AIS CHAPTER 3 TRANSACTION PROCESSING

• Transaction Cycles

  Expenditure cycle, Conversion cycle, Revenue cycle
• Financial transaction


  An economic event that affects the assets and equities of the entity, is reflected in its accounts, and is measured in monetary terms
• Characteristics of transaction cycles

  • Capture financial transactions
  • Record the effects of transactions in accounting records
  • Provide information about transactions to users in support of their day-to-day activities
• Expenditure cycle


  1. Purchasing/Accounts Payable system

  2. Cash Disbursement system

  3. Payroll system

  4. Fixed Assets system
• Conversion cycle


  • Production system
  • Cost accounting system
• Revenue cycle


  1. Sales Order Processing system

  2. Cash Receipts system
• Audit trail in computer-based systems

  Represented by four different types of digital files: master files, transaction files, reference files, and archive files
• Master files


  Main files that contains relatively permanent records about particular items or entries
• Transaction files


  Temporary files of transaction records used to change or update data in a master file
• Reference files


  Store relatively permanent data that are used as standards for processing transactions
• Archive files


  Equivalent of the journals in a traditional manual system, contain records of past transactions or historical data that are retained for future reference
• It is best to understand the relationship of the types of files when following the flow of data in the information system from the source document to the general ledger and the ultimately the financial statements
• Metadata


  Information that facilitates transferring high numbers of small files such as resources of saved web pages, since a container file is transferred using a single file operation, whereas transferring many small files requires the computer to modify the file system structure for each file individually, making it considerably slower and more tedious for the operator
• Sales Order process flow

  1. Capture of the financial transaction

  2. Convert the source document to digital form

  3. Update the various master file subsidiary and control accounts

  4. Transactions that prove to be in error or invalid are transferred to the error file

  5. Remaining good transactions are used to update the master files

  6. Valid transactions are added to the archive file that serves as the sales journal
• Some computer systems do not use physical source documents. Instead, transactions are captured directly on digital media
• Capturing transactions directly on digital media

  • Optical character reader (OCR) or barcode reader capturing visual information on the item and converting that information into digital data
• Update procedures

  1. EDIT

  2. SORT

  3. UPDATE runs
• Transactions that are rejected for credit problems are transferred to the error file
• Valid transactions are added to the archive file that serves as the sales journal
• Steps for auditor to evaluate the accuracy of the accounts receivable figure

  1. Compare the accounts receivable balance in the balance sheet with the master file AR control account balance

  2. Reconcile the AR control figure with the AR subsidiary account total

  3. Select a sample of update entries made to accounts in the AR subsidiary ledger and trace these to transactions in the sales journal archive file

  4. From these archive journal entries, identify specific source documents that can be pulled from their files and verified
• Batch process


  Waits for a certain condition, like time lapsed or certain volume of transactions or a combination of both, before processing the transactions in a batch
• Real-time process


  Each transaction is processed as they come into the system
• Batch process


  • Demands fewer organizational resources (such as programming costs, computer time, and user training) than real-time systems
  • Batch systems can use sequential files stored on digital storage
  • Batch systems are generally simpler than their real-time counterparts, they tend to have shorter development periods and are easier for programmers to maintain
• Real-time process


  • Requires dedicated processing capacity
  • Real-time systems must be user-friendly, forgiving, and easy to work with, requiring additional programming and adding greatly to the cost of the system
• Sequential file structures


  Records are stored in contiguous locations that occupy a specified area of disk space
• Sequential file structures


  • Efficient for reading an entire file and finding the next record in the file
  • Efficient for record updating when a large portion of the file is to be processed in one operation
  • Not efficient when the user is interested in locating only one or a few records on a file
• Direct access structures


  Store data at a unique location, known as address, on a storage device
• Most of the databases and techniques out in the modern technology universe today are classified as Direct Access
• Batch processing using sequential files

  • Improves operational efficiency by grouping together large numbers of transactions into batches and processing them as a unit of work rather than processing each event separately
  • Provides control over the transaction process by periodically reconciling the batch against the control figures
• Advantages of batch process

  • Improve operational efficiency by grouping together large numbers of transactions into batches and processing them as a unit of work rather than processing each event separately
  • Provide control over the transaction process by periodically reconciling the batch against the control figures
  • Balance economic advantage of large batches and troubleshooting advantage of small batches
• Assumptions and conditions in batch processing using sequential files

  • The transaction file contains fewer records than the master file
  • More than one transaction record may correspond to a given master file record
  • Both transaction file and master file must be in the same sequential order
  • The master file is presumed to be correct
• Keystroke


  1. Transcription of source documents into digital form

  2. Calculation of control totals for the batch

  3. Comparison of control totals after processing to detect errors
• Edit run


  1. Identifies clerical errors in the batch and removes these records from the transaction file

  2. Recalculates the batch total to reflect changes due to the removal of error records
• Sort runs


  Sorts the transaction file in the same sequence as the master file
• Primary key (PK)


  Unique identifier
• Secondary key (SK)


  Used to identify the customer account and inventory record to be updated
• Update runs


  1. Recalculates customer balances by adding the invoice amount to the current balance

  2. Reduces inventory levels by deducting the quantity sold from the quantity on hand
• Batch processing using direct access files

  • Eliminates the need to sort transactions into a predetermined sequence
  • Eliminates automatic file backup as changes are made directly to the original physical file
• Logic for direct access file update

  • Does not need to consider the relationship between the transaction and master key values
  • Does not need to copy unprocessed master records to a new master file
  • Complex procedures for searching the master file and retrieving the desired record are performed by the computer's operating system
• Batch processing using real-time data collection


  1. Captures transaction data at the source as they occur

  2. Checks the customer credit limit and updates the account balance or credit limit

  3. Updates the quantity on-hand in the inventory record

  4. Records the sale in the sales order file which is processed in batch mode at the end of the business day