Accounting Information Systems: Essential Concepts and Applications

Fourth Edition by Wilkinson, Cerullo, Raval, and Wong-On-Wing

Chapter 5: Computer-Based Transaction Processing

Slides Authored by Somnath Bhattacharya, Ph.D. Florida Atlantic University

Transaction Processing Systems

A fundamental task in any AIS is to process transactions affecting the organization Transaction processing systems(Ss) involve three stages:
Data entry Data and file processing Output preparation

Benefits of Understanding Transaction Processing Systems

Recognize limitations in currently installed Transaction Processing Systems such as:
inadequate data controls inefficient processing out-of-date files stored data that cannot be accessed quickly data that is poorly classified and coded

Recommend new or improved processing approaches and storage methods

Layout of Input-ProcessOutput Discussion

Data Processing Model

Input

Process

Output

Online

Offline Always Batched Processing

Periodic (Batched)

Realtime (Immediate)

May lead to Realtime Processing

May lead to Batched Processing

Direct Updating

Sequential Updating

Sequential Updating after Online Data Entry

Sequential Updating from Batched (Offline) Inputs

Data Entry
Most transactions are initiated by business events triggered by various agents or by instructions within a computer program Other transactions are initiated by the passage of time, e.g., interest accruals Computer-based systems employ an off-line or on-line approach to data entry

Off-line Data Entry

Off-line refers to input devices not directly connected to the computer. Examples are key-to-tape, key-to-disk, and OCR readers Data must be first captured on source documents and similar transactions are batched together Batched transactions are transcribed into machine-readable form using an off-line device Turnaround documents may be used as direct input into a system

On-line Data Input

On-line refers to devices that are directly and continuously connected to a computer system In on-line data entry, transaction data are entered into the computer directly as they occur Characteristics of on-line data entry may include: nonexistence of source documents (telephones, face-to-face conversations) input of data using source data automation (scanners at POS terminals) origination of data by parties external to the firm (ATM machines, telephone touch-tone based transactions) capture of data at remote sites (remote job entry or remote batch processing)

Input Documents
Input documents typically do the following:
Authorize Subsequent Transactions Trigger Desired Actions Reflect Accountability Provide Data for Output and Reference

On-line Data Entry design

Four factors that can reduce the tendency for errors in on-line data entry are:
Menus that clearly define alternative actions Dialogue prompts that display suggestions or questions to the user Graphical user interfaces that allow a user to make selections Preformatted screens that display formats for transaction documents. These can be associated with menu options

Advantages of On-line versus Off-line Data Entry

Off-line data entry offers the advantages of economy and productivity On-line data entry offers the advantages of timeliness, flexibility, and simplicity

Options in Computer-Based Transaction Processing

Source of Differentiation Options

Source(s) of Transactions Focus of Transaction Data Input Approach Timing of Processing Mode of Processing Timing of Outputs Users of Information

Main Computer Site Batches of Events Off-line Periodic (delayed) Sequential Spooled Currency not critical

Remote Individual Events On-line Immediate (real- time) Direct Immediate Currency critical

Figure 5-7

Data Processing Methods

Batch data processing involves the processing of data in groups (or batches) of like transactions at periodic intervals. Used when transaction activity is low or periodic Real-time processing consists of processing each transaction as it arises and is captured

Batch Processing Method

In batch processing, transaction data are stored in a transaction file until a master-file update is performed. The storing of transaction data in a transaction file may occur either through off-line or on-line entry of data Advantages of batch processing include: processing can be done in background mode processing is only performed when needed batch processing leaves a good audit trail Disadvantages: the master-file is only as current as last processing run. If transactions are batched before entry, any errors in transaction data cannot be corrected at the time of entry. They must be corrected and reentered either through a separate run or during the next processing cycle

Real-time Processing Method

Real-time processing involves the processing of each transaction as it arises and is captured Data from each transaction are entered via an online device and posted directly and immediately to the affected record(s) in one or more master files Real-time processing may be interactive in that it may involve direct interactions between humans and computerized systems

Real-time Processing Method

Advantages of real-time processing include: This method keeps the master file more current than the batch runs Errors are caught at the time of data entry Drawbacks of real-time processing include: More complex and expensive than batch systems Harder to audit Controls and backup procedures are more elaborate in order to guard against unwarranted access and human error

Document Flowcharts
Flowcharts are pictorial representations of transaction processing systems that portray flows of some type A Document Flowchart emphasizes the hardcopy inputs and outputs and their flows through organizational units Auditors and accountants may use document flowcharts when analyzing a current system for weaknesses in controls and reports

Common Document Flowcharting Symbols - I

Punched Card Floppy Disk

Keying operation
Document

Manual Operation
Connector between two points on a flowchart Journal or ledger

Multiple copies of a specific document

Common Document Flowcharting Symbols - II

Permanent file of documents Information flow Document flow Annotation for additional explanation

Envelope

Adding machine tape used for batch control

A Sample Document Flowchart

Requesting Department Central Supplies Department

12
Goods Requisition Form

Goods Requisition Form

A File

System Flowcharts
System Flowcharts depict the flows of data

and processing steps in an AIS They use symbols that are industry conventions standardized by the American
National Standards Institute (ANSI)

Flowcharting symbols are grouped as input-output symbols, processing symbols, storage symbols, data and information flow symbols, and miscellaneous symbols

System Flowchart Symbols Input/Output

Keying Operation Punch Card
Can also be output. These are rarely used nowadays.

Manual Input

Document
Also output as reports

Display
Used when type of media is unknown or for manual card files, ledgers, batch logs, etc.

General Purpose Input-Output File

System Flowcharting Symbols Processing

Manual Operation Processing Sorting Auxiliary Operation

Collate
Also known as off-line process

System Flowcharting Symbols Storage

Punched Card Input/Output

Punched Paper Tape Magnetic Tape

Online Storage

Document
Magnetic Disk Off-line Storage

Systems Flowcharting Symbols Connectors

Start/Stop

Terminal
Can also be an external entity

Logic Flow

On-page connector Off-page Connector Telecommunication Link

System Flowcharting Symbols Miscellaneous - I

Data Preparation

Communication Link Termination

Can also be an external entity

System Flowcharting Symbols Miscellaneous - II

Bridge for crossing flows
Annotation for additional explanation

Batch total any total

Goods; e.g., inventory shipment

Structure Charts
A structure chart portrays the hierarchy of levels and interrelationships within a system Computer programmers use high-level structure charts to determine the overall structure of program modules required to operationalize a system Low-level structure charts, prepared during the detailed design phase, enable computer programmers to create source code sub-routines that help in the implementation of systems Source code sub-routines are frequently written in Structured English Structured English are English-like statements generated from low-level structured charts. These statements are then converted to detailed source programming code instructions

A High-Level Structure Chart for a Course Registration System

Class Registration Processing System

Read Course Schedules Other Inputs

Process Course Schedules

Output Course Schedules Other Inputs

Get Course Schedules Other Files

Edit Course Schedules

Update Course Schedules Other Files

Output Registration Reports

Output Course Schedules Other Reports

Figure 5-11

Sequential vs. Direct Updating

Sequential Updating from Batched/Online Inputs: To update a master file sequentially within a computer-based application, the processing program starts at the beginning master file record. It then reads every record in the file, changing data in each record affected by a transaction (see Figs. 5-6 and 5-7 & 5-8). Sequential Updating requires sorting of the transaction file by the master file sorting key (e.g., transactions originally sorted on transaction_no. must now be resorted by master-file customer_no.). Since all the records in a master file are read during the update, sequential updating increases the processing time significantly if only a few records are to be updated. Direct Updating: Instead of processing a batch of transactions sequentially against an entire master file, each transaction in the batch can be posted directly to the affected records. Direct Updating with batched transactions eliminates the sorting step.
Direct Updating is only feasible if the master files are stored on directaccess storage.

DFD Showing Batched Sequential Processing of Transactions

Source Documents

Origination of Transactions

Batch Documents & Compute Totals

Batch Totals

Batch of Documents

Prepare Financial Outputs

Financial Statement & other Outputs

Subsidiary and General ledgers Updated Records

Prepare Batch Documents for Sequential Processing Post Data to Accounting Records & Verify Batch Totals

Sorted Batch of Documents

Recipients of Outputs

Transaction Data (Journals) Figure 5-12

Enterprise Resource Planning

ERP is a software with an integrated set of applications for enterprise-wide use in functional areas such as finance, accounting, human resource management, manufacturing, logistics, etc. ERP systems permit an integration of data and applications. Both financial and non-financial data can be integrated ERP systems also facilitate access to data that are within the firm but outside the ERP system Standardization of worldwide systems, consistent and accessible data, and on-line processing of data result in firm-wide data availability

File Management Issues

A File is a collection of related data stored together for future use All computerized applications involving transaction processing typically employ one or more files Because of their involvement with transaction processing, and auditing of such processing, accountants need to be aware of file management issues

File Access - I
Sequential Access: This requires each record in a file to be scanned, beginning with the first record in the file
The sequential access method is inefficient for finding individual records. However, it is very effective if a large number of records in a file need to be accessed

File Access - II
Direct Access: This denotes any method that involves the accessing of desired records in some way other than by an exhaustive search through all the records in a file Significant methods of Direct Access include:
Indexed sequential file Randomization Binary searches Linked lists Inverted lists

All Direct Access methods require direct-access storage media such as magnetic disks and the use of Pointers Pointers are data elements whose values specify or point to the physical storage addresses where associated data are stored. In contrast to the other data elements of a record, a pointer provides direction rather than content

Indexed Sequential File - I

This type of file combines a sequential arrangement of records with an index that cross-references the primary key values of the records The index enables individual records to be retrieved quickly, while the file retains the benefits of sequential processing

Indexed Sequential File - II

Index File
Emp. Name Pointer Albany 6 Carter 1 Finsbury 3 Goodrich 4 Jenkins 9 Petersen 8 Schneider 2 Sykes 5 Williamson 7 1 2 3 4 5 6 7 8 9

Data File
Addr Emp. #
500 501 503 504 506 508 509 512 513

Name

3
2

Carter Schneider Finsbury Goodrich Sykes Albany Williamson Petersen Jenkins

Binary Search

Individual Record Retrieval Using the ISAM Method

Index File
Product # Pointer 105010 110020 115015 1 7 12
Product # 1. 105010 2. 106950 3. 107000 4. 108020 5. 6. 7. 110020 8. 110410 9. 114650 10. 11. 12. 115015 13. 116000

Data File
Description Dye-12oz. Dye-16 oz. Dye-24 oz. Conc-1 gal.

Inverted list on Product #

Conc-2 gal. Conc-4 gal. Conc-6 gal.

Reagent Additive

Randomization
This is the access procedure in which computations are performed to generate addresses for individual records. These computational procedures are known as Hashing Schemes. When the records of a file are located throughout a direct access storage medium by means of a randomizing procedure, the file is described as a random file. A Hashing Scheme provides a random file with its major advantage: fast access. Hashing schemes are typically faster than the table lookup procedures required with indexed sequential files.

Coding
AISs depend on coding to record, store, classify and retrieve financial data. Computer systems most often use numeric codes or alphanumeric codes for processing accounting transactions. Purposes of coding: uniquely identifies transactions and accounts compresses data aids in classification process conveys special meanings

Coding Systems
Mnemonic Codes give visible clues concerning the objects they represent Sequence Codes are the simplest type of coding scheme that assign numbers or letters in consecutive order Block Codes assign a series of numbers within a sequence to entities or events having common features Group Codes reveal two or more dimensions or facets pertaining to an object

Design Considerations in Coding

Codes should serve some useful purpose Codes should be consistent Codes should be standardized throughout the organization Codes should plan for future expansion

Accounting Information Systems: Essential Concepts and Applications

Fourth Edition by Wilkinson, Cerullo, Raval, and Wong-On-Wing

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