Introduction to Transaction Processing

1
Chapter 2

• Introduction to Transaction Processing

TPS
2
A Financial Transaction is...

• an economic event that affects the assets and
  equities of the firm, is reflected in its
  accounts, and is measured in monetary terms.
• similar types of transactions are grouped
  together into three transaction cycles
• the expenditure cycle,
• the conversion cycle, and
• the revenue cycle.

3
Cash
Finished Goods
Cash
Subsystems Purchasing/Accts Pay Cash
Disbursements Payroll Fixed Assets
Subsystems Production Planning and
Control Cost Accounting
Subsystems Sales Order Processing Cash Receipts
Cash
Three Primary Transaction Cycles
4
Each Cycle has Two Subsystems

• Expenditure Cycle time lag between the two due
  to credit relations with suppliers
• physical component (acquisition of goods)
• financial component (cash disbursements to the
  supplier)
• Conversion Cycle
• the production system (planning, scheduling, and
  control of the physical product through the
  manufacturing process)
• the cost accounting system (monitors the flow of
  cost information related to production)
• Revenue Cycle time lag between the two due to
  credit relations with customers
• physical component (sales order processing)
• financial component (cash receipts)

5
Manual System Accounting Records

• Provide evidence of an economic event.
• Source Documents - used to capture and formalize
  transaction data needed for transaction
  processing
• Product Documents - the result of transaction
  processing
• Turnaround Documents - a product document of one
  system that becomes a source document for another
  system

6
Manual System Accounting Records

• Journals - a record of chronological entry
• special journals - specific classes of
  transactions that occur in high frequency
• general journal - nonrecurring, infrequent, and
  dissimilar transactions
• Ledger - a book of financial accounts
• general ledger - shows activity for each account
  listed on the chart of accounts
• subsidiary ledger - shows activity by detail for
  each account type

7
Flow of Economic Events Into the General Ledger
Journal Entry
Post
Purchase Request
Purchases Journal
General Ledger
Purchase Order
Post
Periodically Reconcile Subsidiary Ledger to
General Ledger
Accounts Payable Subsidiary Ledger
8
Audit Trail
Financial Statements
Source Document
General Ledger
Journal
Financial Statements
Source Document
General Ledger
Journal
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 Journal
Cash Receipts Journal
Sales Order
Deposit Slip
Shipping Notice
Remittance Advice
Example of Tracing an Audit Trail
10
Computer-Based Systems

• The audit trail is less observable in
  computer-based systems than traditional manual
  systems.
• The data entry and computer programs are the
  physical trail.
• The data are stored in magnetic files.

11
Computer Files

• Master File - generally contains account data
  (e.g., general ledger and subsidiary file)
• Transaction File - a temporary file containing
  transactions since the last update
• Reference File - contains relatively constant
  information used in processing (e.g., tax tables,
  customer addresses)
• Archive File - contains past transactions for
  reference purposes

12
Documentation of Systems

• Documentation is a vital part of any AIS.
• Accountants use many different types of diagrams
  to trace the flow of accounting data through an
  AIS.
• A wide variety of software is
  available for documenting AISs.

13
Why Documentation Is Important

• Depicting how the system works
• Training users
• Designing new systems
• Controlling system development
  and maintenance costs
• Standardizing communications
  with others
• Auditing AISs
• Documenting business processes

14
Documentation Techniques

• Common documentation techniques
• Data Flow Diagrams
• Document Flowcharts
• System Flowcharts
• Program Flowcharts
• Entity Relationship Diagram

15
Data Flow Diagrams

• A data flow diagram shows the logical flows of
  data through a transaction processing system of
  an organization.
• They are primarily used in the systems
  development process as a tool for analyzing an
  existing system.

16
Data Flow Diagrams (DFD)

• use symbols to represent the processes, data
  sources, data flows, and entities in a system
• represent the logical elements of the system
• do not represent the physical system

17
Data Flow Diagrams

• Depicts a systems components, the data flows
  among the components, and the sources,
  destinations, and storage of data.
• Context Diagram
• Physical Data Flow Diagram
• Logical Data Flow Diagram

18
Symbols used in Data Flow Diagrams

• A square represents an external data source or
  data destination.
• A circle indicates a internal entity that changes
  or transforms data.
• Two horizontal lines represent the storage of
  data. This is usually a file.
• A line with an arrow indicates the
  direction of the
  flow of data.

19
Parts of the DFDData Flows

• Data flows - the flow of data between processes,
  data stores, and sources and destinations.
• Can be composed of more than one piece of
  data/elements.
• Different data flows cannot have the same name
• Data flows moving in and out of data stores do
  not require names
• A DFD does not indicate why a process began.
• Data flows can move in two directions.

20
Context Diagrams

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

21
Context DiagramFigure 3-2

• Top level -- least detailed
• External entities - persons, places, or things
  outside a system that send data to, or receive
  data from a system
• Circle - defines the systems boundary
• boundary - the border between the system of
  interest and the systems environment.
• Environment - all that surrounds a system

22
Context Diagram

• Entities - the relevant environment
• relevant environment - part of the environment
  that affects the system of interest
• interface - flow connecting a system with the
  systems environment

23
Physical Data Flow Diagrams

• The first level of detail is commonly called a
  physical data flow diagram.
• It 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
Physical Data DiagramFigure 3-3

• Internal entity - person, place, or thing within
  the system that transforms data (I.e., accounting
  clerk, departments, computers)
• Specify where, how and by whom a systems
  processes are accomplished - does not indicate
  what is being accomplished

25
Physical Data Diagram

• Circles are labeled with nouns represent
  internal entities
• Data flows are labeled to indicate how data are
  transmitted between bubbles
• Files location indicates where (bookkeeping)
  files label indicates how (Blue sales book) a
  system maintains sales record
• Boxes - external entities

26
Logical Data DiagramFigure 3-4

• Shows the systems processes and the flows of
  data into and out of the processes.
• Used 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
Logical Data Flow Diagram (DFD)

• Logical DFD vs physical DFD concentrate on the
  functions that a systems performs
• Labels on data flows describe the nature of the
  data rather than how the data are transmitted
• Is the payment in form of a check, cash, credit
  card, or debit card?
• Logical portrays a systems activities physical
  depicts infrastructure.

28
Logical DFD

• Processes are labeled with verbs that describe
  the actions being performed, rather than being
  labeled with the nouns as in the physical
• Level 0 diagram
• Each 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
Document Flowcharts

• A document flowchart traces the physical flow of
  documents through an organization.
• Auditors and accountants may use
  document flowcharts when analyzing a
  current system for weaknesses in controls
  and reports.

30
Documents Flowcharts

• contain more details than data flow diagrams
• clearly depict the separation of functions in a
  system

31
Common Document Flowcharting Symbols
32
System Flowcharts

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

33
Common System Flowchart Symbols

Input/Output
Computer Processing
On-line keying
Document
Communication Link
Screen Display
Magnetic Disk
On-line Storage
34
Common Systems Flowcharting Routines

• Figures 3-7a and 3-7b.

35
Entity Relationship (ER) Diagram

• is a documentation technique to represent the
  relationship between entities in a system.
• The REA model version of ER is widely used in
  AIS. REA uses 3 types of entities
• resources (cash, raw materials)
• events (release of raw materials into the
  production process)
• agents (inventory control clerk, vendor,
  production worker)

36
Cardinality

• represents the numerical mapping between
  entities
• one-to-one
• one-to-many
• many-to-many

37
Cardinalities
Entity
Relationship
Entity
1
1
Sales- person
Car
Assigned
1
M
Places
Order
Customer
M
M
Vendor
Inventory
Supply
38
Program Flowcharts

• illustrate the logic used in programs

Program Flowchart Symbols
Terminal start or end operation
Logical process
Input/output operation
Decision
Flow of logical process
39
The Physical DatabaseData Hierarchy
Database
File
Record
Field
Bit - usually magnetically encoded
40
Data Structures

• allow records to be located, stored, retrieved
  and allow movement through the database. Two
  components
• The organization of a file is the physical
  arrangement of records.
• The access method is the technique used to locate
  records and to navigate through the database or
  file.

41
Sequential Access Structure

• All records lie in contiguous storage spaces in a
  specified sequence arranged by their primary key.
• Data retrieval requires that all records before
  the desired record must be read in order first.
• This structure does not allow for a record to be
  accessed directly.

42
Direct Access Structures

• Records are stored at unique locations known as
  addresses.
• Address tells operating system the exact location
  of record on the disk.
• This structure allows for accessing a record
  without going through all preceding records.

43
Index Structure

• A separate index exists that is a file of record
  addresses.
• The records may be dispersed throughout the disk
  either randomly or sequentially.
• A record is found by first searching the index
  for the address of the desired record.
• VSAM is an example of using an indexed access
  method on a large database of sequentially stored
  records.

44
Inserting a Record into an VSAM File
Key 223
Key 224
Key 225
Key 226
Key 228
Key 229
Key 231
Key 233
Key 234
Overflow Area
Key 235
Key 238
Key 239
Index
Key 241
Key 240
...
...
...
...
Key 237
...
...
...
Prime Area
...
...
...
...
Key 269
Key 270
Insert New Record with Key Value 237
45
Hashing Structure

• employs an algorithm that converts the primary
  key of a record directly into a unique storage
  address
• eliminates the need for a separate index --record
  retrieval is rapid
• A disadvantage is that some disk locations will
  never be selected because they do not correspond
  to legitimate key values.

46
Pointer Structures

• A linked-list file stores in a field of one
  record the address (pointer) of a related record.
  
• The records are spread over the entire disk
  without concern for their physical proximity.
• Pointers may also be used to link records between
  files.

47
Three Types of Pointers

• A physical address pointer contains the actual
  storage location needed by the disk controller.
  It is a rapid retrieval method.
• A relative address pointer contains the relative
  position of a record in the file. It must be
  converted to the actual physical address.
• A logical key pointer contains the primary key of
  the related record which is then converted to the
  records physical address using a hashing
  algorithm.

48
Computer-Based Accounting Systems

• Two broad classes of systems
• batch systems
• real-time systems

49
Batch Processing

• A batch is a group of similar transactions that
  are accumulated over time and then processed
  together.
• The 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.
• A time lag exists between the event and the
  processing.

50
Batch Processing/Sequential File
Unedited Transactions
Sales Orders
Keying
catches clerical errors
Edit Run
Errors
correct errors and resubmit
Edited Transactions
rearranges the transaction data by key field so
that it is in the same sequence as the master file
Sort Run
Transactions
Old Master (father)
AR
changes the values in the master file to reflect
the transactions that have occurred
Update Run
AR
Transactions (eventually transferred to an
archive file)
New Master (son)
51
Steps in Batch Processing/Sequential File

• Keystroke - source documents are transcribed by
  clerks to magnetic tape for processing later
• Edit Run - identifies clerical errors in the
  batch and places them into an error file
• Sort Run - places the transaction file in the
  same order as the master file using a primary key
• Update Run - changes the value of appropriate
  fields in the master file to reflect the
  transaction
• Backup Procedure - the original master continues
  to exist and a new master file is created

52
Advantages of Batch Processing

• Organizations can increase efficiency by grouping
  large numbers of transactions into batches rather
  than processing each event separately.
• Batch processing provides control over the
  transaction process via control figures.

53
Real-Time Systems

• process transactions individually at the moment
  the economic event occurs
• have no time lag between the economic event and
  the processing
• generally require greater resources than batch
  processing since they require dedicated
  processing capacity however, these cost
  differentials are decreasing
• oftentimes have longer systems development time

54
Why Do So Many AISs Use Batch Processing?

• Much 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.