lOMoARcPSD|51556890

AIS chapter 2

Management (Wesleyan University-Philippines)

Scan to open on Studocu

Studocu is not sponsored or endorsed by any college or university

Downloaded by Ray Vincent Abellana ([email protected])
 lOMoARcPSD|51556890

Chapter 2: Introduction to Transaction Processing

 REVENUE CYCLE
OVERVIEW OF TRANSACTION PROCESSING
 Firms sell their goods and services to customer
 TPS application process financial transaction. through revenue cycle, which involves
 Financial Transaction is an economic event that processing cash sales, credit sales, and the
affects the asset and equity of the firm, is receipt of cash following a credit sale.
reflected in its accounts, and measured in  Always have physical and financial component,
monetary terms. which are processed separately.
 TRANSACTION CYCLES  SUBSYSTEMS
 EXPENDITURE CYCLE- incurs expenditure in  Sales Order Processing -the majority of business
exchange of resources sales are made on credit and involve tasks such
 CONVERSION CYCLE – provides value added as preparing sales orders, granting credit,
through its product or service shipping products (or rendering of a service) to
 REVENUE CYCLE- receives revenue from outside the customer, billing customers, and recording
sources. the transaction in the accounts (accounts
 EXPENDITURE CYCLE receivable, inventory, expenses, and sales).
 Business activities begins with the acquisition of  Cash receipts -for credit sales, some period of
material, property, and labor in exchange for time (days or weeks) passes between the point
cash. of sale and the receipt of cash. Cash receipts
 TWO PARTS processing includes collecting cash, depositing
 Physical Component –the acquisition of goods cash in the bank, and recording these events in
or services. the accounts (accounts receivable and cash).
 Financial Component –the cash disbursement
ACCOUNTING RECORDS
to the supplier.
 PRIMARY EXPENDITURE SUBSYSTEM MANUAL SYSTEMS
 Purchase/ Accounts Payable System –this
 This section describes the purpose of each
system recognizes the need to acquire physical
accounting record used in transaction system.
inventory (such as raw materials) and places an
 We begin with traditional records used in
order with a vendor. When the goods are
manual systems (documents, journals, and
receive, the purchases system records the event
ledgers) and then examine their digital
by increasing inventory and establishing an
counterparts in computer based systems.
account payable to be paid at a later date.
 DOCUMENTS
 Cash disbursement system –authorizes the
 Serve several purposes in transaction
payment, disburses the fund to the vendor, and
processing.
records the transaction by reducing the cash
 Documents may initiate transaction processing
and accounts payable.
or be the output process.
 Payroll system –collect labor usage data for
 The also provide auditors with evidence of
each employee, computes the payroll, and
economic events.
disburses the paychecks to the employees.
 THREE (3) TYPES OF DOCUMENT
- Payroll is a special-case purchases and cash
 Source Documents –economic events result in
disbursement system.
some documents being created at the beginning
 Fixed asset system –processes transaction
(the source) of the transaction.
pertaining to the acquisition, maintenance, and
- Used to capture and formalize transaction
disposal of its fixed asset.
data that the transaction cycle needs for
CONVERSION CYCLE processing.
 Product Documents –are the result of
 TWO MAJOR SUBSYSTEMS
transaction processing rather than the
 Production System –involves planning,
triggering mechanism for the process. For
scheduling, and control of the physical product
example, a payroll check to an employee is a
through manufacturing process. This includes
product document of the payroll system.
determining raw materials requirements,
 Turnaround Documents –are product
authorizing the work to be performed and the
documents of one system that become source
release of the raw materials into production,
document of another system.
and directing the movement of the work-in-
- Remittance advice is a turnaround
process through its various stages of
documents that contains important
manufacturing.
information about customer’s account to
 Cost Accounting System –monitors the flow of
help the cash receipts system process
cost information including labor, overhead, and
payment.
raw materials related to production.
 JOURNALS

Downloaded by Ray Vincent Abellana ([email protected])

 lOMoARcPSD|51556890

 A chronological record of transaction.  An audit trail is of utmost importance in the

 Documents are the primary data source of conduct of a financial audit.
jouranls.  CONFIRMATION –this involves contracting
 TWO PRIMARY TYPES OF JOURNALS selected customers to determine if the
 Special Journals –used to record specific classes transaction recorded in the accounts actually
of transaction that occur in high volume. took place and if customers to determine if the
- REGISTER is often used to denote certain transactions recorded in the accounts actually
types of special journals. For example, the took place and of customers agree with the
payroll journal is often called the payroll recorded balance.
register. We also use the term register to
DIGITAL ACCOUNTING RECORDS
denote a log.
 General Journals –firms use the general journal  Modern accounting systems store data in four
to record nonrecurring, infrequent, and types of digital computer files: master files,
dissimilar transactions. transaction files, reference files, and archive
- Journal voucher is actually a special source files.
document that contains a single journal entry  MASTER FILE
specifying the general ledger accounts that  Contains account data.
are affected. Journal vouchers are used to  The general ledger and subsidiary ledgers are
record summaries of routine transactions, examples of master file.
non-routine transactions, adjusting entries,  Data values in master files are updated
and closing entries. (changed) by the transactions.
 LEDGERS  TRANSACTION FILE
 A book of accounts that reflects the  A temporary file of transaction of records used
financial effects of the firm’s transaction to update in a master file.
after they are posted from the various  Sales order, inventory receipts, and cash
journals. receipts are examples of transaction files.
 Shows activity by account type.  REFERENCE FILE
 Indicates the increases, decreases, and  Stores data that are used as standards for
current balance of each account. processing transactions.
 Organizations used this information to  For example, the payroll program may refer to a
prepare financial statements, supports daily tax table to calculate the proper amount of
operations, and prepare internal reports. withholding taxes for payroll transactions.
 TWO TYPES OF LEDGER  ARCHIVE FILE
 General Ledgers –which contain the firm’s  Contains record of past transactions that are
account information in the form of highly retained for future reference and form an
summarized control accounts. important part of audit trail.
- The GENERAL LEDGER (GL) summarizes the  Includes journals, prior-period payroll
activity for each of the organizations information, list of former employees, records
account. of accounts written off, and prior-period
- Updates these records from journal ledgers.
vouchers prepared from special journals
and other sources located throughout the THE DIGITAL TRAIL
organization.
 Subsidiary Ledgers –which contain the details of
the individual accounts that constitute a FILE STRUCTURES
particular control of account.  FILE TECHNOLOGIES BROADLY FALL IN TWO
- Subsidiary ledgers are kept in various CLASSES: (1) Flat Files and (2) Databases
accounting departments of the firm,  Flat file approach –is often associated with so-
including inventory, accounts payable, called legacy systems, which are large
payroll, and accounts receivable. This mainframe systems that were commonplace in
separation provides better control and 1960s-1970s, but stills exist today.
support of operations.  Database –used in modern times.
THE AUDIT TRAIL FLAT FILE MODEL
 the accounting records describe previously  Describes an environment in which individual
provide an Audit trail for tracing account data files are not related to other files.
balance contained in the financial statements  End users in this environment own their data
back to source documents and the economic files rather than shares them with other users.
events that created them.

Downloaded by Ray Vincent Abellana ([email protected])

 lOMoARcPSD|51556890

Thus, stand-alone applications rather than  Requires Username and Password

integrated systems perform data processing.  With the organization’s data in acentarl location,
 The data redundancy demonstrated in this all users have access to the data they need to
example contributes three significant problems: achieve their respective objectives.
DATA STORAGE, DATA UPDATING, and CURRENCY  Access to the data resource is controlled by a
OF INFORMATION. DATABASE MANAGEMENT SYTEM (DBMS).
 Data Storage –an efficient information system  DBMS is a software system that permits users to
captures and stores data only once and makes access authorized data only. The user’s
single source available to all users who need it. application program sends requests for data to
In a flat file environment this is not possible. To the DBMS, which validates and authorizes
meet the private data need of users, access to the database in accordance with the
organization must incur the costs of both user’s level of authority. If he or she is not
multiple collection and multiple storage authorized to access, the request is denied.
procedures. Some commonly used data may be
DIFFERENCES BETWEEN FLAT FILE AND DATABASE
duplicated dozens, hundreds, or even thousands
of times.
 Data updating –organizations have a great deal
of data stored in files that require periodic
updating to reflect changes. For example, a
charge to a customer’s name or address must
be reflected in the appropriate master files. FIVE BASIC DOCUMENTATION TECHNIQUES
When users keep separate files, all changes DOCUMENTATION TECHNIQUES
must be made separately for each user. This 1. Data Flow Diagram
adds significantly to the task and the cost of 2. Entity relationship diagram
data management. 3. System flowchart
 Currency of Information –in contrast to the 4. Program flow chart,
problem of performing multiple updates is the 5. Record layout diagram
problem of failing to update all the user files  DATA FLOW DIAGRAM
affected by a change in status. If update  Uses symbols to represent the entities,
information is not properly disseminated, the processes the data, and data stores that pertain
change will not be reflected in some users’ data, to a system.
resulting in decisions based on outdated  DFD are used to represents systems at different
information. labels of detail from very general to highly
 Task-Data Dependency –another problem with detailed.
the flat file approach is the user’s inability to
obtain additional information as his or her
needs change. This problem is called task-data
dependency. The user’s information set is
constrained by the data that he or she
possesses and controls. Users act independently
rather than as a member of a user community.
In such an environment, it is difficult to establish
a mechanism for the formal sharing of data.
Therefore, new information needs tend to be
satisfied by procuring new data files. This takes
time, inhibits performance, adds to data
redundancy, and drives data management costs
even higher.

FLAT FILE LIMIT DATA INTEGRATION

 FLAT-FILE APPROACH is a single-view model.  ENTITIES in DFD represents objects that lie
 Files are structured, formatted, and arranged to outside the system being modeled. They are the
suit the specific needs of the owner or primary sources of and destination for data. These may
users of data. be other interfacing system or entities external
 Such structuring, however, may exclude data to the organization. Entities are labeled as
needed by other users, thus preventing singular nouns on a DFD such as Customers or
successful integration of data across the Suppliers.
organizations.  Data stores represents the accounting files and
records used in each process, and the labelled
THE DATABASE MODEL

Downloaded by Ray Vincent Abellana ([email protected])

 lOMoARcPSD|51556890

arrows represent data flows between  DFDs model system is represented as an entity
processes, data stores, and entities. in a corresponding ER Diagram.
 PROCESS in the DFD should be labeled with a  SYSTEM FLOWCHART
descriptive verb such as Review Inventory  The graphical representation of the physical
Levels, Prepare Purchase order, receive relationships among key elements of a system.
Customer Order, or Update Account Receivable.  These system may include organizational
PROCESS should not be represented as nouns departments, manual activities, computer
like Inventory Warehouse, Purchase programs, hard copy accounting records,
Department, or Sales data. (documents, journals, ledgers, and files), and
 the arrows connecting the DFD objects should digital records (reference files, transaction files,
be labeled to represent specific flows of data archive files, and master files).
such as Inventory Requisition, Purchase Order,  System Flowchart also describe the physical
or sales order. computer media being employed in the system,
 In addition, each data flow label should be such as magnetic tape, magnetic disk, and
uniquely named; the same labels should not be terminals.
attached to two different flow lines in the same  FLOWCHARTING MANUAL ACTIVITIES
DFD.  Basically used in working office
 When Data flow into a process and out again (to  Read the BOOK for more info.
another process), the data have, in some way,
been changed.
 ENTITY RELATIONSHP DIAGRAMS
 A documentation technique used to represents
the relationship between business entities.
 In this context, the term entity applies to
anything about which the organization captures
the data.
 An entity maybe physical resource (automobile,
cash, or inventory), an event (customer order,
purchase inventory, or receive payment), or an
agent (salesperson, customer, or vendor)

A –connector, go to

On Page Connector- see the process on the same

page

Off Page –see the process to the next page

 FLOWCHARTING COMPUER PROCESSES

 The square symbol represents entities in the

system.
 The labeled connecting line represents the
nature of the relationship between two entities.
 The degree of the relationship, called
cardinality, is the numeric mapping between
entity instances. A relationship can be one-to-
one (1:1), one-to-many (1:M), or many-to-
many (M:M).  PROGRAM FLOWCHART
 If we think of entities in the ER diagram as files  For programmer use
of records, cardinality is the maximum number  For writing an application software
of records in one file that are related to a single
record in the other file and vice versa.

RELATIONSHIP BETWEEN ER DIAGRAM AND DATA

FLOW DIAGRAM

 DFDs & ER DIAGRAMS document different

aspects of systems, but they are related.

Downloaded by Ray Vincent Abellana ([email protected])

 lOMoARcPSD|51556890

 RECORD LAYOUT DIAGRAMS  Operational Efficiency

 Used to reveal the internal structure of digital  Real-time processing in systems that handle
records in a flat-file or database table. large volumes of transactions each day can
 The layout diagram usually shows the name, create operational inefficiencies. A single
data type, and length of each attribute (or field) transaction may affect several different
in the record. accounts. Some of these accounts, how-
 Detailed data structures information is needed ever, may not need to be updated in real
for such task as identifying certain types of time. In fact, the task of doing so takes time
system failures, analyzing error reports, and that, when multi- plied by hundreds or
designing test of computer logic for debugging thousands of transactions, can cause
and auditing purposes. significant processing delays.
 Batch processing of noncritical accounts,
however, improves operational efficiency by
eliminating unnecessary activities at critical
points in the process.
 Efficiency versus Effectiveness
 EFFICIENT- BATCH
 All attributes must be written in a box.
 EFFECTIVENESS- REALTIME
TRANSACTION PROCESSING MODELS  In selecting a data processing mode, the
designer must consider the trade-off
 Two types
between efficiency and effectiveness. When
 Batch Processing –involves gathering
immediate access to current information is
transactions into groups or batches and then
critical to the user’s needs, real-time
processing the entire batch as single event
processing is the logical choice. When time
 Real-Time Processing –process individual
lags in information have no detrimental
transactions continuously as they occur.
effects on the user’s performance and
 Differences between Batch and Real Time
operational efficiencies can be achieved by
Processing
processing data in batches, batch processing
 INFORMATION TIME FRAME
is probably the superior choice.
 Batch systems assemble transactions into
groups for processing. A time lag always UPDATING MASTER FILES FROM TRANSACTIONS
exist between the point at which an
 Read the book.
economic event occurs and the point at
which it is process by the system. The BATCH PROCESSING USING REAL-TIME DATA
length of lag (minutes or weeks) depends COLLECTION
on the frequency of batch processing.
 Real-time systems process transactions  DATA LOCKING – lock data until it compute
individually at the moment the event  DEAD LOCK- after updating the AR, cannot open
occurs; therefore, no time lags exist filE as long as it is use by others.
between occurrence and processing.  READ THE BOOK
 RESOURCES REAL TIME PROCESSING
 Batch Systems demand fewer organization
resources (such as programming cost,  READ THE BOOK
computer time, and user training) than
real-time system.
 Real-Time System must be user friendly, DATA CODING SCHEMES
forgiving, and easy to work with.
 Data coding involves creating simple numeric or
 Real-Time Systems require dedicated
alphabetic codes to represent complex
processing capacity because they must
economic phenomena that facilitate efficient
deal with the transaction as they occur.
data processing.
Some real-time system need to be
 The secondary and primary keys in the example
available 24 hours a day whether being
are instances of data coding.
used or not. The computer capacity
 A SYSTEM WITHOUT CODES
dedicated to such systems cannot be used
 This uncoded entry takes a great deal of
for other purposes.
recording space, is time-consuming to record,
 Batch systems use computer capacity only
and is obvi- ously prone to many types of errors.
when the program is being run. When the
The negative effects of this approach may be
batch job complets processing, the freed
seen in many parts of the organization:
capacity can be reallocated to other
applications.

Downloaded by Ray Vincent Abellana ([email protected])

 lOMoARcPSD|51556890

 Sales staff. Properly identifying the items DATA STRUCTURES

sold requires the transcription of large
 Represent the physical and logical arrangement of
amounts of detail onto source documents.
data in files and data bases.
Apart from the time and effort involved,
 ORGANIZATION –refers to the way records are
this tends to promote clerical errors and
physically arranged on the secondary storage
incorrect shipments.
device. This may be either sequential and random
 Warehouse personnel. Locating and
 Sequential files are stored in contiguous locations
picking goods for shipment are impeded
that can occupy a specified area of disk space.
and shipping errors will likely result.
 Records in random files are stored without regard
 Accounting personnel. Postings to ledger
for their physical relationship to other records of the
accounts will require searching through
same file.
the subsidiary files using lengthy
 Access method is a technique used to locate records
descriptions as the key. This will be
and to navigate through the data base file.
painfully slow, and postings to the wrong
 Flat-file approach is a single view model that
accounts will be common.
characterizes legacy systems in which the data file
A SYSTEM WITH CODES are structured, formatted, and arranged to sui the
specific needs of the owner or primary user of the
system.
NUMERIC AND ALPHABETIC CODING SCHEMES  SEQUENTIAL STRUCTURE
 Sequential Structure, which is typically called
 Sequential Codes -represent items in some the Sequential Access Method.
sequential order (ascending or descending). A  Sequential Files are simple and easy process.
common application of numeric sequential  INDEXED STRUCTURE
codes is the prenumbering of source  Indexed Structure is so named because, in
documents. At printing, each hard-copy addition to the actual data file, there exist in a
document is given a unique sequential code separate index that itself a file of record
number. This number becomes the transaction addresses. This index contains numeric value of
number that allows the system to track each the physical disk storage (cylinder, surface, and
transaction processed and to identify any lost or record block) for each record in the associated
out-of-sequence docu- ments. Digital data file.
documents are similarly assigned a sequential  Record in an Indexed random file are dispersed
number by the computer when they are throughout a disk without regard for their
created. physical proximity to other related records.
 BLOCK codes - is a variation on sequential  VIRTUAL STORAGE ACCESS METHOD
coding that partly remedies the disadvantages  Virtual Storage Access Method (VSAM)
just described. This approach can be used to structure used for very large files that require
represent whole classes of items by restricting routine batch processing and a moderate
each class to a specific range within the coding degree of individual record processing.
scheme. A common application of block coding  Types of Pointers
is the construction of a chart of accounts.  Physical address Pointers –contains the actual
 Group codes -are used to represent complex disk storage location (cylinders, surface, and
items or events involving two or more pieces of record number) that the disk controller needs.
related data. The code consists of zones or fields This physical address allows the system to
that possess specific meaning. access the record directly without obtaining
 Alphabetic codes -are used for many of the further information.
same purposes as numeric codes. Alphabetic  Relative Address Pointers –contains the relative
characters may be assigned sequentially (in position of a record in a file.
alphabetic order) or may be used in block and  Logical Key Pointer –contains the primary key of
group coding techniques. the related record.
 Mnemonic codes -are alphabetic characters in
the form of acronyms and other combinations
that convey meaning.

APPENDIX

Downloaded by Ray Vincent Abellana ([email protected])