CHAPTER 2- INTRODUCTION TO TRANSACTION PROCESSING

Transaction Processing System(TPS)activity consisting of three major subsystem

called cycles.

TPS cycles- capture financial transactions,

record the effects of transactions in acctg
records & provide info about transactions
1. Expenditure cycle
2. Revenue cycle
3. Conversion cycle

I.

Financial transaction- economic event that

affects the assets and equities of the firm, is
reflected in its accounts and is measured in
monetary terms.

I.

EXPENDITURE CYCLE- acquisition of

materials, property and labor in exchange
for cash

II.

III.

Parts of Expenditure cycle

1. Physical component(acquisition
of goods and services)
2. Financial component(cash
disbursement)
Subsytems of Expenditure cycle
1. Purchase/AP system- this system
recognizes the need to acquire
physical inventory, places order
and record goods received by
increasing inventory & decreasing
A/P.
2. Cash Disbursement Systemauthorizes payment, disurses funds
& record transactions by
decreasing cash & A/P.
3. Payroll System-collects labor
usage data for employee,
computes payroll & disburses
paychecks.
4. Fixed Asset System- processes
the transactions pertaining to the
acquisition of maintenance and
disposal of fixed asset.

CONVERSION CYCLE
Major subsystems of Conversion Cycle
1. Production System- planning,
scheduling & control of the physical
product through the manufacturing
process.
2. Cost Accounting Systemmonitors the flow of cost
information.
REVENUE CYCLE- Through this system,
firms sell their goods and services to
customers.

Subsystems of Revenue Cycle

1. Sales Order Processingprepares sales order, grants credit,
ships products, bills customers &
records the transactions.
2. Cash Receipts- collects cash,
deposit in the bank and records
events in accounts.

ACCOUNTING RECORDS
1. Traditional Accounting Records
2. Digital Accounting Records
TRADITIONAL RECORDS
1. Documents- may initiate transaction
processing or to be the output of the
process.
2. Journals- chronological record of
transaction
3. Ledgers- Book of Accounts; Reflects the
fin. effects of the firms transactions after
they are posted from the various journals;
Show activity by account type; Indicates
increase, decrease & current bal of
accounts.

Types of Documents
1. Source Documents- used to capture
& formalize transaction data that the
transaction cycle uses for processing.
2. Product Documents- result of
transaction processing rather than the
triggering mechanism for the process.
3. Turnaround Documents- product
documents of 1 system that become
source documents of another.
Types of Journals
1. Special Journals- used to record
specific classes of transaction that
occur in high volume.
Register- often used to denote certain
types of special journal or to denote
log.
2. General Journals- used to record non
recurring, infrequent & dissimilar
transactions.
Journal Voucher- replaced the general
journal in some org.; contains a single
journal entry specifying the general
ledger accounts affected; used to record
summaries of routine & non routine trans
and adjusting & closing entries.
Types of Ledgers
1. General Ledger- summarizes the
activities for each of the organizations
accounts.
2. Subsidiary Ledger- contains the details
of the individual accounts that constitute
a particular control account.
AUDIT TRAIL
- It is for tracing account balances contained in
the FS back to source docu & the economic
events that created them.

CHAPTER 2- INTRODUCTION TO TRANSACTION PROCESSING

- It is of utmost importance in the conduct of a
financial audit.

II.

DIGITAL RECORDS
Types of digital computer files
1.
2.

3.

4.

1.

Master File- contains account data.

(Ex. Gen & Sub Ledger)
Transaction File- temporary file of
transaction record used to update data in a
master file.
(Ex. Sales order & cash receipt)
Reference File- stores data that are used
as standards for processing transactions.
(Ex. Tax table & price list)
Archive File- contains records of past
transactions that are retained for future;
Form an important part of the audit trail.
(Ex. Journals & Prior period payroll info.)

FILE STRUCTURES/ FILE TECHNOLOGIES- vary

widely among transaction processing systems.
Classes of File Technologies
1. Flat-Files/ Flat File Modeldescribes an environment in which
individual data files are not related to
other files; perform stand-alone
rather than integrated systems
2. Databases/ Database Modelcentralizes the orgs data into a
common database that is shared by
other users.
Significant Problems in the Flat-file
environment

Data Storage- incurring the cost of

both multiple collection & storage
procedures.
2. Data Updating- because of separate
files, all changes must be made
separately for each user thus add to
task and cost of data mgt.
3. Currency of Information- problem
of failing to update all the user file
affected by a change in status if not
properly dissiminated.
Task-Data Dependency
- Users inability to obtain addtl info as
his/her needs change caused by the
difficulty to establish a mechanism for the
formal sharing of data.
- Takes time, inhibit performance, adds to
data redundancy & drives data mgt costs
even higher.
Flat-File limit data integration
-Because f-file approach is a single view
model and files are for specific needs
only, theres a possibility of excluding
data needed by other users, thus
preventing successful integration of data
across the organization.
Database Management System
(DBMS)
- Controller of access to data source.
- Software system that permits users to
access authorized data only.