AIS Chapter 2

Chapter 2 Introduction to Transaction
the
cost
accounting
system
Processing
(monitors the flow of cost information
A Financial Transaction is...
related to production)
an economic event that affects the assets
Revenue Cycle: time lag between the two
and equities of the firm, is reflected in its
due to credit relations with customers :
accounts, and is measured in monetary
terms.
physical component (sales order

processing)
similar types of transactions are grouped
together into three transaction cycles:
financial
component
(cash
receipts)
the expenditure cycle,
Manual System Accounting Records
the conversion cycle, and
Source Documents - used to capture
the revenue cycle.
Relationship
between
and formalize transaction data needed for

Transaction
transaction processing
Product Documents - the result of
Cycles
transaction processing
Turnaround Documents - a product
document of one system that becomes a
source document for another system
Journals - a record of chronological entry
special journals - specific classes

of transactions that occur in high
frequency
Each Cycle has Two Subsystems
infrequent, and dissimilar transactions
Expenditure Cycle: time lag between the

two due to credit relations with suppliers:
Ledger - a book of financial accounts
physical component (acquisition
accounts
financial
component
(cash
disbursements to the supplier)

the
Flow
production
system
(planning, scheduling, and control of

the
physical
product
manufacturing process)
subsidiary ledger - shows activity

by detail for each account type
Conversion Cycle :
general ledger - shows activity

for each account listed on the chart of
of goods)
general journal - nonrecurring,
through
the
of
Economic
General Ledger
Events
Into
the
Accounting
Records
in
Computer-
Based System
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
EXPLANATION OF STEPS IN FIGURE:

1. Compare the AR balance in the balance
Computer-Based Systems
sheet with the master file AR control account
The audit trail is less observable in
balance.
computer-based systems than traditional
2. Reconcile the AR control figure with the
manual systems.
AR subsidiary account total.
The data entry and computer programs
3. Select a sample of update entries made to
are the physical trail.
accounts in the AR subsidiary ledger
The data are stored in magnetic files.
and trace these to transactions in the sales
Computer Files
journal (archive file).
Master File - generally contains account
4. From these journal entries, identify source

documents that can be pulled from their files
and verified. If necessary, confirm these
source
documents
customers.
Audit Trail
by
contacting
the
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

(e.g., tax tables, customer addresses)
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
Data Flow Diagrams (DFD)

use symbols to represent the processes,
data sources, data flows, and entities in a
system
Entity Relationship Diagram (ERD)

is
documentation
technique
to
represent the logical elements of the

system
represent the relationship between
do not represent the physical system
entities in a system.
Data Flow Diagram Symbols
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)
Documents Flowcharts
illustrate
the
relationship
among
processes and the documents that flow

between them
contain
Cardinalities
represents
the
numerical
between entities:
one-to-one
one-to-many
many-to-many
mapping
more
details
than
data
flow
diagrams
clearly depict the separation of functions
in a system
Cardinalities
Symbol Set for Document Flowcharts
System Flowcharts
are used to represent the relationship
between the key elements--input sources,
programs,
and
output
products--of
computer systems
depict the type of media being used
(paper, magnetic tape, magnetic disks,
and terminals)
in practice, not much difference between
First Stages in Constructing Document
Flowchart Showing Areas of Activity
document and system flowcharts

Systems Flowchart Symbols
First
Stages in Constructing
System
Flowchart Showing Areas of Activity
Finished Document Flowchart Showing

Areas of Activity
Finished System Flowchart Showing All
mainframe-based applications
Facts Translated into Visual Symbols
batch oriented
early legacy systems use flat files

for data storage
later
legacy
systems
use
hierarchical and network databases
data storage systems promote a

single-user
environment
that
discourages information integration

Updating Master Files: Primary Keys
(PK) and Secondary Keys (SK)
Program Flowcharts
illustrate the logic used in programs
Program Flowchart Symbols
Database Backup Procedures
Modern Systems versus Legacy Systems

Modern systems characteristics:
client-server based
and process
transactions in real time
use relational database tables
have
high
degree
of
process
integration and data sharing
Destructive updates leave no backup.
To preserve adequate records, backup

procedures must be implemented, as
shown below:
The master file being updated is

copied as a backup.
recovery
program
uses
backup to create a pre-update version

of the master file.
some are mainframe based and

use batch processing
Some firms employ legacy systems for

certain aspects of their data processing.
Accountants need to understand

legacy systems.
Legacy systems characteristics:
the
Computer-Based Accounting Systems

Two broad classes of systems:
batch systems
real-time systems
Update Run - changes the value of

appropriate fields in the master file to
reflect the transaction
Backup Procedure - the original master
Batch Processing
A batch is a group of similar transactions
that are accumulated over time and then
continues to exist and a new master file is

created
Advantages of Batch Processing
processed together.
The transactions must be independent of
Organizations can increase efficiency
one another during the time period over
by
grouping
large
numbers
of
which the transactions are accumulated
transactions into batches rather than
in order for batch processing to be
processing each event separately.

Batch processing provides control over
appropriate.
A time lag exists between the event and
the
transaction
process
via
control
figures.
the processing.
Real-Time Systems
Batch Processing/Sequential File
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
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
Why
Do
So
Processing?
Many
AIS
Use
Batch
AIS processing is characterized by high-
This is one reason why batch processing
volume, independent transactions, such
maybe
are
collection.
recording
cash
receipts
checks
received in the mail.

The
processing
of
such
high-volume
checks can be done during an off-peak

computer time.
done
using
real-time
data

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Chapter 2 Introduction to Transaction

(monitors the flow of cost information

A Financial Transaction is...

an economic event that affects the assets

Revenue Cycle: time lag between the two

and equities of the firm, is reflected in its

due to credit relations with customers :

accounts, and is measured in monetary

physical component (sales order

similar types of transactions are grouped

together into three transaction cycles:

the expenditure cycle,

Manual System Accounting Records

the conversion cycle, and

Source Documents - used to capture

the revenue cycle.

and formalize transaction data needed for

special journals - specific classes

Each Cycle has Two Subsystems

infrequent, and dissimilar transactions

Expenditure Cycle: time lag between the

Ledger - a book of financial accounts

physical component (acquisition

disbursements to the supplier)

(planning, scheduling, and control of

subsidiary ledger - shows activity

general ledger - shows activity

general journal - nonrecurring,

Accountants should be able to trace in both

EXPLANATION OF STEPS IN FIGURE:

sheet with the master file AR control account

The audit trail is less observable in

computer-based systems than traditional

2. Reconcile the AR control figure with the

AR subsidiary account total.

The data entry and computer programs

3. Select a sample of update entries made to

are the physical trail.

accounts in the AR subsidiary ledger

The data are stored in magnetic files.

and trace these to transactions in the sales

journal (archive file).

Master File - generally contains account

4. From these journal entries, identify source

data (e.g., general ledger and subsidiary

containing transactions since the last

constant information used in processing

Archive File - contains past transactions

Entity Relationship Diagram

Data Flow Diagrams

Data Flow Diagrams (DFD)

Entity Relationship Diagram (ERD)

represent the logical elements of the

represent the relationship between

do not represent the physical system

Data Flow Diagram Symbols

The REA model version of ERD is widely

resources (cash, raw materials)

events (release of raw materials