Objectives for Chapter 2 Broad objectives of transaction cycles Types of transactions processed by each of the three transaction cycles The basic accounting records used in TPS The traditional accounting records and their magnetic equivalents Documentation techniques Batch and real-time processing and the impact of these technologies on transaction processing 2
4 SubCycles zRevenue Cycle: time lag between sub-cycles due to credit relations with customers : yphysical component (sales to customers) yfinancial component (cash receipts from customers) zExpenditure Cycle : time lag between sub-cycles due to credit relations with suppliers: yphysical component (acquisition of goods from suppliers) yfinancial component (cash disbursements to suppliers) zConversion Cycle : yproduction system (planning, scheduling, and control of physical product through manufacturing process) ycost accounting system (monitors flow of cost information related to production)
5 Manual System Accounting Records zDocuments: ySource - used to capture and formalize transaction data needed for transaction processing (ex: Customer PO) yProduct - result of transaction processing (ex: check) yTurnaround - product document of one system that becomes source document for another system (ex: remittance advice)
6 Manual System Accounting Records (continued) zJournals - record of chronological entry yspecial journals - specific classes of transactions that occur in high frequency (ex: sales journal) ygeneral journal - nonrecurring, infrequent, and dissimilar transactions zLedger - book of financial accounts ygeneral ledger - shows activity for each account listed on chart of accounts ysubsidiary ledger - shows activity by detail for each account type (ex: A/R sub. ledger)
7 Audit Trail (manual) Source Document Journal General Ledger Financial Statements Source Document Journal General Ledger Financial Statements
8 Computer-Based Systems (CBIS) zAudit trail is less observable in computer- based systems than traditional manual systems. zData entry and computer programs are physical trail. zData are stored in magnetic files.
9 Computer Files zMaster File - generally contains cumulative account data (e.g., general ledger and subsidiary ledgers) zTransaction File - temporary file containing transactions since last update (journals) zReference File - contains relatively constant information used in processing (e.g., tax tables, service fees) zArchive File - contains past transactions for reference purposes (History)
11 Documentation Techniques zTzThree documentation techniques we study this semester: 1.Entity Relationship Diagram 2.Document Flowcharts 3.System Flowcharts
12 Entity Relationship Diagram (ERD) A documentation technique to represent relationship between entities in system.
13 Cardinality zrepresents the numerical mapping between entities: yone-to-one yone-to-many ymany-to-many Depends on business rules !!
Sales- person Car Customer is assigned EntityRelationshipEntity 1 1 Examples of Cardinalities Company A
Sales- person Car Customer is assigned EntityRelationshipEntity M1 Examples of Cardinalities Company B
16 Customer Order places EntityRelationshipEntity M 1 Examples of Cardinalities
17 VendorInventory supplies EntityRelationshipEntity M M Examples of Cardinalities
19 Keys to successful document flowcharting zCreate logical functions (usually departments) zSymbol sizes are standardized yMost are same size; a few are smaller (on page & off page connectors; file-blue symbols on previous slide) zDrag documents along!! (Copy/paste) zDon’t violate “sandwich rule” zVery few shortcuts
20 Document Flowcharts zillustrate relationship among processes and documents that flow between them zclearly depict separation of functions in system
21 System Flowcharts zused to represent relationship between key elements--input sources, programs, and output products--of computer systems zdepict type of media being used (paper, magnetic disks, and terminals) zsome symbols same in both document and system flowcharts
23 Data Hierarchy for Physical Database Database File (Accounts Receivable) Record (Customer) Field (Name, Address, Balance, etc.) Bit - magnetically encoded (1,0) 1 0 Example from Revenue Cycle
Modern Systems versus Legacy Systems zModern systems characteristics: yclient-server based and process transactions in real time yuse relational database tables yhave high degree of process integration and data sharing ysome are mainframe based and use batch processing zSome firms still employ legacy systems for certain aspects of data processing; therefore accountants need to understand legacy systems. zLegacy systems characteristics: ymainframe-based applications ybatch oriented yearly legacy systems use flat files for data storage ylater legacy systems use hierarchical and network databases ydata storage systems promote a single-user environment that discourages information integration 24
25 Data Structures zallow records to be located, stored, retrieved and allow movement through database. Two components: yorganization of file is physical arrangement of records (how they are stored) yaccess method is technique used to locate records and to navigate through database or file (how they are retrieved)
26 Sequential Access Structure zAll records lie in contiguous storage spaces in specified sequence arranged by primary key. zData retrieval requires that all records before desired record must be read in order first. zCannot directly access record.
27 Direct Access Structures zRecords are stored at unique locations known as addresses. zAddress tells operating system exact location of record on disk. zAllows access to record without going through all preceding records.
Database Backup Procedures Destructive updates leave no backup. To preserve adequate records, backup procedures must be implemented, as shown below: The master file being updated is copied as a backup. A recovery program uses the backup to create a pre-update version of the master file. 28
29 CBIS zTwo broad classes of systems: yBatch systems yReal-time systems
30 Batch Processing zA batch is group of similar transactions that are accumulated over time and processed together. zTime lag between event and processing.
31 Advantages of Batch Processing zOrganizations can increase efficiency by grouping similar transactions into batches rather than processing each event separately. zBatch processing provides control over transaction process via control figures. zAlthough-tradeoff between batch size and errors.
32 Real-Time Systems zprocess transactions individually at moment economic event occurs zno time lag between economic event and processing zgenerally require greater resources than batch processing because they require dedicated processing capacity; (however, these cost differentials are decreasing) zoftentimes have longer systems development time (for internally developed systems)
33 Why Do So Many AISs Use Batch Processing? zMuch AIS processing characterized by high- volume, independent transactions: yrecording cash receipts checks received in mail yPayroll zProcessing of such high-volume can be done during an off-peak computer time (overnight).