1 Chapter 2 Introduction to Transaction Processing TPS

2 Objectives for Chapter 2 zBroad objectives of transaction cycles zTypes of transactions processed by each of the three transaction cycles zThe basic accounting records used in TPS zThe traditional accounting records and their magnetic equivalents zDocumentation techniques zBatch and real-time processing and the impact of these technologies on transaction processing

3 A Financial Transaction is... zan economic event that affects the assets and equities of the firm, is reflected in its accounts, and is measured in monetary terms. zsimilar types of transactions are grouped together into three transaction cycles: ythe expenditure cycle, ythe conversion cycle, and ythe revenue cycle.

Physical PlantMaterialsLaborCustomers Finished Goods Revenue Cycle Expenditure CycleConversion Cycle Subsystems: Sales Order Processing Cash Receipts Finished Goods Cash Three Primary Transaction Cycles Subsystems: Purchasing/Accts Pay Cash Disbursements Payroll Fixed Assets Subsystems: Production Planning and Control Cost Accounting

5 Each Cycle has Two Subsystems zExpenditure Cycle: time lag between the two due to credit relations with suppliers: yphysical component (acquisition of goods) yfinancial component (cash disbursements to the supplier) zConversion Cycle : ythe production system (planning, scheduling, and control of the physical product through the manufacturing process) ythe cost accounting system (monitors the flow of cost information related to production) zRevenue Cycle: time lag between the two due to credit relations with customers : yphysical component (sales order processing) yfinancial component (cash receipts)

6 Manual System Accounting Records zSource Documents - used to capture and formalize transaction data needed for transaction processing zProduct Documents - the result of transaction processing zTurnaround Documents - a product document of one system that becomes a source document for another system

7 Manual System Accounting Records zJournals - a record of chronological entry yspecial journals - specific classes of transactions that occur in high frequency ygeneral journal - nonrecurring, infrequent, and dissimilar transactions zLedger - a book of financial accounts ygeneral ledger - shows activity for each account listed on the chart of accounts ysubsidiary ledger - shows activity by detail for each account type

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

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

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

11 Computer-Based Systems zThe audit trail is less observable in computer-based systems than traditional manual systems. zThe data entry and computer programs are the physical trail. zThe data are stored in magnetic files.

12 Computer Files zMaster File - generally contains account data (e.g., general ledger and subsidiary file) zTransaction File - a temporary file containing transactions since the last update zReference File - contains relatively constant information used in processing (e.g., tax tables, customer addresses) zArchive File - contains past transactions for reference purposes

13 Documentation Techniques zDocumentation in a CB environment is necessary for many reasons. zFive common documentation techniques: yEntity Relationship Diagram yData Flow Diagrams yDocument Flowcharts ySystem Flowcharts yProgram Flowcharts

14 Entity Relationship (ER) Diagram zis a documentation technique to represent the relationship between entities in a system. zThe REA model version of ER is widely used in AIS. REA uses 3 types of entities: yresources (cash, raw materials) yevents (release of raw materials into the production process) yagents (inventory control clerk, vendor, production worker)

15 Cardinality zrepresents the numerical mapping between entities: yone-to-one yone-to-many ymany-to-many

Sales- person Car Customer Order VendorInventory Assigned Places Supply EntityRelationshipEntity 1 M M M 1 1 Cardinalities

17 Data Flow Diagrams (DFD) zuse symbols to represent the processes, data sources, data flows, and entities in a system zrepresent the logical elements of the system zdo not represent the physical system

Data Flow Diagram Symbols Entity Name N Process Description Data Store Name Direction of data flow

19 Documents Flowcharts zillustrate the relationship among processes and the documents that flow between them zcontain more details than data flow diagrams zclearly depict the separation of functions in a system

Symbol Set for Document Flowcharts Terminal showing source or destination of documents and reports Source document or report Manual operation File for storing source documents and reports Accounting records (journals, registers, logs, ledgers) Calculated batch total On-page connector Off-page connector Description of process or comments Document flowline

Sales DepartmentCredit Department WarehouseShipping Department First Stages in Constructing Document Flowchart Showing Areas of Activity Customer Order Prepare Sales Orders Sales Order #1 Sales Order #1 Sales Order #1 Sales Order #1

Sales Order 4 Customer Order Sales DepartmentCredit Department WarehouseShipping Department Finished Document Flowchart Showing Areas of Activity Customer Order Prepare Sales Orders Sales Order #1 Sales Order #1 Sales Order #1 Sales Order #1 N Sales Order #1 Checks Credit Records Signed Sales Order #1 Signed Sales Order #1 Distribute SO and File N Customer Order Signed Sales Order #1 Sales Order 4 Sales Order3 Sales Order2 Sales Order2 Sales Order 4 Sales Order3 Picks Goods Stock Records A A Sales Order2 Picks Goods N Sales Order3 Customer Sales Order2

23 System Flowcharts zare used to represent the relationship between the key elements--input sources, programs, and output products--of computer systems zdepict the type of media being used (paper, magnetic tape, magnetic disks, and terminals) zin practice, not much difference between document and system flowcharts

Systems Flowchart Symbols Hard copy Computer process Direct access storage device Magnetic tape Terminal input/ output device Process flow Real-time (online) connection Video display device

Sales DepartmentComputer Operations Department WarehouseShipping Department First Stages in Constructing System Flowchart Showing Areas of Activity Customer Order Custome r Terminal Edit and Credit Check AR File Update Program Sales Orders Inventory Credit Hist File

Sales DepartmentComputer Operations Department WarehouseShipping Department Finished System Flowchart Showing All Facts Translated into Visual Symbols Customer Order Custome r Terminal Edit and Credit Check AR File Update Program Sales Orders Inventory Sales Order1 Picks Goods Stock Records Sales Order1 Sales Order3 Sales Order 3 Sales Order2 Picks Goods N Sales Order2 Customer Sales Order1 A A Sales Order 3 Sales Order2 Sales Order1 Credit file N Customer Order

27 Program Flowcharts zillustrate the logic used in programs Program Flowchart Symbols Logical process Decision Terminal start or end operation Input/output operation Flow of logical process

28 The Physical Database Data Hierarchy Database File Record Field Bit - usually magnetically encoded

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

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

31 Direct Access Structures zRecords are stored at unique locations known as addresses. zAddress tells operating system the exact location of record on the disk. zThis structure allows for accessing a record without going through all preceding records.

32 Index Structure zA separate index exists that is a file of record addresses. zThe records may be dispersed throughout the disk either randomly or sequentially. zA record is found by first searching the index for the address of the desired record. zVSAM is an example of using an indexed access method on a large database of sequentially stored records.

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

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

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

36 Three Types of Pointers zA physical address pointer contains the actual storage location needed by the disk controller. It is a rapid retrieval method. zA relative address pointer contains the relative position of a record in the file. It must be converted to the actual physical address. zA 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.

37 Computer-Based Accounting Systems zTwo broad classes of systems: ybatch systems yreal-time systems

38 Batch Processing zA batch is a group of similar transactions that are accumulated over time and then processed together. zThe 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. zA time lag exists between the event and the processing.

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

40 Steps in Batch Processing/Sequential File zKeystroke - source documents are transcribed by clerks to magnetic tape for processing later zEdit Run - identifies clerical errors in the batch and places them into an error file zSort Run - places the transaction file in the same order as the master file using a primary key zUpdate Run - changes the value of appropriate fields in the master file to reflect the transaction zBackup Procedure - the original master continues to exist and a new master file is created

41 Advantages of Batch Processing zOrganizations can increase efficiency by grouping large numbers of transactions into batches rather than processing each event separately. zBatch processing provides control over the transaction process via control figures.

42 Real-Time Systems zprocess transactions individually at the moment the economic event occurs zhave no time lag between the economic event and the processing zgenerally require greater resources than batch processing since they require dedicated processing capacity; however, these cost differentials are decreasing zoftentimes have longer systems development time

43 Why Do So Many AISs Use Batch Processing? zMuch of AIS processing is characterized by high-volume, independent transactions, such as 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, such as overnight.