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Chapter 2 Introduction to Transaction Processing

Chapter 2 introduces financial transactions and categorizes them into three cycles: expenditure, conversion, and revenue, each with physical and financial components. It discusses manual and computer-based accounting systems, including the importance of audit trails, document flowcharts, and the differences between batch and real-time processing systems. The chapter highlights the advantages of batch processing for high-volume transactions and its relevance in accounting information systems (AIS).

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Nicole Elaine
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10 views

Chapter 2 Introduction to Transaction Processing

Chapter 2 introduces financial transactions and categorizes them into three cycles: expenditure, conversion, and revenue, each with physical and financial components. It discusses manual and computer-based accounting systems, including the importance of audit trails, document flowcharts, and the differences between batch and real-time processing systems. The chapter highlights the advantages of batch processing for high-volume transactions and its relevance in accounting information systems (AIS).

Uploaded by

Nicole Elaine
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter 2: Introduction to Transaction Processing

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 cycles.

Relationship between Transaction Cycles

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)
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
• 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 each account type

Flow of Economic Events into the General Ledger

Audit Trail
Example of Tracing an Audit Trail Verifying Accounts Receivable

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.

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

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

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
Computer-Based Accounting Systems
• Two broad classes of systems:
• batch systems
• real-time systems

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.

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.

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
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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