Electronic Data Processing Systems Chapter 6

Describe how application controls are used in data Learning Objective 1 Describe how application controls are used in data processing systems to ensure accuracy and integrity.

Paper-Based Input System In some computerized accounting systems, inputs to the system are based on handwritten or typed source documents. These documents are then collected and forwarded to computer operations for error checking and processing.

Preparation and Completion of the Source Document The source document, such as sales orders, are prepared manually. Errors can be minimized if the source document is well designed and easy to understand.

Transfer of Source Documents to Data Processing Batch control totals and data transfer registers controls data transfers. User’s departments Data processing

Transfer of Source Documents to Data Processing Input document control form: Document counts are a simple form of batch control. Batch totals may be taken for all or several numeric fields in the original data file. Data transfer log

Transfer of Source Documents to Data Processing Data entry Key verification Visual verification Program data editing

Program Data Editing Techniques Data editing routines may be applied to each of the basic data structures. Character Fields Records Files

Program Data Editing Techniques What is a table lookup? It is an editing program that compares the value of a field to the acceptable values contained in a table file.

Program Data Editing Techniques Limit test Continuous operations auditing Check digit Valid code check

Paperless Input Systems In paperless input systems, sometimes called online input systems, transactions are input directly into the computer network. Problem: Possible loss of segregation of duties and audit trail.

Paperless Input Systems Source document Preparation Data entry Performed by the same person

Paperless Input Systems Transaction logs or transaction registers are created by logging all inputs to a special file that automatically contains tags to identify transactions.

Paperless Input Systems What is tagging? It means that additional, audit-oriented information is included with original transaction data.

Paperless Input Systems Examples of paperless input systems: Online manual data entry systems Automatic identification systems

Paperless Input Systems Transactions in paperless input systems involving human intervention typically proceed through two phases. 1. Data entry and data editing 2. Transfer to the host application system

Paperless Input Systems Completely Automated Transaction Processing: Networked vending machine (NVM) Electronic data interchange (EDI)

Learning Objectives 2 and 3 Characterize the various types of electronic systems used for processing. Describe the basic functions of a computerized accounting application.

Paper-Based Processing Systems Examples of Batch Processing: Weekly time reports to produce paychecks Groups of checks to update accounts payable master files Processing invoices to update an accounts receivable master file

Paper-Based Processing Systems Performing Batch Processing: Sequential file updating Random-access file updating

Batch Processing with Sequential File Updating Steps: Preparing the transaction file Updating the master file Updating the general ledger Preparing general ledger reports

Sequential File Processing Invoices Data terminal Process input 1 2 Transaction file Batch balance A 3

Sequential File Processing 4 5 6 7 Transaction file Edit program Good data file Sort to master file sequence A Rejected data Control procedure Control report Reconcile Control report 14 13

Sequential File Processing 8 Control data Master file update 10 9 Sorted transaction file Old master file Old master New master 11 Transaction file Retain for backup 12 15

Son–Father–Grandfather Master Files Old master file Father Next file update File update New master file Son Backup master file Grandfather

Updating the General Ledger There are two major aspects to the operation of a computerized general ledger system. 1. The direct processing of the general ledger programs, most of which takes place on a monthly basis 2. The processing in other computer application systems to prepare the inputs to the general ledger system

Journal Voucher Format Number Month Year ID Accounts Debit Credit Received from:

General Ledger File Update As they are released by the general ledger, journal vouchers are used to build a journal voucher file. This file is program data edited to check for the proper journal and account numbers and to determine whether the accounts are correctly associated with their related journals.

General Ledger File Update Invalid data are reported as exceptions... ...and returned to their originating sources for correction and reentry.

General Ledger File Update The current journal voucher transactions are processed against the previous month’s general ledger master file. The master file is updated and the current period’s general ledger register is produced.

General Ledger File Update Computer processing of accounting data is typically a two-step procedure. What are these steps? Step 1 Preliminary reports are produced. Step 2 It is a run that produces the final listings and financial schedules.

General Ledger File Update Preparing reports requires a link between the general ledger accounts and the report (s) in which they appear. Line Coding

Example of a Line Code Account number (e.g., marketable securities) Type of report (e.g., financial) Report (e.g., balance sheet) Line location on report Column on 100601 100 03 2

Batch Processing with Random-Access File Updating In many systems, indexes are maintained for both the subsidiary and general ledger files. Maintaining these indexes allows users to quickly access a particular account. Random-access file updating is simpler than sequential-access updating.

Batch Processing with Random-Access File Updating The following steps are used: 1. A record is read from the transaction file. 2. The key value of the transaction record is used to randomly access the related record in the master file. 3. The record in the master file is updated in memory and then rewritten back to the data file.

Cash Receipts Application New Invoice Application (Daily) Open item accounts receivable A Control file Billing data File update File control summary Review and approve

Cash Receipts Application System Balancing (Daily) Deposit report C D Reconcile Control file Bank summary Activity Bank statement (Monthly) System balancing B

Cash Receipts Application Cash Remittance Processing (Daily) Post office Check remittances Cash receipts total D Check endorsement Deposit slip A B Open item accounts receivable Data entry Activity file C

Cash Receipts Application Cash Remittance Processing (Daily) Deposit register D Bank summary file D Data entry Reconcile Cash summary report Cash summary report Review and sign D

Paperless Processing Systems Batch processing Real-time or online real-time processing

Paperless Processing Systems The main difference between paperless and paper-based batch processing systems is that journal vouchers are replaced by their electronic equivalents, and the general ledger is updated automatically in period batch runs.

Paperless Processing Systems A primary advantage of paperless systems is that they make possible real-time processing. The processing of individual transactions as opposed to groups of transactions is called immediate, direct, or real-time processing.

Paperless Processing Systems Online, real-time systems (OLRS) process transactions immediately after they are input. These systems can provide immediate output to users. What are some types of real-time processing in OLRS?

Paperless Processing Systems Inquiry/response systems Data entry systems File processing systems Full processing systems (transaction processing systems)

Paperless Processing Systems Relative disadvantages of OLRS are: increased costs and complexity of systems operations sensitivity to hardware and software errors they are more susceptible to processing errors that arise from erroneous or fraudulent inputs.

Real-Time Sales System These systems utilize contemporary information technology to maximize system performance. POS (Point-of-Sale) system Bar coding for automatic identification EDI (Electronic Data Interchange) ordering system

Real-Time Point-of-Sale System Inventory Accounts receivable General ledger Sales slips Reports Customer input via Web browser Internet Processor POS terminals Other terminals Reports

Transaction Processing in Real-Time Sales Systems send customer electronic catalog Vendor EDI Retailer > forecast customer’s sales order receive and translate incoming order <

Transaction Processing in Real-Time Sales Systems Vendor EDI Retailer send acknowledgement > send order to inventory or production transmit advance shipping notice > ship goods

The Output System The output system can be paper-based, paperless, or something in between. Most paper-based, batch-oriented systems with sequential file processing produce very large volumes of output. Online, real-time paperless systems tend to produce very little output.

The Output System Output controls are designed to check that processing results in valid output and that outputs are properly distributed. A separate EDP control group is often established to monitor EDP operations. Typically, an output distribution register is maintained to control the disposition of reports.

End of Chapter 6