Chapter 2

Introduction to
Transaction TPS
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 cycle.
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
 Manual System Accounting
Records
• Journals - a record of chronological entry
– special journals - specific classes of
transactions that occur in high frequency
– general journal - nonrecurring, infrequent, and
dissimilar transactions
• Ledger - a book of financial accounts
– general ledger - shows activity for each
account listed on the chart of accounts
– subsidiary ledger - shows activity by detail for
each account type
Flow of Economic Events Into
the General Ledger
Accounting Records in a Computer-Based System

EXPLANATION OF STEPS IN
FIGURE:

1. Compare the AR balance in

the balance sheet with the
master file AR control account
balance.

2. Reconcile the AR control

figure with the AR subsidiary
account total.

3. Select a sample of update

entries made to accounts in
the AR subsidiary ledger
and trace these to transactions
in the sales journal (archive
file).

4. From these journal entries,

identify source documents that
can be pulled from their files
and verified. If necessary,
confirm these source
documents by contacting the
customers.
 Audit Trail

Source General Financial

Journal
Document Ledger Statements

Financial General Source

Statements Journal Document
Ledger

Accountants should be able to trace in both directions.

Sampling and confirmation are two common techniques.
 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
 Documentation Techniques
• Documentation in a CB environment is
necessary for many reasons.
• Five common documentation techniques:
– Entity Relationship Diagram
– Data Flow Diagrams
– Document Flowcharts
– System Flowcharts
– Program Flowcharts
 Entity Relationship (ER)
Diagram…
• is a documentation technique to represent the
relationship  between entities  in a system.
• The REA model version of ER is widely used
in AIS. REA uses 3 types of entities:
– resources (cash, raw materials)
– events (release of raw materials into the
production process)
– agents (inventory control clerk, vendor,
production worker)
 Cardinalities
Entity Relationship Entity

Sales- 1 1 Car
Assigned
person

1 M
Customer Places Order

M M
Vendor Supply Inventory
 Data Flow Diagrams (DFD)…
• use symbols to represent the processes,
data sources, data flows, and entities in
a system
• represent the logical elements of the
system
• do not represent the physical system
Data Flow Diagram Symbols
Entity Data Store
Name Name

N
Process
Description Direction of
data flow
 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
Symbol Set for Document Flowcharts
Terminal showing source Calculated batch total
or destination of documents
and reports

Source document or
report
On-page connector

Manual operation
Off-page connector

File for storing source Description of process

documents and or comments
reports

Accounting records
Document flowline
(journals, registers,
logs, ledgers)
Sales Department Credit Department Warehouse Shipping Department

Customer

Customer
Order

Prepare
Sales
Orders

Sales
Order #1
Sales
Sales
Order #1
OrderSales
#1
Order #1

First Stages in Constructing Document Flowchart Showing Areas

of Activity
 Sales Department Credit Department Warehouse Shipping Department

Sales A
Customer
Order #1 Sales
Order2
Customer Sales
Checks
Order Credit Order 4
Credit
Records Sales
Picks Stock
Prepare Records Order3
Goods
Sales
Orders Signed Sales
Order #1
Customer Sales Picks
Order Order2 Goods
Sales
Order #1
Sales
Sales
Order #1
OrderSales
#1 Sales
Order #1 Order 4
Sales
Signed Sales Order3
N Order #1
Sales
Order2 N
Distribute
SO and
File A
Customer
Sales Customer
Order
Signed Sales
Order #1 Order 4
Sales Finished Document Flowchart
Order3
Sales Showing Areas of Activity
N
Order2
 System Flowcharts…
• are used to represent the relationship
between the key elements--input sources,
programs, and output products--of
computer systems
• depict the type of media being used
(paper, magnetic tape, magnetic disks,
and terminals)
• in practice, not much difference between
document and system flowcharts
Systems Flowchart Symbols
Terminal input/
Hard copy
output device

Computer process
Process flow

Real-time
Direct access storage (online)
device connection

Video display
device
Magnetic tape
Sales Department Computer Operations Department Warehouse Shipping Department

Customer
Edit and Credit Hist
Credit Check File
Customer
Order
Sales
Orders

Terminal
AR File
Update
Program
Inventory

First Stages in Constructing System Flowchart Showing

Areas of Activity
Sales Department Computer Operations Department Warehouse Shipping Department

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

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

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

Finished System Flowchart Showing All Facts

Translated into Visual Symbols
 Program Flowcharts…

illustrate the logic used in programs

Program Flowchart Symbols

Terminal start or
Logical process
end operation

Input/output
operation
Decision
Flow of logical
process
 Why Do So Many AISs Use
Batch Processing?
• AIS processing is characterized by
high-volume, independent transactions,
such are recording cash receipts
checks received in the mail or payroll.
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.