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Chapter 2

Chapter 2. TPS. 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.

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Chapter 2

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  1. Chapter 2 TPS Introduction to Transaction Processing

  2. A Financial Transaction is... • an economic event that affects the assets and equitiesof the firm, is reflected in its accounts, and is measured in monetary terms. • similar types of transactions are grouped together into threetransaction cycles: • the expenditure cycle, • the conversion cycle, and • the revenue cycle.

  3. Labor Customers Materials Physical Plant Expenditure Cycle Conversion Cycle Revenue Cycle Finished Goods Cash Finished Goods Cash Subsystems: Purchasing/Accts Pay Cash Disbursements Payroll Fixed Assets Subsystems: Production Planning and Control Cost Accounting Subsystems: Sales Order Processing Cash Receipts Cash Three Primary Transaction Cycles

  4. 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)

  5. Manual System Accounting Records • Provide evidence of an economic event. • 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

  6. 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

  7. Flow of Economic Events Into the General Ledger Journal Entry Post Purchase Request Purchases Journal General Ledger Purchase Order Post Periodically Reconcile Subsidiary Ledger to General Ledger Accounts Payable Subsidiary Ledger

  8. Audit Trail Financial Statements Source Document General Ledger Journal Financial Statements Source Document General Ledger Journal Accountants should be able to trace in both directions. Sampling and confirmation are two common techniques.

  9. Verifying Accounts Receivable - The Audit Trail Accounts Receivable Control Account-General Ledger Accounts Receivable Subsidiary Ledger (sum of all customers’ receivables) Sales Journal Cash Receipts Journal Sales Order Deposit Slip Shipping Notice Remittance Advice Example of Tracing an Audit Trail

  10. 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.

  11. 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

  12. Documentation of Systems • Documentation is a vital part of any AIS. • Accountants use many different types of diagrams to trace the flow of accounting data through an AIS. • A wide variety of software is available for documenting AISs.

  13. Why Documentation Is Important • Depicting how the system works • Training users • Designing new systems • Controlling system development and maintenance costs • Standardizing communications with others • Auditing AISs • Documenting business processes

  14. Documentation Techniques • Common documentation techniques: • Data Flow Diagrams • Document Flowcharts • System Flowcharts • Program Flowcharts • Entity Relationship Diagram

  15. Data Flow Diagrams • A data flow diagram shows the logical flows of data through a transaction processing system of an organization. • They are primarily used in the systems development process as a tool for analyzing an existing system.

  16. 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

  17. Data Flow Diagrams • Depicts a system’s components, the data flows among the components, and the sources, destinations, and storage of data. • Context Diagram • Physical Data Flow Diagram • Logical Data Flow Diagram

  18. Symbols used in Data Flow Diagrams • A square represents an external data source or data destination. • A circle indicates a internal entity that changes or transforms data. • Two horizontallines represent the storage of data. This is usually a file. • A line with an arrow indicates the direction of the flow of data.

  19. Parts of the DFD:Data Flows • Data flows - the flow of data between processes, data stores, and sources and destinations. • Can be composed of more than one piece of data/elements. • Different data flows cannot have the same name • Data flows moving in and out of data stores do not require names • A DFD does not indicate why a process began. • Data flows can move in two directions.

  20. Context Diagrams • Data flow diagramsare usually drawn in levels that include increasing amounts of detail. • A top level (or high-level) DFD that provides an overall picture of an application or system is called a context diagram. • A context diagramis then decomposed, or exploded, into successively lower levels of detail.

  21. Context DiagramFigure 3-2 • Top level -- least detailed • External entities - persons, places, or things outside a system that send data to, or receive data from a system • Circle - defines the system’s boundary • boundary - the border between the “system of interest” and the system’s environment. • Environment - all that surrounds a system

  22. Context Diagram • Entities - the relevant environment • relevant environment - part of the environment that affects the “system of interest” • interface - flow connecting a system with the system’s environment

  23. Physical Data Flow Diagrams • The first level of detail is commonly called a physical data flow diagram. • It focuses on physical entities involved in the system under study, as well as the tangible documents, reports and other hard-copy inputs and outputs.

  24. Physical Data DiagramFigure 3-3 • Internal entity - person, place, or thing within the system that transforms data (I.e., accounting clerk, departments, computers) • Specify where, how and by whom a system’s processes are accomplished - does not indicate what is being accomplished

  25. Physical Data Diagram • Circles are labeled with nouns; represent internal entities • Data flows are labeled to indicate how data are transmitted between bubbles • File’s location indicates where (bookkeeping); file’s label indicates how (Blue sales book) a system maintains sales record • Boxes - external entities

  26. Logical Data DiagramFigure 3-4 • Shows the system’s processes and the flows of data into and out of the processes. • Used to document information systems; represent the logical nature of a system--what tasks the system is doing without specifying how, where, or by whom the tasks are accomplished

  27. Logical Data Flow Diagram (DFD) • Logical DFD vs physical DFD: concentrate on the functions that a systems performs • Labels on data flows describe the nature of the data; rather than how the data are transmitted • Is the payment in form of a check, cash, credit card, or debit card? • Logical portrays a system’s activities; physical depicts infrastructure.

  28. Logical DFD • Processes are labeled with verbs that describe the actions being performed, rather than being labeled with the nouns as in the physical • Level 0 diagram • Each data flow from Figure 3.2 also flow into and out of the circles in Figure 3.4 except for the flows between circles

  29. Document Flowcharts • A document flowchart traces the physical flow of documents through an organization. • Auditors and accountants may use document flowcharts when analyzing a current system for weaknesses in controls and reports.

  30. Documents Flowcharts • contain more details than data flow diagrams • clearly depict the separation of functions in a system

  31. Common Document Flowcharting Symbols Keying operation Manual Operation Document Connector between two points on a flowchart Multiple copies of a specific document Journal or ledger

  32. System Flowcharts • System flowchartsdepict the logical flows of data and processing steps in an AIS. • depict the type of media being used (paper, magnetic tape, magnetic disks, and terminals) • in practice, not much difference between document and system flowcharts

  33. Common System Flowchart Symbols Computer Processing Input/Output On-line keying Document Communication Link Screen Display Magnetic Disk On-line Storage

  34. Common Systems Flowcharting Routines • Figures 3-7a and 3-7b.

  35. 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)

  36. Cardinality • represents the numerical mapping between entities: • one-to-one • one-to-many • many-to-many

  37. Cardinalities Entity Relationship Entity 1 1 Sales- person Car Assigned 1 M Places Order Customer M M Vendor Inventory Supply

  38. Program Flowcharts • illustrate the logic used in programs Program Flowchart Symbols Terminal start or end operation Logical process Input/output operation Decision Flow of logical process

  39. The Physical DatabaseData Hierarchy Database File Record Field Bit - usually magnetically encoded

  40. Data Structures • allow records to be located, stored, retrieved and allow movement through the database. Two components: • The organization of a file is the physical arrangement of records. • The access method is the technique used to locate records and to navigate through the database or file.

  41. Sequential Access Structure • All records lie in contiguous storage spaces in a specified sequence arranged by their primary key. • Data retrieval requires that all records before the desired record must be read in order first. • This structure does not allow for a record to be accessed directly.

  42. Direct Access Structures • Records are stored at unique locations known as addresses. • Address tells operating system the exact location of record on the disk. • This structure allows for accessing a record without going through all preceding records.

  43. Index Structure • A separate index exists that is a file of record addresses. • The records may be dispersed throughout the disk either randomly or sequentially. • A record is found by first searching the indexfor the address of the desired record. • VSAM is an example of using an indexed access method on a large database of sequentially stored records.

  44. Inserting a Record into an VSAM File Key 223 Key 224 Key 225 Key 226 Key 228 Key 229 Key 231 Key 233 Key 234 Overflow Area Key 235 Key 238 Key 239 Index Key 240 Key 241 ... ... ... ... Key 237 ... ... ... Prime Area ... ... ... ... Key 269 Key 270 Insert New Record with Key Value = 237

  45. Hashing Structure • employs an algorithm that converts the primary key of a record directly into a unique storage address • eliminates the need for a separate index --record retrieval is rapid • A disadvantage is that some disk locations will never be selected because they do not correspond to legitimate key values.

  46. Pointer Structures • A linked-list file stores in a field of one record the address (pointer) of a related record. • The records are spread over the entire disk without concern for their physical proximity. • Pointers may also be used to link records between files.

  47. Three Types of Pointers • Aphysical address pointer contains the actual storage location needed by the disk controller. It is a rapid retrieval method. • A relative address pointer contains the relative position of a record in the file. It must be converted to the actual physical address. • A logical key pointer contains the primary key of the related record which is then converted to the record’s physical address using a hashing algorithm.

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

  49. 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.

  50. Batch Processing/Sequential File Unedited Transactions Sales Orders Keying catches clerical errors Edit Run Errors correct errors and resubmit Edited Transactions rearranges the transaction data by key field so that it is in the same sequence as the master file Sort Run Transactions Old Master (father) AR changes the values in the master file to reflect the transactions that have occurred Update Run AR Transactions (eventually transferred to an archive file) New Master (son)

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