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HAPTER 2

Overview of Transaction Processing and Enterprise Resource Planning Systems

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TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE

Accountants play an important role in data processing. They answer questions such as:
What data should be entered and stored? Who should be able to access the data? How should the data be organized, updated, stored, accessed, and retrieved? How can scheduled and unanticipated information needs be met?

To answer these questions, they must understand data processing concepts.

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Data Processing Cycle

Input

Process

Output

Storage

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DATA INPUT
The first step in data processing is to capture the data. Usually triggered by a business activity. Data is captured about:
Each activity of interest The resources affected The people who are participating

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DATA INPUT
Source Documents
Data are collected on source documents E.g., a sales-order form The data from paper-based source documents will eventually need to be transferred to the AIS

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DATA INPUT
Turnaround Documents
Usually paper-based and machine-readable Are sent from organization to customer Same document is returned by customer to organization
Org. Cust.

Turnaround Document

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DATA INPUT
Source Data Automation
Source data is captured
In machine-readable form At the time of the business activity
E.g., ATMs; POS

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DATA INPUT
Well-designed source documents can ensure that data captured is
Accurate
Provide instructions and prompts Check boxes Drop-down boxes

Complete
Internal control support Prenumbered documents

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Data Storage
Types of AIS storage:
Paper-based
Ledgers Journals

Computer-based

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DATA STORAGE
General ledger
The general ledger is the summary level information for all accounts (asset, liability, equity, revenue, and expense). Detail information is not kept in this account.

A/P $1000

A/R $600
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DATA STORAGE
General ledger
Example: Suppose XYZ Co. has three customers. Anthony Adams owes XYZ $100. Bill Brown owes $200. And Cory Campbell owes XYZ $300. The balance in accounts receivable in the general ledger will be $600, but you will not be able to tell how much individual customers owe by looking at that account. The detail isnt there.

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DATA STORAGE
General ledger Subsidiary ledger
The subsidiary ledgers contain the detail accounts associated with the related general ledger account. The accounts receivable subsidiary ledger will contain three separate t-accountsone for Anthony Adams, one for Bill Brown, and one for Cory Campbell.

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DATA STORAGE
General ledger Subsidiary ledger
The related general ledger account is often called a control account. The sum of the subsidiary account balances should equal the balance in the control account.

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DATA STORAGE
General ledger Subsidiary ledger
Detailed data for a General Ledger (Control) Account that has individual sub-accounts e.g.:
Accounts Payable Accounts Receivable
Joe Smith $250 Patti Jones $750

A/P $1000

A/R $600

ACME Inc.$150 Jones, Inc $450

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DATA STORAGE
General ledger Subsidiary ledger Coding techniques
Coding is a method of systematically assigning numbers or letters to data items to help classify and organize them.

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Coding Techniques
Sequence Items numbered consecutively Block Specific range of numbers are associated with a category 100000199999 = Electric Range Group Positioning of digits in code provide meaning Mnemonic Letters and numbers Easy to memorize Code derived from description of item Chart of accounts Type of block coding

Digit Position 12 3 45 67 1241000

Meaning Product Line, size, and so on Color Year of Manufacture Optional Features 12 = Dishwasher 4 = White 10 = 2010 00 = No Options

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Journals
General
Infrequent or specialized transactions Used to record:
Non-routine transactions, such as loan payments Summaries of routine transactions Adjusting entries Closing entries

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Journals
Specialized
Repetitive transactions
E.g., sales transactions

Used to record routine transactions. The most common special journals are:
Cash receipts Cash disbursements Credit sales Credit purchases

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DATA STORAGE
Audit trail
An audit trail exists when there is sufficient Ledgerdocumentation to allow the tracing of a transaction from beginning to end or from the General ledger end back to the beginning. Subsidiary ledger of posting references and The inclusion document numbers enable the tracing of Codingtransactions techniques through the journals and ledgers and therefore facilitate the audit trail. Journals

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COMPUTER-BASED STORAGE CONCEPTS

A master file is a file that stores cumulative information about an organizations entities. It is conceptually similar to a ledger in a manual AIS in that:
The file is permanent. The file exists across fiscal periods. Changes are made to the file to reflect the effects of new transactions.

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COMPUTER-BASED STORAGE CONCEPTS

A transaction file is a file that contains records of individual transactions (events) that occur during a fiscal period. It is conceptually similar to a journal in a manual AIS in that:
The files are temporary. The files are usually maintained for one fiscal period.

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COMPUTER-BASED STORAGE CONCEPTS

Transaction Contains records of a business from a specific period of time Master Permanent records Updated by transaction with the transaction file Database Set of interrelated files

Transaction File

Updated Master File

Master before Update

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DATA PROCESSING
Once data about a business activity has been collected and entered into a system, it must be processed.

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DATA PROCESSING
There are four different types of file processing:
1. Create new records, e.g., a new customer 2. Read existing records, e.g. viewing all information for an existing customer 3. Updating existing records, e.g., recording a sale to a customer. 4. Deleting data, e.g., removing an old customer that has not purchased anything in 5 years.
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DATA PROCESSING
Updating can be done through several approaches:
Batch processing Online, batch processing Online, real-time processing

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DATA PROCESSING
Batch processing:
Source documents are grouped into batches, and control totals are calculated. Periodically, the batches are entered into the computer system, edited, sorted, and stored in a temporary file. The temporary transaction file is run against the master file to update the master file. Output is printed or displayed, along with error reports, transaction reports, and control totals.
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DATA PROCESSING
Online, batch processing:
Transactions are entered into a computer system as they occur and stored in a temporary file. Periodically, the temporary transaction file is run against the master file to update the master file. The output is printed or displayed.

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DATA PROCESSING
Online, real-time processing
Transactions are entered into a computer system as they occur. The master file is immediately updated with the data from the transaction. Output is printed or displayed.

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INFORMATION OUTPUT
Output can be in the form of:
Documents Reports Queries

Physical output types:

Soft copy
Displayed on a screen

Hard copy
Printed on paper

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Enterprise Resource Planning (ERP)

Integrate an organizations information into one overall AIS ERP modules:
Financial Human resources and payroll Order to cash Purchase to pay Manufacturing Project management Customer relationship management System tools

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ERP Advantages
Integration of an organizations data and financial information Data is captured once Greater management visibility, increased monitoring Better access controls Standardizes business operating procedures Improved customer service More efficient manufacturing
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ERP Disadvantages
Cost Time-consuming to implement Changes to an organizations existing business processes can be disruptive Complex Resistance to change

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