ACN 2213-1 ACCOUNTING INFORMATION SYSTEM

CHAPTER 02: INTRODUCTION TO TRANSACTION PROCESSING

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

CHAPTER OUTLINE
I. Quick Recap of Chapter 1 3 Conversion Cycle
A. The Expenditure Cycle • The process a business follows to turn raw
B. The Conversion Cycle materials into finished products and sell
C. The Revenue Cycle them.
II. Introduction to Transaction Processing o Raw Materials: Business gets materials to
A. The Expenditure Cycle make products
B. The Conversion Cycle o Production: Used to create the finished
C. The Revenue Cycle products.
III. Accounting Records o Sale: Business sells the finished products.
A. Manual Systems o Payment: Business collects payment from
B. The Audit Trail customers.
C. The Digital Audit Trail • Helps the business efficiently manage how
D. File Structures they create and sell products, ensuring they
IV. Documentation Techniques can meet demand and make money.
A. Data Flow Diagrams (DFD)
B. Entity Relationship Diagrams (ERD)
INTRODUCTION TO TRANSACTION PROCESSING
C. Relationship between ERD and DFD • Transaction Processing System (TPS) processes
D. Systems Flowcharts
financial transaction.
E. Program Flowcharts o Financial Transaction: An economic event that affects the
F. Record Layout Diagrams assets and equities of the firm; reflected in its accounts;
V. Computer-Based Accounting Systems measured in monetary terms
A. Differences between Batch and Real-time • Financial transactions are common business
Systems events that occur regularly
B. Alternative Data Processing Approaches
C. Batch Processing using Real-time Data
EXCHANGE WITH EXTERNAL PARTIES
Collection • Sale of Goods or Services
D. Real-time Processing • Purchase of Inventory
VI. Data Coding Schemes • Discharge of Financial Obligations
A. A System without Codes • Receipt of Cash on Account from Customers
B. A System with Codes
CHANGES IN INTERNAL EVENTS
C. Numeric and Alphabetic Coding Schemes
• Depreciation of Fixed Assets
• Application of Labor, Raw Materials, and
CHAPTER 1 QUICK RECAP Factory Overhead to the production process
TRANSACTION PROCESSING SYSTEM [TPS] • Transfer of inventory from one department to
• It is an activity which consists of three major another.
cycles.
RELATIONSHIP BETWEEN TRANSACTION CYCLES
1 Revenue Cycle
• Helps businesses keep track of money they
earn and make sure they get paid on time.
o Order: Customer places an order
o Delivery: Entity provides the product or
service
o Invoice: Business sends the customer a bill
(or invoice)
o Payment: Customer pays the bill
o Record: Business updates its record to
show payment.
• Helps business minimize delays, reduce
outstanding receivables, and maintain THE EXPENDITURE CYCLE
strong cash flow. • Cash flow from the organization to the various
providers of these resources.
2 Expenditure Cycle • Most B2B expenditure transactions are based
• The process a business follows to buy goods on a credit relationship between the trading
or services and pay for them. parties.
o Order: Business places an order • Actual disbursement of cash takes place some
o Receive: Business receives the order. point therefore the transaction has two parts:
o Invoice: Supplier sends a bill (or invoice) to o Physical Component: Acquisition of Goods or
Services
the business.
o Financial Component: Cash disbursement to the
o Payment: Business pays the supplier supplier
o Record: Business updates its records to
show the payment. Subsystems of the Expenditure Cycle:
• Helps keep tracks of money earned and if (1) Purchases/ Accounts Payable
they are paid on time.
ACN 2213-1 ACCOUNTING INFORMATION SYSTEM
CHAPTER 02: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

• Recognizes the need to acquire physical

inventory and places an order with the ACCOUNTING RECORDS
vendor.
MANUAL SYSTEMS
• When goods are received, the purchase
• The purpose of each type of accounting record
systems record the event.
(2) Cash Disbursements used in transaction cycles.
• CDS authorizes the payment, disburses the • Begins with traditional records using the manual
fund to the vendor, and records the system and then examine their digital
transaction by reducing the cash and counterparts in computer-based systems
accounts payable accounts
DOCUMENTS
(3) Payroll
• Initiate transaction processing or be the output of
• Collects labor used data for employees,
a process.
computes payroll, and disburse
paychecks • Provides auditors with evidence of economic
• Payroll: A special-case purchases and event
cash disbursement system.
TYPES OF DOCUMENTS
(4) Fixed Assets
• Processes transactions pertaining to the 1 Source Documents
acquisition, maintenance, and disposal of 2 Product Documents
its fixed assets. 3 Turnaround Documents
• Represents the organizations largest
financial investment [1] Source Documents
• Land, buildings, furniture, machinery, and • Beginning of the transaction or the source
motor vehicles. • Used to capture and formalize transaction data
that the transaction cycle use for processing
THE CONVERSION CYCLE
• Converting raw materials into finished CREATION OF A SOURCE DOCUMENT
products through formal, physical, and
observable conversion operations
Subsystems of the Conversion Cycle:
(1) Production System
• Planning, Scheduling, and Control of the
physical product through the
manufacturing system.
• Determining raw materials requirements,
authorizing the work to be performed, and
release of raw materials into production.
(2) Cost Accounting System • In a case of a sale (considered as economic
• Monitors the flow of cost information event)
(labor, overhead, and raw materials) o Sale causes the salesclerk to prepare a
• Used for inventory valuation, budgeting,
multipart sales order which is formal evidence
cost control, performance reporting and
that a sale occurred.
management decisions (make-or-buy
decisions o Copy of the source document enters the sales
system which is used to convey information to
• In service and retailing establishment may not various function such as billing, shipping, and
be formal and observable but they still accounts receivable
engaged in value added conversion cycles.
o Information in the sales order triggers specific
THE REVENUE CYCLE activities in each function
• The selling of goods and services to customers EXAMPLES OF A SOURCE DOCUMENTS
• Processing cash sales, credit sales, and
Sales Details of a sale made to a
receipt of cash (the said credit sales) Invoice customer
• Has a physical and financial components
A document issued when
which are processed separately Purchase
company orders goods from a
Order
Subsystems of the Revenue Cycle: supplier
(1) Sale order processing Proof of payment made or
Receipt
• Credit sales which involve task such as received
preparing sales orders, granting credit, Records hours worked by an
Timecard
shipping products (rendering service), employee
billing customers, and recording the Delivery Confirms that goods were
transactions. Note delivered to a customer
(2) Cash Receipts Issued when goods are returned, or
Credit Note
• It takes some period for credit sales to be a refund is provided.
converted into cash. Includes the process Cash
Daily sales record from a cash
of collecting cash, depositing cash, and Register
register
recording these events Tape
 ACN 2213-1 ACCOUNTING INFORMATION SYSTEM
CHAPTER 02: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

[2] Product Documents Explanation on the illustration above:

• Result of transaction processing rather than the • Customers receives a perforated two-part
triggering mechanism for the process bill or statement.
o Top Part: Bill
A PRODUCT DOCUMENT o Bottom Part: Remittance Advice which is
remove and return to the company.
Considered as turnaround document

JOURNALS
• A chronological record of financial transactions.
• When all relevant facts about the transaction are
known, the event is recorded in a journal in
chronological orders
• Source of data entry into the journals are from
documents

SALES ORDER RECORDED IN SALES JOURNAL

EXAMPLES OF A PRODUCT DOCUMENTS
Payroll A product document of the payroll
Checks system
Issued by seller to a buyer, listing the
Invoice products or services provided and • Each transaction results in a separate journal
requesting payment entry which identifies the account affected and
Proof of payment provided to the amount to be debited and credited.
Receipt customer after a complete
• Often used to denote certain types of special
transaction
journals
Document sent from a buyer to a
Purchase o Example: Payroll Journal can call as Payroll Register
seller specifying the products or
Order • Can also denote as a log
services they want to purchase
o Example: Receiving register is a log of all receipts of raw
Shipment and list of items included in materials or merchandise ordered.
Packing
the package ensuring that
Slip
everything ordered is delivered KINDS OF JOURNALS
Confirmation document that records 1 Special Journals
Sales
a sale once a customer places an
Order 2 General Journals
order
Delivery
Document sent with goods [1] Special Journals
confirming that the goods were • Used to record specific classes of transactions
Note
delivered to the buyer
that occur in high volume.
Credit Issued to correct an invoice, typically
Note for returns or overcharges.
• Reoccurring transactions are put into special
journals
[3] Turnaround Documents • Group together the reoccurring transactions
• A product documents of one system becomes a to be able to process it more efficiently than a
source document for another system general journal
• Has issues when it comes to matching customer
payments to the correct customer accounts SPECIAL JOURNAL: SALES JOURNAL
hence why providing this document as a
product of the sales system ensures accuracy
when the cash receipt system processes it.

A TURNAROUND DOCUMENT

EXAMPLES OF SPECIAL JOURNALS

1 Cash Receipts Journals
2 Cash Disbursement Journals
3 Purchases Journal
4 Payroll Journal
[2] General Journals
• Records the nonrecurring, infrequent, and
dissimilar transactions.
 ACN 2213-1 ACCOUNTING INFORMATION SYSTEM
CHAPTER 02: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

• Columns are nonspecific, allowing any type of

transaction to be recorded.
• As common practice to replace the traditional
journal with a collection of journal vouchers.
o Journal vouchers are written authorizations
prepared for every transaction that meets the
general journal vouchers.

GENERAL JOURNAL

• A mechanism for verifying the overall accuracy

• Each journal voucher contains: of accounting data that separate the
(1) Unique Voucher number accounting departments have processed.
(2) Transaction date
[2] Subsidiary Ledgers
(3) Transaction Amount
• Ledgers kept in various accounting departments
(4) Ledger Accounts to be updated
• The separation in subsidiary ledgers provides
(5) Signatures of individual authorized to create
better control and support of operation.
and approve journal voucher
LEDGERS RELATIONSHIP OF SUBSIDIARY LEDGER AND
• Book of accounts that reflect the financial GENERAL LEDGER
effects of the firms’ transactions after they are
posted from the various journals and journal
vouchers

FLOW OF INFORMATION TO THE LEDGER

• Ledgers show activity by account type

• Indicates the increases, decreases, and current
balance of each account.
• Entity use this information to prepare financial
statements, support daily operations, and
prepare internal reports.
• Any event incorrectly recorded in a journal or
KINDS OF LEDGERSS subsidiary ledger will cause an out-of-balance
1 General Ledgers condition that should be detected during the
2 Subsidiary Ledgers general ledger update.
• By periodically reconciling summary balances
[1] General Ledgers
from subsidiary
• Provides a single value for each control account
• Accounts, journals, and control accounts, the
such as A/P, A/R, and inventory
completeness and accuracy of transaction
• Highly summarized information is sufficient for
processing can be formally assessed
financial reporting, but it is not useful in
supporting daily business operations. EXAMPLES OF ACCOUNTING ERRORS:
Occurs when two digits in
GENERAL LEDGER Transposition
number are accidentally
Error
swapped
 ACN 2213-1 ACCOUNTING INFORMATION SYSTEM
CHAPTER 02: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

o Examples: General and Subsidiary Ledger

Ex.: $785 to $758
Happens when digits are 2 Transaction File
incorrectly shifted or • Temporary file of transaction records used to
Transplacement displaced by a factory of 10 update data in a master file
Error (Sliding digits) o Examples: Sales orders, inventory receipts, and
cash receipts
Ex.: $100.00 to $1,000.00
3 Reference File
THE AUDIT TRAIL • Stores data that are used as standard for
• Utmost importance in the conduct of a financial processing transactions
audit o Examples: Payroll program may refer to a tax table
• External auditor’s responsibility involves the to calculate the proper amount of withholding taxes
review of selected accounts and transactions to for payroll transactions.
determine their validity, accuracy, and
4 Archive File
completeness.
• Contains records of past transactions that are
• Auditor uses a sampling technique to examine a
retained for future reference and form an
representative subset of transaction in which
important part of audit trail
auditor can select several accounts in the o Includes: Journals, Prior-period payroll information,
subsidiary ledger and trace it back to the journal. Lists of former employees, records of accounts
• Often includes a procedure called confirmation written off, and prior-period ledgers.
o Involves contacting selected customers to
determine if the transactions recorded in the THE DIGITAL AUDIT TRAIL
accounts took place and if customer agree with the • Less observable than those between hard-copy
recorded balance documents but they still exist.
o Important role in this process
DIGITAL ACCOUNTING RECORD IN A
COMPONENTS OF AN AUDIT TRAIL COMPUTER-BASE SYSTEM
Starting point and provide
Source
evidence that a transaction
Documents
occurred
Provides evidence of the flow of
Accounting
financial transactions through
Records
an accounting system
Captures who, what, when, and
Audit Logs
where of a financial activity.

DIGITAL ACCOUNTING RECORDS

• Digital audit trail allows transaction tracing

STEPS IN DIGITAL AUDIT TRAIL

1 Begin with the capture of economic event.
Convert the source document into digital
form. Often done in the data entry stage.
(a) Depending on the nature and volume of
2 transaction being processed, a system may no
employ hard-copy source documents
(b) Transactions are captured directly on digital
media.
DIGITAL COMPUTER FILES IN MODERN Update the various master file subsidiary and
ACCOUNTING SYSTEM General Ledger control accounts that are
1 Master file affected by the transactions
(a) Editing of transactions takes place to detect
2 Transaction File
3 errors. Some may be in error in account
3 Reference File numbers, insufficient quantities on hand or
4 Archive File clerical errors.
(b) Records rejected because of detected error
1 Master File which are reviewed, corrected, and
resubmitted for processing
• Contains Account Data
• Data values are updated by transaction
 ACN 2213-1 ACCOUNTING INFORMATION SYSTEM
CHAPTER 02: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

(c) Records successfully passed through editing are 1 DATA CAPTURE AND STORAGE
used to update the master files. • Efficient information system captures and
Valid transactions are added to the archive stores data only once and makes this a single
files source available to all users who need it
4 (a) Copying the valid transactions in the journal,
• Not possible in flat-file environment
original transaction file is not needed to for
audit trail purposes an can now be erased or • Organization must incur both multiple
scratched collection and multiple procedures
• Data may be duplicate dozens, hundreds or
KEY ELEMENTS OF AN AUDIT TRAIL IN even thousand times.
COMPUTER-BASED SYSTEMS 2 DATA UPDATING
Tracks actions performed by • Organization have data stored that require
User Activity
users periodic updating to reflect changes
Data Changes Logs any modification to data • When users keep separate files, all changes
Each action or event is must be made separately for each user. This
Timestamps recorded with a precise data adds significantly to the task and the cost of
and time. data management
Identifies which users has 3 CURRENCY OF INFORMATION
Access
access to certain data or • Failing to update all the user files affected by
Control
system functions. a change in status.
• If update information is not properly
FILE STRUCTURES disseminated, changes will not reflect in some
• Vary widely among transaction processing users’ data, resulting in actions and decisions
systems. based on outdate information.
• No single structure works well for data processing 4 TASK-DATA DEPENDENCY
task therefore some structures are effective at • Users has the inability to obtain additional
processing all records in large master files. information as their need’s changes.
• Some file structures are better for directly • User’s information set is constrained by the
locating and processing a single record in a large data they possess and control.
file • New information needs tend to be satisfied by
procuring new data files which takes time,
CLASSES OF FILE STRUCTURES inhibits performance, adds further data
1 The Flat-file Model redundancy, and drives data management
2 The Database Model costs even higher
5 LIMIT DATA INTEGRATION
THE FLAT-FILE MODEL • Flat-file approach is a single-user-view model.
• Serves an environment where end users own their • Files are structured, formatted, and arrange to
data files rather than share them with other users. suit the specific needs of the owner or primary
• A simple data storage model where data is users.
organized in a single table or file with each • It excludes data needed by other users
record stored in a single row. preventing successful integration of data
• Users are left with three options:
THE FLAT-FILE MODEL o Don’t use accounting data to support decisions
o Manipulate and massage the existing data
structure to suit their unique needs
o Obtain additional private set of data
• Some users still make limited use of flat files in
their older legacy systems.

THE DATABASE MODEL

• To overcome some of the problems associated
with using flat file model
• Organization’s data in a central location, all users
have access to the data they need to achieve
they need to achieve their objectives
• Data are stored in the most granular format
rather than being shaped and configured to the
need of any single used.
• Access of data source is controlled by database
management system (DBMS) which is software
system that allows users to access authorized
• Model is straightforward and easy to understand data only.
but limited to simple data.
DATABASE MODEL
o If data is complex and size grow, it’s hard to
use the model

PROBLEMS IN FLAT-FILE MODEL

 ACN 2213-1 ACCOUNTING INFORMATION SYSTEM
CHAPTER 02: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

DFD OF PURCHASES SYSTEM

• User’s application program sends requests for

data to the DBMS which validates and authorizes
access in accordance with their access
privileges.
o If the person is not authorized, then the request is
denied.
o Organizations procedures for assigning user
authority is an important control issue for auditors to
consider

DIFFERENCE BETWEEN THE TWO MODELS

• Different when it comes to pooling of data into a
• Data stores: Represents the accounting files
common database that all organizational users and records used in each process
share • Labeled Arrows: Represents data flows
• Database model allows the access to the full between processes, data stores and entities.
domain of entity data, changes in suer o Take note: Processes in the DFD should be
information needs can be satisfied without labeled with a descriptive verb
obtaining additional private data sets • Arrow connecting the DFD objects: Labeled to
• The only constraint is the data available to users represent specific flows of data.
o Take note: each data flow label should be
and the legitimacy of their need to access it
uniquely named; the same label should not be
attached to two different flow lines in the same
DOCUMENTATION TECHNIQUES DFD
• Accounts use system documentation routinely as
ENTITY RELATIONSHIP DIAGRAM (ERD)
both system designers and auditors.
• Documentation technique used to represent the
• This ability is an important skill for accountants to
relationship between entities.
master o “Entity” applies to anything about which the
DATA FLOW DIAGRAMS (DFD) organization captures data. It may be a physical
• Uses symbols to represent the entities, processes, resource (cash) or agent (salesperson) or event
data flows, and data stores that pertain to a (purchase)
system. ENTITY RELATIONSHIP DIAGRAM SYMBOLS
• DFDs are used to represent systems at different
levels of detail from very general to highly
detailed
• Single-level DFD is sufficient to demonstrate its
role as a documentation tool
• Entities represent objects that lie outside the
system being modeled.
• They are the sources and destinations for data.

DATA FLOW DIAGRAM SYMBOL SETS

• 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 base
 ACN 2213-1 ACCOUNTING INFORMATION SYSTEM
CHAPTER 02: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

DFD & ERD RELATIONSHIP • Shows relationship between computer programs,

• DFDs model system processes while ER diagrams files used, and the outputs produce
model the data used in systems • High-level documentation does not provide all
• Each data store in a DFD is represented as an the operation details that are sometimes
entity in a corresponding ER diagram needed.

SYSTEM FLOWCHARTS PROGRAM FLOWCHART SYMBOLS

• Graphical representation of the physical
relationships among key elements of a system.
o These elements may include organizational
departments, manual activities, computer
programs, hard-copy accounting records, and
digital records
• Every program represented in a system flowchart
RULES IN FLOWCHARTING MANUAL ACTIVITIES
should have a supporting program flowchart
The flowchart should be labeled to clearly
1 that describes its logic.
identify the system that it represents
• A separate symbol represents each step of the
The correct symbols should be used to
2 program’s logic, and each symbol represents
represent the various entities in the system.
one or more lines of computer program code.
All symbols on the flowchart should be
3 • Accountants sometimes use program flowcharts
labeled.
Lines should have arrowheads to clearly to verify the correctness of program logic. They
4 show the process flow direction and compare flowcharts to the actual program code
sequence of events to determine whether the program is doing what
If complex processes need additional the documentation describes
explanation for clarity, a text description RECORD LAYOUT DIAGRAMS
5 should be included on the flowchart or in an • Used to reveal the internal structure of digital
attached document referenced by the
records in a flat-file or database table
flowchart.
PROGRAM FLOWCHART SYMBOLS
STEPS IN FLOWCHARTING MANUAL ACTIVITIES
1 LAY OUT THE PHYSICAL AREAS OF ACTIVITY
• Flowchart reflects the physical system which is in
turn represented as vertical columns of events
and actions separated by lines of demarcation. • Shows the name, data type, and length of each
• Lay out the areas of activities and label each of attribute (or field) in the record
them
TRANSCRIBE THE WRITTEN FACTS INTO VISUAL
2 COMPUTER-BASED ACCOUNTING SYSTEMS
FORMAT
TRANSACTION PROCESSING MODELS
Involves gathering transactions
into groups or batches and then
BATCH
processing the entire batch as a
single event.
Process individual transactions
REAL-TIME
continuously as they occur.

DIFFERENCES BETWEEN THE TWO MODELS

• Oval: Used to convey a data source or

destination that is separate from the system
being flowcharted. It should be labeled
accordingly. 1 INFORMATION TIME FRAME
• Bucket-shaped symbol: Represents a manual
• Assemble transactions into groups
process
for processing, a time lag will always
• Arrows: Shows the direct of flow and sequence
exist between the point at which an
of events
economic event occurs and the
• Inverted triangle: Temporary File or a physical file BATCH
point at which it is processed by the
of paper documents that are arrange according SYSTEMS
system and reflected in the firm’s
to specific order.
accounts.
• Parallelogram shape: Credit records. Used to
• Amount of lag depends on the
depict many types of hard-copy accounting
frequency of batch processing
records
REAL-TIME Process transactions individually now
PROGRAM FLOWCHARTS SYSTEMS the event occurs; therefore, no time
 ACN 2213-1 ACCOUNTING INFORMATION SYSTEM
CHAPTER 02: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

lags exist between occurrence and • Store transactions and master files in relational
processing database tables
• Advantage is the degree of process integration
2 RESOURCES
and data sharing that can achieve.
BATCH Demand fewer organization
SYSTEMS resources. UPDATING MASTER FILES FROM TRANSACTIONS
• Large portion of total programming • Updating a master file record involves changing
costs are incurred in designing user the value of one or more of its variable fields to
interfaces reflect the effect of transaction (applicable to
• Must be user-friendly, forgiving, and both real-time and batch processing)
REAL-TIME easy to work with. Examples are
SYSTEMS Pop-up menus, online tutorials, and RECORD STRUCTURE FOR SALES, INV. & A/R FILES
special help features require
additional programming and add
to the cost of the system.
• More resources are required.

3 OPERATION EFFICIENCY
Certain records are processed after
BATCH
the event to avoid operational
SYSTEMS
delays
• All records pertaining to the event
REAL-TIME are processed immediately.
SYSTEMS • Single transactions may affect Acronym use
different accounts
• PK or Primary Key: Unique Identifier
4 EFFICIENCY VS. EFFECTIVENESS • SK or Secondary Key: Use to locate the
A superior choice when the time lags corresponding record in the master files
BATCH in information have no effect on the DATABASE BACKUP PROCEDURES
SYSTEMS user performance and operational
• A standard procedure in transaction processing
efficiencies.
system to maintain master file integrity in the
A logical choice if user needs
REAL-TIME event of any following problems should occur:
immediate access to current
SYSTEMS o Update program error corrupts the master files
information.
being updated
FEATURE BATCH REAL-TIME o Undetected errors in the transaction data
Suitable for Suitable for result in corrupted master file balances
non-urgent, time-sensitive, o A disaster such as a fire or flood physically
Use Cases
high-volume immediate destroys current master files
tasks tasks
Constant, high BATCH PROCESSING USING REAL-TIME DATA
Less strain COLLECTION
demand on
System Load during peak • Often used by large operations where they
system
hours digitally capture and process aspects of the
resources
Results are Results are transaction at the source they occur and process
available after available other aspects in batch mode.
Feedback
processing is almost • To maintain integrity, once a particular record is
complete instantly accessed for updating, it is locked by the system
and made unavailable to other processes
ALTERNATIVE DATA PROCESSING APPROACHES
(customer transactions) until the current process
LEGACY SYSTEMS VS. MODERN SYSTEMS
is complete.
Legacy Systems • Deadlock: Occurs when one process places a
• Used to process financial significant transactions lock on one or more of the records it needs for
needed by auditors processing but has not locked all of them.
• Features are:
o Mainframe-based applications REAL-TIME PROCESSING
o Batch Oriented • Process the entire transaction as it occurs
o Uses flat files for data storage (Early legacy system) • Well-suited to systems that process lower
o Single-user environment transaction volumes and those that do not share
o Discourage information integration common records
• No longer constitute the defining features of AIS • Make extensive use of local area network and
but still important to accountants. wide area network technology.
Modern Systems
• Client-server (network)- based and process DATA CODING SCHEMES
transaction in real time • Involves creating simple numeric or alphabetic
• Some are mainframe-based and use batch codes to represent complex economic
processing
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CHAPTER 02: INTRODUCTION TO TRANSACTION PROCESSING
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phenomena that facilitate efficient data • Applying it through prenumbering the source
processing. documents therefore each hard-copy
documents are assigned a unique sequential
SYSTEM WITHOUT CODES
code number at printing
• Those who process large volumes of transactions
that are similar in their basic attributed ADVANTAGES DISADVANTAGES
Carry no information
EXAMPLE OF SYSTEM WITHOUT CODES
content beyond their
Journal entry to record the receipt of $1,000 Supports reconciliation
order in sequence
worth of half-inch, case-hardened steel nuts of a batch of
therefore it tells us
transactions
with standard threads supplied by Industrial nothing about the
Parts Manufacturer of Cleveland, Ohio. attributes of an item
Detections of any gaps Difficult to change in
can alert management instances of placing
of potential missing or new items midpoint
misplaced transactions requires renumbering
If record types must be
DISADVANTAGES OF SYSTEM WITHOUT CODES grouped together and
• Takes a great deal of recoding space Allows tracing back to additions (or even
• Time consuming correct errors. deletions) occur
• Prone to many types of Errors regularly, this scheme is
• Negative effects to some parts of the not appropriate.
organization:
2 BLOCK CODES
o Sales Staff: Requires the transcription of large
• A variation on sequential coding that partly
amounts of detail onto source data and tends
remedies the disadvantages describe
to promote clerical errors and incorrect
• Used to represent a whole class of items by
shipments
restricting each class to a specific range within
o Warehouse Personnel: Locating and picking
the coding scheme
goods for shipment are impeded and shipping
• Common application can be seen in chart of
errors will likely result
accounts.
o Accounting Personnel: Posting to ledger
requires searching through subsidiary files using CHARTS OF ACCOUNTS
lengthy description as key therefore making it
painfully slow, and potentially post at wrong
accounts.
SYSTEM WITH CODES
• Using codes to represent each item in the
inventory and supplier account.
• Kept in reference files and used for such
purposes.
EXAMPLE OF SYSTEM WITH CODES
Journal entry to record the receipt of $1,000
with numeric code of 896 and the supplier
account has several 321

ADVANTAGES DISADVANTAGES
Allows for the insertion
ADVANTAGES OF SYSTEM WITH CODES of new codes within a Information content is
• Concisely representing large amounts of block, without having not readily apparent
complex information that would otherwise be to reorganize
unmanageable. Can represent a
Requires chart of
• Providing a means of accountability over the greater number of
accounts to be present
completeness of the transactions processed. items using the three
to identify account.
digit code
• Identifying unique transactions and accounts
within a file. 3 GROUP CODES
• Supporting the audit function by providing an • Represent complex items or events involving
effective audit trail two or more pieces of related data
NUMERIC & ALPHABETIC CODING SCHEMES
EXAMPLE OF GROUP CODES
1 SEQUENTIAL CODES
• Items are coded in sequential order (ascending
or descending) ADVANTAGES DISADVANTAGES
 ACN 2213-1 ACCOUNTING INFORMATION SYSTEM
CHAPTER 02: INTRODUCTION TO TRANSACTION PROCESSING
3RD YEAR-1ST SEMESTER | A.Y 2024-2025

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

4 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.

EXAMPLE OF ALPHABETIC CODES

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

5 MNEMONIC CODES
• Alphabetic characters in form of acronyms
and other combination that may convey
meaning
• Combination of mnemonic and numeric
codes conveys a good deal of information.
EXAMPLE OF MNEMONIC CODES

ADVANTAGES DISADVANTAGES
Does not require the
user to memorize the Limited ability to
meaning since the represent items within a
code itself conveys class and often quickly
high degree of exhaust by users.
information