ACN 2213 ACCOUNTING INFORMATION SYSTEM

CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING

3RD YEAR-1ST SEMESTER | A.Y 2024-2025

CHAPTER OUTLINE Helps businesses keep track of money

CHAPTER 1 QUICK RECAP 1 they earn and make sure they get paid
AN OVERVIEW OF TRANSACTION PROCESSING 1 on time.
TRANSACTION CYCLES 2
a. Order: Customer places an order
ACCOUNTING RECORDS 3
MANUAL SYSTEMS 3 b. Delivery: Business provides the
DOCUMENTS 3 product or service
JOURNALS 4 c. Invoice: Business sends the
LEDGERS 5 customer a bill (or invoice)
THE AUDIT TRAIL 5 d. Payment: Customer pays the bill
DIGITAL ACCOUNTING RECORDS 6 e. Record: Business updates its
MASTER FILE 6 record to show payment.
TRANSACTION FILE 6 Helps business minimize delays, reduce
REFERENCE FILE 6
outstanding receivables, and maintain
ARCHIVE FILE 6
strong cash flow.
THE DIGITAL AUDIT TRAIL 6
FILE STRUCTURES 7 2 Expenditure Cycle
THE FLAT-FILE MODEL 7 The process a business follows to buy
PROBLEMS IN FLAT-FILE MODEL 7 goods or services and pay for them.
[1] DATA CAPTURE AND STORAGE 7 a. Order: Business places an order
[2] DATA UPDATING 8 b. Receive: Business receives the
[3] CURRENCY OF INFORMATION 8 order.
[4] TASK-DATA DEPENDENCY 8 c. Invoice: Supplier sends a bill (or
[5] FLAT FILE LIMIT DATA INTEGRATION 8
invoice) to the business.
THE DATABASE MODEL 8
d. Payment: Business pays the
DIFFERENCE BETWEEN THE TWO MODELS 8
DOCUMENTATION TECHNIQUES 8
supplier
DATA FLOW DIAGRAMS & ENTITY RELATIONSHIP e. Record: Business updates its
DIAGRAMS 9 records to show the payment.
DATA FLOW DIAGRAMS (DFD) 9 Helps keep tracks of money earned
ENTITY RELATIONSHIP (ER) DIAGRAMS 9 and if they are paid on time.
DFD & ER DIAGRAM RELATIONSHIP 10 3 Conversion Cycle
SYSTEM FLOWCHARTS 10 The process a business follows to turn
FLOWCHARTING MANUAL ACTIVITIES 10
raw materials into finished products
PROGRAM FLOWCHARTS 11
and sell them.
RECORD LAYOUT DIAGRAMS 12
TRANSACTION PROCESSING MODELS 12
a. Raw Materials: Business gets
DIFFERENCES BETWEEN THE DATA PROCESSING materials to make products
METHODS 12 b. Production: Used to create the
INFORMATION TIME FRAME 12 finished products.
INFORMATION TIME FRAME 12 c. Sale: Business sells the finished
OPERATION EFFICIENCY 13 products.
UPDATING MASTER FILES FROM TRANSACTIONS 13 d. Payment: Business collects
MASTER FILE BACKUP PROCEDURE 13
payment from customers.
BATCH PROCESSING USING REAL-TIME DATA
Helps the business efficiently manage
COLLECTION 13
REAL-TIME PROCESSING 13
how they create and sell products,
DATA CODING SCHEMES 14 ensuring they can meet demand and
SYSTEM WITHOUT CODES 14 make money.
DISADVANTAGE OF WITHOUT CODES 14
SYSTEM WITH CODES 14 • All three (3) cycles capture financial
NUMERIC & ALPHABETIC CODING SCHEMES 14
transactions, record the effects of
SEQUENTIAL CODES 14
BLOCK CODES 14 transactions in accounting records, and
GROUP CODES 15 provide information to users in support of
ALPHABETIC CODES 15 their day-to-day activities.
MNEMONIC CODES 15
AN OVERVIEW OF TRANSACTION
CHAPTER 1 QUICK RECAP PROCESSING
TRANSACTION PROCESSING SYSTEM [TPS] • TPS processes financial transactions.
• It is an activity which consists of three Financial Transaction (def.) an economic event
major cycle: that affects the assets and equities of the firm;
1 Revenue Cycle reflected in its accounts; measured in monetary
terms.
ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

• Common financial transactions: reducing the cash and

Economic exchanges with externals accounts payable accounts
parties and changes in creatin internal • Payroll System
events: o Collects labor used data for
EXTERNAL PARTIES employees, computes payroll,
• Sale of Goods or Services and disburse paychecks
• Purchase of Inventory o Payroll- a special-case
• Discharge of Financial Obligations purchases and cash
• Receipt of Cash on Account from disbursement system.
Customers • Fixed Asset System
INTERNAL EVENTS o Processes transactions
pertaining to the acquisition,
• Depreciation of Fixed Assets
maintenance, and disposal of its
• Application of Labor, Raw Materials,
fixed assets.
and Factory Overhead to the
o Represents the organizations
production process
largest financial investment
• Transfer of inventory from one
o Land, buildings, furniture,
department to another.
machinery, and motor vehicles.
• Financial transactions are common
THE CONVERSION CYCLE
business events that occur regularly.
• Converting raw materials into finished
products through formal, physical, and
TRANSACTION CYCLES observable conversion operations
• Production System
o Planning, Scheduling, and
Control of the Physical product
through the manufacturing
system.
o Determining raw materials
requirements, authorizing the
work to be performed, and
release of raw materials into
production.
Relationship between Transaction Cycles
• Cost Accounting System
o Monitors the flow of cost
information (labor, overhead,
THE EXPENDITURE CYCLE
and raw materials)
• Cash flow from the organization to the
o Used for inventory valuation,
various providers of these resources.
budgeting, cost control,
• Most B2B expenditure transactions are
performance reporting and
based on a credit relationship
management decisions (make-
between the trading parties. or-buy decisions)
• Actual disbursement of cash takes
• Conversion cycle in service and
place some point therefore the retailing establishment may not be
transaction has two parts:
formal and observable but they still
o Physical Component:
engaged in value added conversion
Acquisition of Goods or Services
cycles.
o Financial Component: Cash
REVENUE CYCLE
disbursement to the supplier.
• The selling of goods and services to
• Purchases or “A/P” System
customers
o Recognizes the need to acquire
• Processing cash sales, credit sales, and
physical inventory and places
receipt of cash (the said credit sales)
an order with the vendor
• Has a physical and financial
o When goods are received, the
components which are processed
purchase systems records the
separately
even.
• Cycle Outline:
• Cash Disbursement System
o Sale order processing: Credit
o CDS authorizes the payment,
sales which involves task such as
disburses the fund to the vendor,
preparing sales orders, granting
and records the transaction by
credit, shipping products
ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

(rendering service), billing • Examples of Source Documents:

customers, and recording the o Sales Invoice: Details of a sale
transactions. made to a customer.
o Cash Receipts: It takes some o Purchase Order: A document
period for credit sales to be issued when a company orders
converted into cash. Includes goods from a supplier.
the process of collecting cash, o Receipt: Proof of payment
depositing cash, and recording made or received.
these events. o Time Card: Records hours
worked by an employee.
ACCOUNTING RECORDS o Delivery Note: Confirms that
MANUAL SYSTEMS goods were delivered to a
The purpose of each type of customer.
accounting record used in transaction o Credit Note: Issued when goods
are returned or a refund is
cycles. Begins with traditional records using
provided.
the manual system and then examine their
o Cash Register Tape: Daily sales
digital counterparts in computer-based
record from a cash register.
systems. PRODUCT DOCUMENTS
DOCUMENTS
• Initiate transaction processing or be
the output of a process.
• Provides auditors with evidence of
economic event
• There are three types of document [1]
Source Document, [2] Product
Documents, and [3] turnaround
documents.
SOURCE DOCUMENTS
A product document

• Result of transaction processing rather

than the triggering mechanism for the
process
• Example:
o A payroll checks to an
employee is a product
document of the payroll system.
Creation of a Source Document
o Invoice: Issued by seller to a
• Beginning of the transaction or the buyer, listing the products or
source services provided and
• Used to capture and formalize requesting payment [Example
transaction data that the transaction above]
cycle use for processing o Receipt: Proof of payment
• In a case of a sale (considered as provided to customer after a
economic event) complete transaction.
o Sale causes the sales clerk to o Purchase Order (PO): Document
prepare a multipart sales order sent from a buyer to a seller
which is a formal evidence that specifying the products or
a sale occurred. services they want to purchase
o Copy of the source document o Packing slip: Shipment and list of
enters the sales system which is items included in the package
used to convey information to ensuring that everything
various function such as billing, ordered is delivered.
shipping, and accounts o Sales Order: Confirmation
receivable document that records a sale
o Information in the sales order once a customer places an
triggers specific activities in order.
each functions.
ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

o Delivery Note: Document sent • Each transaction results in a separate

with goods confirming that the journal entry which identifies the
goods were delivered to the account affected and the amount to
buyer be debited and credited.
o Credit Note: Issued to correct an Register
invoice, typically for returns or • Often used to denote certain types of
overcharges. special journals
TURNAROUND DOCUMENTS o Example: Payroll Journal can
called as Payroll Register
• Can also denote as a log
o Example: Receiving register is a
log of all receipts of raw
materials or merchandise
ordered.
SPECIAL JOURNALS

A Turnaround Document

• A product documents of one system

becomes a source document for Special Journal: Sales Journal
another system.
• Figure above: • Used to record specific classes of
o Customers receives a transactions that occur in high volume.
perforated two-part bill or • Reoccurring transactions are put into
statement. special journals
▪ Bill (Top part) • Group together the reoccurring
▪ Remittance Advice transactions to be able to process it
(Bottom Part): Remove more efficiently than a general journal
and return to the • Examples
company. Considered as o Cash Receipt Journals
turnaround document o Cash Disbursement Journals
• It has issues when it comes to matching o Purchases Journal
customer payments to the correct o Payroll Journal
customer accounts hence why GENERAL JOURNALS
providing this document as a product
of the sales system ensures accuracy
when the cash receipt system
processes it.
JOURNALS

Sales Order Recorded in Sales Journal

• A chronological record of financial

General Journal
transactions.
• When all relevant facts about the • Records the nonrecurring, infrequent,
transaction are know, the event is and dissimilar transactions.
recorded in a journal in chronological • Columns are nonspecific, allowing any
orders type of transaction to be recorded.
• Source of data entry into the journals • As common practice to replace the
are from documents traditional journal with a collection of
journal vouchers.
ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

o Journal vouchers are written separate the accounting departments

authorizations prepared for have processed.
every transaction that meets the SUBSIDIARY LEDGERS
general journal vouchers.
• Each journal voucher contains:
(1) Unique Voucher number
(2) Transaction date
(3) Transaction Amount
(4) Ledger Accounts to be updated
(5) Signatures of individual authorized
to create and approve journal
voucher
LEDGERS

Flow of Information from the Economic event to Relationship between the subsidiary ledger and
the Ledger the general ledger

• Book of accounts that reflect the • Ledgers kept in various accounting

financial effects of the firms departments.
transactions after they are posted from • The separation in subsidiary ledgers
the various journals and journal provides better control and support of
vouchers. operation.
• Ledgers show activity by account type • Any event incorrectly recorded in a
• Indicates the increases, decreases, journal or subsidiary ledger will cause
and current balance of each an out-of-balance condition that
account. should be detected during the
• Entity use this information to prepare general ledger update.
financial statements, support daily • By periodically reconciling summary
operations, and prepare internal balances from subsidiary
reports. • accounts, journals, and control
GENERAL LEDGERS accounts, the completeness and
accuracy of transaction processing
can be formally assessed

Example of Accounting Errors:

• Transposition error: Occurs when two
digits in number are accidentally
swapped.
o $785 to $758
• Transplacement Error: Happens when
digits are incorrectly shifted or
displaced by a factory of 10 (Sliding
General Ledger
digits)
• Provides a single value for each o $100.00 to $1,000.00
control account such as A/P, A/R, and
inventory THE AUDIT TRAIL
• Highly summarized information is • Utmost importance in the conduct of a
sufficient for financial reporting but it is financial audit
not useful in supporting daily business • External auditor’s responsibility involves
operations. the review of selected accounts and
• A mechanism for verifying the overall transactions to determine their validity,
accuracy of accounting data that accuracy, and completeness.
ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

• Auditor uses a sampling technique to • Examples: Sales orders, inventory

examine a representative subset of receipts, and cash receipts
transaction in which auditor can select a REFERENCE FILE
number of accounts in the subsidiary • Stores data that are used as standard
ledger and trace it back to the journal. for processing transactions.
• Often includes a procedure called • Example: Payroll program may refer to
a tax table to calculate the proper
confirmation
amount of withholding taxes for payroll
o Involves contacting selected
transactions.
customers to determine if the
o Preparing Customer invoices
transactions recorded in the o Lists of authorized suppliers
accounts actually took place and o Employee rosters
if customer agree with the o Customer credit history files
recorded balance o Freight charges used for
o Important role in this process. calculating the cost of
shipments to customer
COMPONENTS OF AN AUDIT TRAIL ARCHIVE FILE
Serve as the starting point • Contains records of past transactions
Source that are retained for future reference
and provide evidence that
Documents
a transaction occurred and form an important part of audit
Provides evidence of the trail
Accounting flow of financial • Includes:
Records transactions through an o Journals
accounting system o Prior-period payroll information
Captures who, what, when, o Lists of former employees
Audit Logs and where of a financial o Records of accounts written off
activity. o Prior-period ledgers

DIGITAL ACCOUNTING RECORDS THE DIGITAL AUDIT TRAIL

• Less observable than those between
hard-copy documents but they still exist.

Digital Accounting Records in a Computer-Based

System
Digital Accounting Records in a Computer-Based
MASTER FILE System
• Contains Account Data
• Example: General and Subsidiary (1) Begin with the capture of economic
Ledger event
• Data values are updated by (2) Convert the source document into
transaction digital form. Often done in the data
TRANSACTION FILE entry stage
• Temporary file of transaction records a. Depending on the nature and
used to update data in a master file. volume of transaction being
processed, a system may no
 ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

employ hard-copy source Each action or event is

documents Timestamps recorded with a precise
b. Transactions are captured directly data and time.
on digital media. Identifies which users has
Access
(3) Update the various master file subsidiary access to certain data or
Control
and General Ledger control accounts system functions.
that are affected by the transactions
a. Editing of transactions takes place FILE STRUCTURES
to detect errors. Some may be in • Vary widely among transaction
error in account numbers, processing systems.
insufficient quantities on hand or • No single structure works well for data
clerical errors. processing task therefore some
b. Records rejected because of structures are effective at processing all
detected error which are records in large master files.
reviewed, corrected, and • Some file structures are better for directly
resubmitted for processing locating and processing a single record
c. Records successfully passed in a large file.
through editing are used to
update the master files. THE FLAT-FILE MODEL
(4) Valid transactions are added to the
archive files
a. Copying the valid transactions in
the journal, original transaction file
are not needed to for audit trail
purposes an can now be erased
or scratched.
• Digital audit trail allows transaction
tracing
• Auditor will attempt to reevaluate the
accuracy by following the step:
[Example is based on A/R 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. Flat-file Model
(3) Select a sample of updated entries
made to accounts in the AR • Serves an environment where end users
own their data files rather than share
subsidiary ledger and trace these to
them with other users.
transactions in the sales journal
• A simple data storage model where
(archive file).
(4) From these journal entries, identify data is organized in a single table or file
with each record stored in a single row.
specific source documents that can
• Model is straightforward and easy to
be pulled from their files and verified.
understand but limited to simple data.
If necessary, the auditor can confirm
the accuracy and propriety of these o If data is complex and size grow,
its hard to use the model.
source documents by contacting the
customers in question.
PROBLEMS IN FLAT-FILE MODEL
KEY ELEMENTS OF AN AUDIT TRAIL IN [1] DATA CAPTURE AND STORAGE
COMPUTER-BASED SYSTEMS • Efficient information system captures
User Tracks actions performed and stores data only once and makes
Activity by users this a single source available to all
Data Logs any modification to users who need it
Changes data • Not possible in flat-file environment
ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

• Organization must incur both multiple THE DATABASE MODEL

collection and multiple procedures
• Data may be duplicate dozens,
hundreds or even thousand times.
[2] DATA UPDATING
• Organization have data stored that
require periodic updating to reflect
changes
• When users keep separate files, all • To overcome some of the problems
changes must be made separately for associated with using flat file model
each user. This adds significantly to the • Organization’s data in a central
task and the cost of data location, al users have access to the
management data they need to achieve they need to
[3] CURRENCY OF INFORMATION achieve their objectives
• Failing to update all the user files • Data are stored in the most granular
affected by a change in status. format rather than being shaped and
• If update information is not properly
configured to the need of any single
disseminated, changes will not
used
reflected in some users’ data, resulting
in actions and decisions based on • Access of data source is controlled by
outdate information. database management system (DBMS)
[4] TASK-DATA DEPENDENCY which is software system that allows users
• User’s has the inability to obtain to access authorized data only.
additional information as their needs • User’s application program sends
changes. requests for data to the DBMS which
• User’s information set is constrained by validates and authorizes access in
the data they possess and control. accordance to their access privileges.
• New information needs tend to be o If the person is not authorized then
satisfied by procuring new data files the request is denied.
which takes time, inhibits o Organizations procedures for
performance, adds further data assigning user authority is an
redundancy, and drives data
important control issue for auditors
management costs even higher
to consider
[5] FLAT FILE LIMIT DATA INTEGRATION
• Flat-file approach is a single-user-view
DIFFERENCE BETWEEN THE TWO MODELS
model.
• Files are structured, formatted, and • Different when it comes to pooling of
arrange to suit the specific needs of data into a common database that all
the owner or primary users. organizational users share
• It excludes data needed by other users • Database model allows the access to
preventing successful integration of the full domain of entity data, changes
data in suer information needs can be
• Users are left with three options: satisfied without obtaining additional
o Don’t use accounting data to private data sets
support decisions • The only constraint is the data available
o Manipulate and massage the to users and the legitimacy of their need
existing data structure to suit to access it.
their unique needs
o Obtain additional private set of
DOCUMENTATION TECHNIQUES
data
• Some users still make limited use of flat • Accounts use system documentation
files in their older legacy systems. routinely as both system designers and
auditors.
• This ability is an important skill for
accountants to master
ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

DATA FLOW DIAGRAMS & ENTITY • Labeled Arrows: Represents data flows
RELATIONSHIP DIAGRAMS between processes, data stores and
• Commonly used systems design and entities.
documentation technique • Take note: Processes in the DFD should
DATA FLOW DIAGRAMS (DFD) be labeled with a descriptive verb
• Arrow connecting the DFD objects:
Labeled to represent specific flows of
data.
• Take note: each data flow label should
be uniquely named; the same label
should not be attached to two
different flow lines in the same DFD
ENTITY RELATIONSHIP (ER) DIAGRAMS

Data Flow Diagram Symbol Set

• Uses symbols to represent the entities,

processes, data flows, and data stores
that pertain to a system. Entity Relationship Diagram Symbols
• DFDs are used to represent systems at
different levels of detail from very • Documentation technique used to
general to highly detailed represent the relationship between
• Single-level DFD is sufficient to entities
demonstrate its role as a o “Entity” applies to anything
documentation tool about which the organization
• Entities represent objects that lie captures data. It may be a
outside the system being modeled. physical resource (cash) or
• They are the sources and destinations agent (salesperson) or event
for data. (purchase)
• Square Symbol: Represents entities in
the system
• Labeled Connecting Line: Represents
nature of the relationship between two
entities
• Cardinality: Degree of the relationship
which is a numeric mapping between
entities
o Example: One-to-one or 1:1,
one-to-many or 1:M and many-
to-many or M:M
o Reflects normal business rules
and organizational policy
• Data model: Blueprint for what
ultimately will become the physical
• Data stores: Represents the data base
accounting files and records used in
each process
ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

DFD & ER DIAGRAM RELATIONSHIP • Lay out the areas of activities and
• DFDs model system processes while ER label each of them
diagrams model the data used in 2 STEP: TRANSCRIBE THE WRITTEN FACTS
nd

systems INTO VISUAL FORMAT

• Each data store in a DFD is
represented as an entity in a
corresponding ER diagram

SYSTEM FLOWCHARTS
• Graphical representation of the physical
relationships among key elements of a
system.
o These elements may include
organizational departments,
manual activities, computer Symbol Set for Representing Manual Procedures
programs, hard-copy accounting
records, and digital records • Oval: Used to convey a data source or
destination that is separate from the
system being flowcharted. It should be
FLOWCHARTING MANUAL ACTIVITIES
labeled accordingly.
RULES & CONVENTIONS NEED TO BE • Bucket-shaped symbol: Represents a
OBSERVED manual process
[1] The flowchart should be labeled to • Arrows: Shows the direct of flow and
clearly identify the system that it sequence of events
represents • Inverted triangle: Temporary File or a
[2] The correct symbols should be used to physical file of paper documents that
represent the various entities in the are arrange according to specific
system. order.
[3] All symbols on the flowchart should be • Parallelogram shape: Credit records.
labeled. Used to depict many types of hard-
[4] Lines should have arrowheads to copy accounting records.
FLOWCHARTING COMPUTER PROCESSES
clearly show the process flow direction
and sequence of events
[5] If complex processes need additional
explanation for clarity, a text description
should be included on the flowchart or in
an attached document referenced by
the flowchart.
1ST STEP: LAY OUT THE PHYSICAL AREAS OF
ACTIVITY Symbol Set for Representing Computer Processes
3rd STEP: TRANSCRIBE THE WRITTEN FACTS
INTO VISUAL FORMAT

Flowchart showing areas of activity

• Flowchart reflects the physical system

Flowchart showing all facts translated into visual
which is in turn represented as vertical symbols
columns of events and actions Facts:
separated by lines of demarcation.
ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

(1) A clerk in the sales department

receives a customer order by mail
and enters the information into a
computer terminal that is
networked to a centralized
computer program in the Program Flowchart Symbols
computer operations department. • Every program represented in a system
The original customer order is filed in
flowchart should have a supporting
the sales department.
program flowchart that describes its
(2) A computer program edits the
logic.
transactions for data entry errors,
checks the customers’ credit by • A separate symbol represents each step
referencing a credit history file, and of the program’s logic, and each symbol
produces a transaction file of sales represents one or more lines of computer
orders. program code.
(3) The sales order transaction file is • Accountants sometimes use program
then processed by an update flowcharts to verify the correctness of
program that posts the transactions program logic. They compare flowcharts
to corresponding records in AR and to the actual program code to
inventory files determine whether the program is
(4) Finally, the update program actually doing what the documentation
produces three hard copies of the
describes.
sales order. Copy 1 is sent to the
warehouse, and Copies 2 and 3 are
sent to the shipping department.
(5) On receipt of Copy 1, the
warehouse clerk picks the products
from the shelves. Using Copy 1 and
the warehouse personal computer
(PC), the clerk records the inventory
transfer in the digital stock records
that are kept on the PC. Next, the
clerk sends the physical inventory
and Copy 1 to the shipping
department.
(6) The shipping department receives
Copy 1 and the goods from the
warehouse. The clerk reconciles the
goods with Copies 1, 2, and 3 and
attaches Copy 1 as a packing slip.
Program Flowchart for Edit Program Base on the list
Next, the clerk ships the goods (with
of activities below
Copy 1 attached) to the customer.
List of Activities:
Finally, the clerk records the
(1) The program retrieves a single record
shipment in the hard-copy shipping
log and files Copies 2 and 3 in the from the unedited transaction file
shipping department and stores it in memory.
(2) The first logical test is to see if the
PROGRAM FLOWCHARTS program has reached the end-of-file
• Shows relationship between computer (EOF) condition for the transaction
programs, files used, and the outputs file. Most file structures use a special
produce record or marker to indicate an EOF
• High-level documentation does not condition. When EOF is reached, the
provide all the operation details that are edit program will terminate and the
sometimes needed. next program in the system (in this
case, the update program) will be
executed. As long as there is a record
in the unedited transaction file, the
result of the EOF test will be “no,” and
ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

process control is passed to the next

logical step in the edit program.
(3) Processing involves a series of tests to
Simple record layout diagram for customer file
identify certain clerical and logical
errors. Each test, represented by a
decision symbol, evaluates the TRANSACTION PROCESSING MODELS
Involves gathering
presence or absence of a condition.
transactions into groups or
For example, an edit test could be to Batch
batches and then processing
detect the presence of alphabetic Processing
the entire batch as a single
data in a field that should contain event.
only numeric data. We examine Process individual
specific edit and validation tests in Real-time
transactions continuously as
Chapter 3. Processing
they occur.
(4) Error-free records are sent to the
edited transaction file. DIFFERENCES BETWEEN THE DATA
(5) Records containing errors are sent to PROCESSING METHODS
the error file. Summary of the differences:
(6) The program loops back to Step 1,
and the process is repeated until the
EOF condition is reached.
• A traditional sample of a system
flowchart
Characteristics differences between Batch and
Real-time processing

INFORMATION TIME FRAME

Assemble transactions into
groups for processing, a time
lag will always exist between
the point at which an
economic event occurs and
Batch the point at which it is
Systems processed by the system and
reflected in the firm’s
accounts
Amount of lag depends on
the frequency of batch
processing
Process transactions
individually at the moment
Real-Time
the event occurs; therefore,
Systems
no time lags exist between
occurrence and processing.
INFORMATION TIME FRAME
Batch Demand fewer organization
Systems resources.
Large portion of total
programming costs are
incurred in designing user
interfaces
RECORD LAYOUT DIAGRAMS
Must be user-friendly,
• Used to reveal the internal structure of Real-time
forgiving, and easy to work
digital records in a flat-file or database Systems
with. Examples are Pop-up
table menus, online tutorials, and
• Shows the name, data type, and length special help features require
of each attribute (or field) in the record additional programming and
add to the cost of the system.
ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

More resources are required. record to the CURRENT BALANCE field

OPERATION EFFICIENCY value in the AR master record.
Certain records are (4) Next, INVENTORY NUMBER is used to
Batch
processed after the event to search for the corresponding record
Systems
avoid operational delays in the inventory master file.
All records pertaining to the (5) The update program reduces
event are processed inventory levels by deducting the
Real-time
immediately. QUANTITY SOLD value in a transaction
Systems
Single transactions may record from the QUANTITY ON HAND
affect different accounts.
field value in the inventory record.
(6) A new sales order record is read, and
BATCH REAL-TIME
FEATURE the process is repeated.
PROCESSING PROCESSING
Suitable for Suitable for
non-urgent, time-sensitive, MASTER FILE BACKUP PROCEDURE
Use Cases
high-volume immediate • A standard procedure in transaction
tasks tasks processing system to maintain master file
Constant, integrity in the event of any following
Less strain
System high demand
during peak problems should occur:
Load on system
hours o Update program error corrupts the
resources
Results are master files being updated
Results are
available o Undetected errors in the
available
Feedback after transaction data result in
almost
processing is corrupted master file balances
instantly
complete
o A disaster such as a fire or flood
physically destroys current master
files
UPDATING MASTER FILES FROM
TRANSACTIONS
BATCH PROCESSING USING REAL-TIME
• Updating a master file record involves
DATA COLLECTION
changing the value of one or more of its
• Often used by large operations where
variable fields to reflect the effect of
they digitally capture and process
transaction (applicable to both real-
aspects of the transaction at the source
time and batch processing)
they occur and process other aspects in
batch mode.
• To maintain integrity, once a particular
record is accessed for updating, it is
locked by the system and made
unavailable to other processes
(customer transactions) until the current
process is complete.
• Deadlock: Occurs when one process
places a lock on one or more of the
Acronym Use: records it needs for processing but has
➢ PK or Primary Key: Unique Identifier not locked all of them.
➢ SK or Secondary Key
Procedure in the example: REAL-TIME PROCESSING
(1) The computer update program reads • Process the entire transaction as it
a sales order record. occurs
(2) ACCOUNT NUMBER is used to search • Well suited to systems that process lower
the AR master file and retrieve the transaction volumes and those that do
corresponding AR record. not share common records
(3) The update program calculates the • Make extensive use of local are network
new customer balance by adding and wide area network technology.
the value stored in the INVOICE
AMOUNT field of the sales order
 ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

DATA CODING SCHEMES Account Title Dr. Cr.

Involves creating simple numeric or 896 1,000
alphabetic codes to represent complex 321 1,000
economic phenomena that facilitate
efficient data processing. Advantages:
(1) Concisely representing large
SYSTEM WITHOUT CODES amounts of complex information that
• Those who process large volumes of would otherwise be unmanageable.
transactions that are similar in their basic (2) Providing a means of accountability
attributed. over the completeness of the
Example: transactions processed.
Journal entry to record the receipt of (3) Identifying unique transactions and
$1,000 worth of half-inch, case-hardened accounts within a file.
steel nuts with standard threads supplied by (4) Supporting the audit function by
Industrial Parts Manufacturer of Cleveland, providing an effective audit trail
Ohio.
Account Title Dr. Cr. NUMERIC & ALPHABETIC CODING
Inventory—nut, ½ inch, case- SCHEMES
hardened steel, standard 1,000 SEQUENTIAL CODES
thread • Items are coded in sequential order
AP—Industrial Parts (ascending or descending)
Manufacturer, 1,000 • Applying it through prenumbering the
Cleveland, Ohio
source documents therefore each hard-
copy documents are assigned a unique
DISADVANTAGE OF WITHOUT CODES
sequential code number at printing
(1) Takes a great deal of recoding space
ADVANTAGES DISADVANTAGES
(2) Time consuming Carry no information
(3) Prone to many types of Errors content beyond their
Supports reconciliation
Negative effects to many parts of the order in sequence
of a batch of
therefore it tells us
organization: transactions
nothing about the
(1) Sales Staff: Requires the transcription attributes of an item
of large amounts of detail onto Detections of any gaps Difficult to change in
source data and tends to promote can alert management instances of placing
of potential missing or new items midpoint
clerical errors and incorrect misplaced transactions requires renumbering
shipments If record types must be
(2) Warehouse Personnel: Locating and grouped together and
Allows tracing back to additions (or even
picking goods for shipment are
correct errors. deletions) occur
impeded and shipping errors will likely regularly, this scheme is
result not appropriate.
(3) Accounting Personnel: Posting to
ledger requires searching through BLOCK CODES
subsidiary files using lengthy • A variation on sequential coding that
description as key therefore making it partly remedies the disadvantages
painfully slow, and potentially post at describe
wrong accounts. • Used to represent a whole classes of
items by restricting each class to a
SYSTEM WITH CODES specific range within the coding scheme
• Using codes to represent each item in • Common application can be seen in
the inventory and supplier account. chart of accounts.
• Kept in reference files and used for such
purposes.
Example:
Journal entry to record the receipt of
$1,000 with numeric code of 896 and the
supplier account has a number of 321.
ACN 2213 ACCOUNTING INFORMATION SYSTEM
CHAPTER 2: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

ADVANTAGES DISADVANTAGES
Capacity to represent
Difficult to rationalize
large number of data’s
the meaning of the
through the use of pure
codes and users may
alphabetic codes or
have difficulty in sorting
alphabetic characters
records that are coded
embedded with
alphabetically.
numeric codes
(alphanumeric codes)

MNEMONIC CODES
• Alphabetic characters in form of
acronyms and other combination that
may convey meaning
• Combination of mnemonic and numeric
Chart of Accounts codes conveys a good deal of
information.
ADVANTAGES DISADVANTAGES • Example:
Allows for the insertion
of new codes within a Information content is
block, without having not readily apparent
to reorganize
Can represent more Requires chart of
number of items using accounts to be present
the three digit code to identify account.

GROUP CODES ADVANTAGES DISADVANTAGES

Does not require the
• Represent complex items or events user to memorize the Limited ability to
involving two or more pieces of related meaning since the represent items within a
data code itself conveys class and often quickly
Example: high degree of exhaust by users.
information

ADVANTAGES DISADVANTAGES
Facilitate the They can be overused
representation of large which can lead to
amount of diverse data unnecessarily complex
Allow complex data group codes that
structures to be cannot be easily
represented in interpreted
hierarchy and easy to Requires chart of
be remembered by accounts to be present
users to identify account.
Permit detailed analysis Overuse can increase
and reporting both storage cost, promote
within an item class clerical errors, and
and across different increase processing
class. time and effort.

ALPHABETIC CODES
• Used for many with the same purpose as
numeric codes
• Can be assigned sequentially
(alphabetic order) or used in block and
group coding techniques.
• Illustrated below is the use of alphabetic
codes