch control.
 In addition to document and/or record
counts, batch totals may be taken for all
or several numeric fields in the original
data file.
 After the source documents are received

by data processing, they are manually
key-transcribed using a data terminal or
personal computer, and then stored on disk.
 What is key verification?
 It is a control procedure that detects errors
in the keying operation.
 What is program data editing?

 It is a software technique used to screen
data for errors prior to processing.
 Data editing routines may be applied to
each of the basic data structures.
– character
– fields
– records
– files
 What is a table lookup?
 It is an editing program that compares the
value of a field to the acceptable values
contained in a table file.
 What is a limit test?

 It is an edit program that checks the value
of numeric data field as being within a
range of certain predefined limits.
 What is continuous operations auditing?

 It is the use of programmed edit tests
to discriminate among acceptable and
nonacceptable data so that some items
are either held in suspense of processing
until audited or collected for audit after
processing.
 What is a check digit?

 It is an extra digit added to a code number,
which is verified by applying mathematical
calculations to the individual digits in the
code number.
Paperless Input Systems
 In paperless input systems, sometimes called

on-line input systems, transactions are input
directly into the computer network.
 The need for keying in source documents is
eliminated.
 One problem with paperless systems is the
possible loss of segregation of duties and audit
trail.
 In paperless systems, source document

preparation and data entry are performed
by the same person.
 Sometimes no person is directly involved.
 The loss of paper-based internal controls
can be compensated for by using
transaction logs.
 Transaction logs or transaction registers are

created by logging all inputs to a special file
that automatically contains tags to identify
transactions.
 What is tagging?
 It means that additional, audit-oriented
information is included with original
transaction data.
 There are many types of paperless input

systems in which users enter transactions
directly into the computer.
 What are some examples?
– on-line manual data entry systems

– automatic identification systems
 Transactions in paperless input systems

involving human intervention typically
proceed through two phases.
 What are these phases?
1 Data entry and data editing

2 Transfer to the host application system
 In some systems, transactions are processed

from beginning to end without any human
intervention: completely automated
transaction processing.
 What are some examples of this technology?
– networked vending machine (NVM)

– electronic data interchange (EDI)
Learning Objectives 2 & 3
Characterize the various types

of electronic systems used for
processing.
Describe the basic functions of
a computerized accounting
application.
Paper-Based Processing Systems
 In batch-oriented processing systems,

transactions are entered into the computer
in batches.
 These batches are then processed periodically.
 What are some examples of batch processing?
Paper-Based Processing Systems
– processing weekly time reports to produce

paychecks
– processing groups of checks to update
accounts payable master files
– processing invoices to update an accounts
receivable master file
 Batch processing can be performed with
sequential or random-access file updating.
Batch Processing with
Sequential File Updating
 Processing in a sequential file updating
system usually involves the following steps:
– preparing the transaction file
– updating the master file
– updating the general ledger
– preparing general ledger reports
Sequential File Processing
Invoices
Invoices Data Process
Process
Data Input
Terminal
Terminal Input
Transaction Batch
Batch
Transaction AA
File Balance
Balance
File
AA Sort
Sortto
to
Edit
Edit Good
Program GoodData
Data Master
MasterFile
File
Transaction
Transaction Program File
File Sequence
File Sequence
File
Control
Control Rejected
Rejected Control
Control
Report
Report Data
Data Report
Report
Reconcile
Reconcile Control
Control
Procedure
Procedure
Control
Control
Sorted Data
Data
Sorted Old
OldMaster
Master
Transaction
Transaction File
File File
File
Master
MasterFile
File
Update
Update
Old
Old
Master
Master
New
New Transaction
Transaction
Master
Master File
File Retain
Retainfor
for
Backup
Backup
Son–Father–Grandfather
Master Files
Old
Old File Next
File File
Father Master
Master Update
Update
File
File Update
Backup
Backup New
New
Grandfather Master
Master Son Master
Master
File
File File
File
Updating the General Ledger
 A general ledger system is the cornerstone of

an accounting system.
 There are two major aspects to the operation of
a computerized general ledger system.
 What are these two aspects?
1 The direct processing of the general ledger

programs, most of which takes place on a
monthly basis
Updating the General Ledger
2 The processing in other computer

application systems to prepare the
inputs to the general ledger system
 One of the tasks to be undertaken in
designing a general ledger system is
the creation of a pro forma set of journal
entries.
Journal Voucher Format
Journal Voucher
Number Month Year ID
Accounts Debit Credit
Received from:
General Ledger File Update
 As they are released by the general ledger,

journal vouchers are used to build a journal
voucher file.
 This file is program data edited to check for
the proper journal and account numbers and
to determine whether the accounts are
correctly associated with their related
journals.
 Invalid data are reported as exceptions

and returned to their originating sources
for correction and reentry.
 The edited journal voucher file may be
sorted and structured to produce a variety
of reports.
 The current journal voucher transactions are

processed against the previous month’s
general ledger master file.
 The master file is updated and the current
period’s general ledger register is produced.
 Computer processing of accounting data is
typically a two-step procedure.
 What are these steps?
 The first step produces preliminary reports.

 The second step is a run that produces the
final listings and financial schedules.
 Preparing reports requires a link between
the general ledger accounts and the
report(s) in which they appear.
 This process is called line coding.
Example of a Line Code
100601 0 100 03 2
Type of Line
Report Location
(e.g., financial) on Report
Account Report Column
Number Number Location
(e.g., marketable (e.g., balance on
securities) sheet) Report
Random-Access File Updating
 In many systems, indexes are maintained for
both the subsidiary and general ledger files.
 Maintaining these indexes serves the primary
need of allowing users to quickly access a
particular account.
 Random-access file updating is simpler than
sequential-access updating.
 With random-access updating, it is not
necessary to sort the transaction file into
the same order as the master file.
 There is no need to generate a new master file.
 Individual records are read one by one from
the transaction file and used to update the
related records in the master file in place.
 The following steps are used:
1 A record is read from the transaction file.
2 The key value of the transaction record is used
to randomly access the related record in the
master file.
3 The record in the master file is updated in
memory and then rewritten back to the data
file.
Cash Receipts Application
New Invoice Application (Daily)
Open
Open
AA Item
Item Billing
Billing File
FileControl
Control
Accounts
Accounts Data
Data Summary
Receivable Summary
Receivable
Control File
File Review
Reviewand
and
Control Update Approve
File
File Update Approve
Cash Remittance Processing (Daily)
Post
PostOffice
Office Check
Check
Remittances
Remittances Cash
CashReceipts
Receipts
Total
Total
AA
D
Check
Check
Endorsement Deposit
Deposit
Endorsement Slip
Open
OpenItem
Item Slip
Accounts
Accounts
Receivable
Receivable
Data Activity
Activity
DataEntry
Entry File
CC
File
BB
Cash Remittance Processing (Daily)
D Deposit
Deposit
Register
Register
Data
DataEntry
Entry
Bank
Bank
DD Summary
Summary
File
File Reconcile
Reconcile
Cash
CashSummary
Summary
Report
Report
Review
Review
and
and Cash
CashSummary
Summary
D Report
Sign
Sign Report
System Balancing (Daily)
CC DD Deposit
Deposit
Report
Report
Control Activity Bank

Bank
Control Activity Summary
Summary Reconcile
File
File File
File File Reconcile
File
(Monthly)
Bank
Bank
System
System Statement
Statement
BB Balancing
Balancing
Paperless Processing Systems
 In paperless processing systems, either

batch or real-time processing is possible.
 With real-time processing, sometimes
called on-line real-time processing,
transactions are processed as they are input
into the system.
 Batch processing in paperless systems is

similar to batch processing in paper-based
systems.
 The main difference is that journal vouchers
are replaced by their electronic equivalents,
and the general ledger is updated
automatically in period batch runs.
 A primary advantage of paperless systems

is that they make possible real-time
processing.
 The processing of individual transactions as
opposed to groups of transactions is called
immediate, direct, or real-time processing.
 On-line, real-time systems (OLRS) process

transactions immediately after they are
input.
 These systems can provide immediate
output to users.
 What are some types of real-time
processing in OLRS?
– inquiry/response systems
– data entry systems
– file processing systems
– full processing systems or
transaction processing systems
 The relative disadvantages of OLRS stem

from the increased costs and complexity of
systems operations.
 OLRS are more sensitive to hardware and
software errors.
 They are more susceptible to processing
errors that arise from erroneous or fraudulent
inputs.
The Output System
 The output system can be paper-based,

paperless, or something in between.
 Most paper-based, batch-oriented systems
with sequential file processing produce very
large volumes of output.
 On-line, real-time paperless systems tend to
produce very little output.
The Output System
 Output controls are designed to check that

processing results in valid output and that
outputs are properly distributed.
 A separate EDP control group is often
established to monitor EDP operations.
 Typically, an output distribution register is
maintained to control the disposition of
reports.
End of Chapter 10

Electronic Data Processing Systems

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Electronic Data

 Data processing systems vary in the

1 Describe how application controls are

Describe how application

 In paper-based input systems, inputs to the

 The source document, such as sales orders,

 Batch control totals and data transfer

 Document counts are a simple form of

 After the source documents are received

 What is program data editing?

 What is a limit test?

 What is continuous operations auditing?

 What is a check digit?

 In paperless input systems, sometimes called

 In paperless systems, source document

 Transaction logs or transaction registers are

 There are many types of paperless input

– on-line manual data entry systems

 Transactions in paperless input systems

1 Data entry and data editing

 In some systems, transactions are processed

– networked vending machine (NVM)

Characterize the various types

 In batch-oriented processing systems,

– processing weekly time reports to produce

 A general ledger system is the cornerstone of

1 The direct processing of the general ledger

2 The processing in other computer

Accounts Debit Credit

 As they are released by the general ledger,

 Invalid data are reported as exceptions

 The current journal voucher transactions are

 The first step produces preliminary reports.

Control Activity Bank

 In paperless processing systems, either

 Batch processing in paperless systems is

 A primary advantage of paperless systems

 On-line, real-time systems (OLRS) process

 The relative disadvantages of OLRS stem

 The output system can be paper-based,

 Output controls are designed to check that

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