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out-of-date files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-Process-
Output Discussion

Data Processing Model

Input Process Output

Online Offline Periodic Realtime

Always Batched (Batched) (Immediate)
Processing

May lead to May lead to Direct Sequential

Realtime Processing Batched Processing Updating Updating

Sequential Updating Sequential Updating

after Online Data Entry 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 Options
Differentiation
Source(s) of Main Remote
Transactions Computer Site
Focus of Batches of Individual
Transaction Events Events
Data
Input Off-line On-line
Approach
Timing of Periodic Immediate
Processing (delayed) (real- time)
Mode of Sequential Direct
Processing
Timing of Spooled Immediate
Outputs
Users of Currency not Currency
Information critical 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 Manual Operation

Document Connector between

two points on a
flowchart
Multiple copies of
a specific document Journal or ledger
Common Document
Flowcharting Symbols - II

Permanent file of Envelope

documents

Information flow
Adding machine
Document flow
tape used for
batch control
Annotation for
additional
explanation
 A Sample Document
Flowchart
Requesting Department Central Supplies Department

12 A
Goods Requisition
Form

1
Goods Requisition
Form

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 General Purpose

Input-Output
File
Used when type of media is unknown
or for manual card files, ledgers, batch logs, etc.
System Flowcharting
Symbols Processing

Manual Operation Auxiliary

Operation
Processing
Sorting
Collate

Also known as off-line process

System Flowcharting
Symbols Storage

Punched Card Input/Output

Punched Document
Paper Tape

Magnetic Magnetic
Tape Disk

Online Storage Off-line

Storage
Systems Flowcharting
Symbols Connectors

Start/Stop Terminal
Can also be an external
entity
Logic Flow
A On-page
connector
Telecommunication
Off-page Link
Connector
System Flowcharting
Symbols Miscellaneous - I

Data Preparation

Communication Link

Termination
Can also be an external entity
System Flowcharting
Symbols Miscellaneous - II

Bridge for Annotation for

crossing flows additional
explanation

Batch total - Goods; e.g.,

any total 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 Process Course Output Course

Schedules Schedules Schedules
Other Inputs Other Inputs

Get Course Edit Course Update Course Output Registration Output Course
Schedules Schedules Schedules Reports Schedules
Other Files Other Files 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 direct-
access storage.
DFD Showing Batched Sequential
Processing of Transactions
Source Documents Batch of
Origination of Documents
Batch
Transactions
Documents &
Compute
Totals
Batch Totals
Prepare Batch
Prepare Documents
Financial for Sequential
Outputs Subsidiary and Processing
General ledgers
Updated
Financial Statement Post Data to
Records
& other Outputs Accounting Sorted Batch
Records & of Documents
Verify Batch
Totals
Recipients
of Transaction Data
Outputs (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 Data File
Emp. Name Pointer Addr Emp. # Name
Albany 6 1 500 Carter
Carter 1 2 501 Schneider
Finsbury 3 3 503 Finsbury
1 Goodrich 4 4 504 Goodrich
Jenkins 9 5 506 Sykes
Petersen 8 6 508 Albany
3 Schneider 2 7 509 Williamson
Sykes 5 8 512 Petersen
2 Williamson 7 9 513 Jenkins
Binary Search
 Individual Record Retrieval
Using the ISAM Method
Index File Data File
Product # Product # Description
1. 105010 Dye-12oz.
Pointer 1 2. 106950 Dye-16 oz.
105010 3. 107000 Dye-24 oz.
4. 108020 Conc-1 gal.
110020 7 5.
115015 12 6.
7. 110020 Conc-2 gal.
Inverted list on 8. 110410 Conc-4 gal.
Product # 9. 114650 Conc-6 gal.
10.
11.
12. 115015 Reagent
13. 116000 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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