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1 Chapter 2 Introduction to Transaction Processing TPS.

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1 1 Chapter 2 Introduction to Transaction Processing TPS

2 2 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.

3 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

4 4 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)

5 5 Manual System Accounting Records zProvide evidence of an economic event. ySource Documents - used to capture and formalize transaction data needed for transaction processing yProduct Documents - the result of transaction processing yTurnaround Documents - a product document of one system that becomes a source document for another system

6 6 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

7 7 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

8 8 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.

9 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

10 10 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.

11 11 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

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

13 13 Why Documentation Is Important zDepicting how the system works zTraining users zDesigning new systems zControlling system development and maintenance costs zStandardizing communications with others zAuditing AISs zDocumenting business processes

14 14 Documentation Techniques zCommon documentation techniques: yData Flow Diagrams yDocument Flowcharts ySystem Flowcharts yProgram Flowcharts yEntity Relationship Diagram

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

16 16 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

17 17 Data Flow Diagrams zDepicts a system’s components, the data flows among the components, and the sources, destinations, and storage of data. yContext Diagram yPhysical Data Flow Diagram yLogical Data Flow Diagram

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

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

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

21 21 Context Diagram Figure 3-2 zTop level -- least detailed yExternal entities - persons, places, or things outside a system that send data to, or receive data from a system yCircle - defines the system’s boundary xboundary - the border between the “system of interest” and the system’s environment. xEnvironment - all that surrounds a system

22 22 Context Diagram xEntities - the relevant environment xrelevant environment - part of the environment that affects the “system of interest” xinterface - flow connecting a system with the system’s environment

23 23 Physical Data Flow Diagrams zThe first level of detail is commonly called a physical data flow diagram. zIt 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 24 Physical Data Diagram Figure 3-3 zInternal entity - person, place, or thing within the system that transforms data (I.e., accounting clerk, departments, computers) zSpecify where, how and by whom a system’s processes are accomplished - does not indicate what is being accomplished

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

26 26 Logical Data Diagram Figure 3-4 zShows the system’s processes and the flows of data into and out of the processes. zUsed 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 27 Logical Data Flow Diagram (DFD) zLogical DFD vs physical DFD: concentrate on the functions that a systems performs zLabels on data flows describe the nature of the data; rather than how the data are transmitted yIs the payment in form of a check, cash, credit card, or debit card? zLogical portrays a system’s activities; physical depicts infrastructure.

28 28 Logical DFD zProcesses are labeled with verbs that describe the actions being performed, rather than being labeled with the nouns as in the physical zLevel 0 diagram zEach 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 29 Document Flowcharts zA document flowchart traces the physical flow of documents through an organization. zAuditors and accountants may use document flowcharts when analyzing a current system for weaknesses in controls and reports.

30 30 Documents Flowcharts zcontain more details than data flow diagrams zclearly depict the separation of functions in a system

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

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

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

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

35 35 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)

36 36 Cardinality zrepresents the numerical mapping between entities: yone-to-one yone-to-many ymany-to-many

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

38 38 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

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

40 40 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.

41 41 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.

42 42 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.

43 43 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.

44 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

45 45 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.

46 46 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.

47 47 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.

48 48 Computer-Based Accounting Systems zTwo broad classes of systems: ybatch systems yreal-time systems

49 49 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.

50 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

51 51 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

52 52 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.

53 53 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

54 54 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.

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