Chapter 02 Introduction to

transaction Processing.

Based from
1. Accounting Information System 6th Edition James Hall

Presented by

CANDIDO M. PEREZ, PhD, CPA

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 Objectives for Chapter 2
Broad 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
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 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.
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Relationship between Transaction Cycles

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 Each Cycle has Two Subsystems
Expenditure Cycle: time lag between the two due to credit relations
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 the two due to credit relations with
customers :
physical component (sales order processing)
financial component (cash receipts)

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 Manual System Accounting
Records
Source Documents - used to capture and
formalize transaction data needed for
transaction processing
Product Documents - the result of
transaction processing
Turnaround Documents - a product
document of one system that becomes a
source document for another system
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 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
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each account type Page 7
Flow of Economic Events Into
the General Ledger

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Accounting Records in a Computer-Based System

EXPLANATION OF
STEPS IN FIGURE:

1. Compare the AR
balance in the balance
sheet with the master file
AR control account
balance.
2. Reconcile the AR
control figure with the AR
subsidiary account total.
3. Select a sample of
update entries made to
accounts in the AR
subsidiary ledger
and trace these to
transactions in the sales
journal (archive file).
4. From these journal
entries, identify source
documents that can be
pulled from their files and
verified. If necessary,
confirm these source
documents by contacting
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 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.
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 Example of Tracing an Audit Trail
Verifying Accounts Receivable

Accounts Receivable Control Account-General Ledger

Accounts Receivable Subsidiary Ledger

(sum of all customers receivables)

Sales Journal Cash Receipts Journal

Sales Order Deposit Slip

Shipping Notice
Remittance Advice
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 Computer-Based Systems

The audit trail is less observable in

computer-based systems than traditional
manual systems.
The data entry and computer programs
are the physical trail.
The data are stored in magnetic files.

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 Computer Files
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 (e.g., tax tables,
customer addresses)
Archive File - contains past transactions for
reference purposes
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 Documentation Techniques
Documentation in a CB environment is
necessary for many reasons.
Six common documentation techniques:
Entity Relationship Diagram
Data Flow Diagrams
Document Flowcharts
System Flowcharts
Program Flowcharts
Record Layout Diagrams

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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)
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 Cardinalities

represents the numerical mapping

between entities:
one-to-one
one-to-many
many-to-many

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 Cardinalities
Entity Relationship Entity

Sales- 1 1 Car
Assigned Type
person

1 M
Customer Places Order

M M
Vendor Supply Inventory

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 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

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 Documents Flowcharts

illustrate 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

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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,
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logs, ledgers) Page 25
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

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 Sales Department Credit Department Warehouse Shipping Department
Sales A
Customer
Order #1 Sales
Order2
Customer Sales
Checks
Order Credit Order 4
Credit
Records Sales
Picks Stock
Prepare Records Order3
Goods
Sales
Orders Signed Sales
Order #1
Customer Sales Picks
Order Order2 Goods
Sales
Order #1
Sales
Sales
Order #1
OrderSales
#1 Sales
Order #1 Order 4
Sales
Signed Sales Order3
N Order #1
Sales
Order2 N
Distribute
SO and
File A
Customer
Sales Customer
Order
Signed Sales
Order #1 Order 4
Sales Finished Document Flowchart
Order3
Sales Showing Areas of Activity
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N Page 27
Order2
 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
document and system flowcharts
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Systems Flowchart Symbols
Terminal input/
Hard copy
output device

Computer process
Process flow

Real-time
Direct access storage (online)
device connection

Video display
device
Magnetic tape

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Sales Department Computer Operations Department Warehouse Shipping Department

Customer
Edit and Credit File
Credit Check
Customer
Order
Sales
Orders

Terminal
AR File
Update
Program
Inventory

First Stages in Constructing System Flowchart Showing

Areas of Activity

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Sales Department Computer Operations Department Warehouse Shipping Department

Customer Sales A
Edit and Credit File Order1
Credit Check
Customer Sales
Order Order 3
Picks Stock Sales
Sales Records Order2
Goods
Orders

Terminal
AR File
Update Sales Picks
Program Order1 Goods
Customer Inventory Sales
Order Order2
Sales
Order3

N A
N
Sales Sales
Order 3 Order1
Sales
Order2
Sales
Order1
Customer

Finished System Flowchart Showing All Facts

Translated into VisualPowerpoint
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 Program Flowcharts
illustrate the logic used in programs

Program Flowchart Symbols

Terminal start or
Logical process
end operation

Input/output
operation
Decision
Flow of logical
process

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 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
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:
mainframe-based applications
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
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Updating Master Files: Primary Keys (PK)
and Secondary Keys (SK)

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 Database Backup Procedures

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.
A recovery program uses the backup to create a pre-
update version of the master file.

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Computer-Based Accounting
Systems

Two broad classes of systems:

batch systems
real-time systems

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 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.
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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

Old Master
(father)
AR

Update changes the values in the master file to

Run reflect the transactions that have occurred

AR

Transactions (eventually transferred to an archive file)

New Master
(son)
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 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
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 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.
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 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
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 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.

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Any Questions
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Thank You

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