 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Chapter 10 Electronic Data Processing Systems

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Learning Objective 1 Describe how application controls are used in data processing systems to ensure accuracy and integrity.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paper-Based Input System l The source document, such as sales orders, are prepared manually. l Batch control totals and data transfer registers are fundamental controls over data transfer between user departments and data processing. l Submission of input data should be accompanied by the completion of an input document control form.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paper-Based Input System l After the source documents are received by data processing, they are manually key-transcribed using a data terminal or personal computer, and then stored on disk. l What is key verification? l What is program data editing?

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paper-Based Input System l Data editing routines may be applied to each of the basic data structures. – character – Fields – records – files l What is a table lookup?

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paper-Based Input System l What is a limit test? l What is continuous operations auditing? l What is a check digit?

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paperless Input Systems l In paperless systems, source document preparation and data entry are performed by the same person. l Sometimes no person is directly involved. l The loss of paper-based internal controls can be compensated for by using transaction logs.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paperless Input Systems l Transaction logs or transaction registers are created by logging all inputs to a special file that automatically contains tags to identify transactions. l What is tagging?

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paperless Input Systems l There are many types of paperless input systems in which users enter transactions directly into the computer. l What are some examples? – on-line manual data entry systems – automatic identification systems

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paperless Input Systems l Transactions in paperless input systems involving human intervention typically proceed through two phases. l What are these phases? 1 Data entry and data editing 2 Transfer to the host application system

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paperless Input Systems l In some systems, transactions are processed from beginning to end without any human intervention: completely automated transaction processing. l What are some examples of this technology? – networked vending machine (NVM) – electronic data interchange (EDI)

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Learning Objectives 2 & 3 Characterize the various types of electronic systems used for processing. Describe the basic functions of a computerized accounting application.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paper-Based Processing Systems l In batch-oriented processing systems, transactions are entered into the computer in batches. l These batches are then processed periodically. l What are some examples of batch processing?

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paper-Based Processing Systems – processing weekly time reports to produce paychecks – processing groups of checks to update accounts payable master files – processing invoices to update an accounts receivable master file l Batch processing can be performed with sequential or random-access file updating.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Batch Processing with Sequential File Updating l Processing in a sequential file updating system usually involves the following steps: – preparing the transaction file – updating the master file – updating the general ledger – preparing general ledger reports

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Sequential File Processing Invoices Data Terminal Data Terminal Process Input Process Input Transaction File Transaction File Batch Balance Batch Balance A A

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Sequential File Processing A A Transaction File Transaction File Edit Program Edit Program Good Data File Good Data File Sort to Master File Sequence Sort to Master File Sequence Control Report Control Report Rejected Data Rejected Data Control Procedure Control Procedure Reconcile Control Report Control Report

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Sequential File Processing Sorted Transaction File Sorted Transaction File Control Data Control Data Old Master File Old Master File Master File Update Master File Update Transaction File Transaction File Old Master Old Master New Master New Master Retain for Backup Retain for Backup

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Son–Father–Grandfather Master Files Old Master File Old Master File Backup Master File Backup Master File New Master File New Master File Update File Update Grandfather Father Son Next File Update

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Updating the General Ledger l A general ledger system is the cornerstone of an accounting system. l There are two major aspects to the operation of a computerized general ledger system. l What are these two aspects? 1 The direct processing of the general ledger programs, most of which takes place on a monthly basis

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Updating the General Ledger 2 The processing in other computer application systems to prepare the inputs to the general ledger system l One of the tasks to be undertaken in designing a general ledger system is the creation of a pro forma set of journal entries.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Journal Voucher Format Journal Voucher NumberMonthYearID AccountsDebitCredit Received from:

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood General Ledger File Update l Computer processing of accounting data is typically a two-step procedure. l What are these steps? l The first step produces preliminary reports. l The second step is a run that produces the final listings and financial schedules.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood General Ledger File Update l Preparing reports requires a link between the general ledger accounts and the report(s) in which they appear. l This process is called line coding.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Example of a Line Code Account Number (e.g., marketable securities) Type of Report (e.g., financial) Report Number (e.g., balance sheet) Line Location on Report Column Location on Report

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Batch Processing with Random-Access File Updating l In many systems, indexes are maintained for both the subsidiary and general ledger files. l Maintaining these indexes serves the primary need of allowing users to quickly access a particular account. l Random-access file updating is simpler than sequential-access updating.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Batch Processing with Random-Access File Updating l With random-access updating, it is not necessary to sort the transaction file into the same order as the master file. l There is no need to generate a new master file. l Individual records are read one by one from the transaction file and used to update the related records in the master file in place.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Batch Processing with Random-Access File Updating l 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.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Cash Receipts Application Open Item Accounts Receivable Open Item Accounts Receivable A A Billing Data Billing Data Control File Control File Update File Update File Control Summary File Control Summary Review and Approve Review and Approve New Invoice Application (Daily)

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Cash Receipts Application Cash Remittance Processing (Daily) Post Office Check Remittances Check Remittances Open Item Accounts Receivable Open Item Accounts Receivable A A B B Data Entry Check Endorsement Check Endorsement Cash Receipts Total Cash Receipts Total Activity File Activity File C C Deposit Slip Deposit Slip D

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Cash Receipts Application Cash Remittance Processing (Daily) Data Entry Cash Summary Report Cash Summary Report Deposit Register Deposit Register D D Cash Summary Report Cash Summary Report Reconcile Review and Sign Review and Sign Bank Summary File Bank Summary File D D

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Cash Receipts Application Control File Control File C C D D System Balancing System Balancing Deposit Report Deposit Report Reconcile Bank Statement Bank Statement B B Bank Summary File Bank Summary File Activity File Activity File System Balancing (Daily) (Monthly)

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paperless Processing Systems l In paperless processing systems, either batch or real-time processing is possible. l With real-time processing, sometimes called on-line real-time processing, transactions are processed as they are input into the system.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paperless Processing Systems l Batch processing in paperless systems is similar to batch processing in paper-based systems. l The main difference is that journal vouchers are replaced by their electronic equivalents, and the general ledger is updated automatically in period batch runs.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paperless Processing Systems l A primary advantage of paperless systems is that they make possible real-time processing. l The processing of individual transactions as opposed to groups of transactions is called immediate, direct, or real-time processing.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paperless Processing Systems l On-line, real-time systems (OLRS) process transactions immediately after they are input. l What are some types of real-time processing in OLRS?

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paperless Processing Systems – inquiry/response systems – data entry systems – file processing systems – full processing systems or transaction processing systems

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood Paperless Processing Systems l The relative disadvantages of OLRS stem from the increased costs and complexity of systems operations. l OLRS are more sensitive to hardware and software errors. l They are more susceptible to processing errors that arise from erroneous or fraudulent inputs.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood The Output System l The output system can be paper-based, paperless, or something in between. l Most paper-based, batch-oriented systems with sequential file processing produce very large volumes of output. l On-line, real-time paperless systems tend to produce very little output.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood The Output System l Output controls are designed to check that processing results in valid output and that outputs are properly distributed. l A separate EDP control group is often established to monitor EDP operations. l Typically, an output distribution register is maintained to control the disposition of reports.