CHAPTER 2- AIS

Name: CHAPTER 2- AIS
Uploaded: 2020-09-18T03:02:19.000Z
Duration: 2 h 56 min 51 s
Description: Introduction to Transaction Processing

Introduction to Transaction Processing

Objectives of the Discussion

The session aims to cover the broad objectives of transaction cycles, including understanding various types of transactions processed by three main transaction cycles.

Key topics include traditional accounting records, documentation techniques, differences between batch and real-time processing, and data coding schemes in accounting information systems.

Understanding Financial Transactions

Financial transactions are defined as economic events affecting a firm's assets, liabilities, and equities; they are measured monetarily.

Examples include exchanges of goods or services with external parties; internal financial transactions also exist.

Transaction Cycles Overview

Financial transactions are grouped into three primary transaction cycles: expenditure cycle, conversion cycle, and revenue cycle.

Each cycle will be discussed in detail across multiple chapters; today’s focus is on introducing these cycles.

Expenditure Cycle

Components of the Expenditure Cycle

The expenditure cycle begins with acquiring goods or services in exchange for cash or other resources.

It consists of two major subsystems: physical components (acquisition of goods/services) and financial components (cash disbursements).

Key Insights on Expenditure Cycle

The discussion includes how expenditures relate to accounts payable systems and payroll systems within this cycle.

Conversion Cycle

Overview of Conversion Process

The conversion cycle involves transforming raw materials into finished products through manufacturing processes.

Subsystems Under Conversion Cycle

Two major subsystems are identified:

Production system: focuses on planning and controlling physical product flow during manufacturing.

Cost accounting system: monitors production-related costs such as labor and overhead.

Revenue Cycle

Revenue Generation Process

The revenue cycle starts once finished goods are sold to customers, leading to cash receipts from sales.

Components of Revenue Cycle

This cycle includes:

Physical component: sales order processing for customer orders.

Financial component: managing cash receipts related to accounts receivable.

Interrelationship Between Cycles

Analyzing Transaction Cycles Interaction

A diagram illustrates how the expenditure cycle feeds into the conversion and revenue cycles, emphasizing that all business activities start with expenditures.

Conversion Cycle and Manual Accounting Records

Understanding the Conversion Cycle

The conversion cycle involves the production process, which is a significant cost in accounting. After this cycle, finished goods are sold, leading to cash inflow.

Cash generated from sales is reinvested into the cycle, creating an ongoing operational loop. This highlights the importance of understanding transaction cycles in accounting.

Introduction to Manual Accounting Records

The discussion transitions to manual accounting records, emphasizing their foundational role before moving on to computerized systems. Understanding manual processes aids comprehension of modern systems.

Manual accounting relies on physical documents such as worksheets, journals, and ledgers for recording transactions. This traditional method sets the stage for later discussions on digital recordkeeping.

Key Components of Manual Accounting

Source Documents

Source documents capture essential data for transaction processing; examples include checks and memorandums that formalize financial activities. These documents are crucial for accurate recordkeeping.

Product Documents

Product documents result from transaction processing; payroll checks serve as an example where source documents lead to tangible outputs within a system's workflow.

Turnaround Documents

Turnaround documents function as both product and source documents across different systems; they facilitate seamless information flow between processes (e.g., customer bills with remittance advice).

Types of Journals in Manual Accounting

Journals serve as original entries documenting transactions chronologically; special journals focus on high-frequency transactions like cash disbursements or sales while general journals handle infrequent entries.

Ledger Accounts

Ledgers compile final entries and account activities; general ledgers provide a comprehensive view of all accounts listed in the chart of accounts, essential for tracking financial health over time.

Understanding Manual and Computerized Accounting Systems

Overview of Ledgers

The discussion begins with the distinction between a general ledger at ANU and subsidiary ledgers, emphasizing that subsidiary ledgers provide detailed activity for each account type.

It is noted that subsidiary ledgers are not limited to accounts receivable and payable; they can also include fixed assets, as experienced in previous roles.

Flow of Information in Accounting

An example is provided illustrating the flow of information from an economic event (customer order) into the general ledger, highlighting the creation of sales orders.

The process involves journal entries triggered by sales orders, which are then posted to accounts receivable subsidiary ledgers.

Importance of Reconciliation

Periodic reconciliation between the general ledger and subsidiary ledgers is essential for maintaining accurate accounting records.

The concept of an audit trail is introduced, stressing its importance in tracing transactions from source documents to financial statements.

Audit Trails in Accounting Systems

Techniques such as sampling and confirmation are discussed as methods for ensuring traceability within accounting records.

Key characteristics for validating information include accuracy, freedom from bias, and completeness; these traits help auditors verify financial data.

Transitioning to Computerized Systems

The necessity for an audit trail remains crucial even in computerized systems; both manual and computerized systems should maintain this feature.

Acknowledgment that transitioning from manual to computerized systems still requires understanding manual processes for troubleshooting purposes.

Features of Computer-Based Accounting Systems

In computer-based systems, audit trails may be less observable compared to traditional methods but remain integral to system integrity.

Data entry occurs through computer programs that automate recording processes; however, physical storage methods like magnetic files or cloud backups are also utilized.

Understanding Computer-Based Systems and Documentation Techniques

Types of Magnetic Files

Master File: Contains the primary data, such as the general ledger or subsidiary ledger files.

Transaction File: A temporary file that holds transactions since the last update; examples include sales orders and cash receipts.

Reference File: Contains constant information used in processing, like customer addresses and payroll computation tables.

Archive File: Stores past transactions for reference, including records of accounts from prior periods.

Importance of Documentation in Computerized Environments

Documentation is essential for understanding systems, especially for new team members to grasp operational processes effectively.

There are five key documentation techniques utilized in computer-based environments:

Data Flow Diagrams

Relationship Diagrams

Document Flow Charts

System Flow Charts

Program Flow Charts

Data Flow Diagrams (DFD)

DFD uses symbols to represent processes, data flows, and entities within a system. It focuses on logical elements rather than physical aspects.

Entities in DFD are external objects at the system's boundary that represent sources or destinations of data; they should be labeled as nouns.

Arrows indicate data flows between processes, data stores, and entities. The diagram does not depict how tasks are performed or by whom.

Entity Relationship Diagrams (ERD)

ERDs illustrate relationships between entities within a system but do not show the process flow like DFD does.

Cardinality reflects business rules and organizational policies regarding entity relationships; it can denote one-to-one or one-to-many relationships.

Examples of Cardinalities

One-to-One: A salesperson assigned to one car type.

One-to-Many: A customer placing multiple orders.

Many-to-Many: Multiple vendors supplying many inventories.

This structured overview captures key concepts related to magnetic files and documentation techniques relevant to computer-based systems while providing timestamps for easy reference.

Entity Relationship and System Flowcharts

Understanding Entity Relationships

The discussion begins with the concept of entity relationships, specifically focusing on physical resources and agents involved in these relationships.

It emphasizes the importance of documenting these relationships to clarify how entities interact within a system.

Introduction to System Flowcharts

System flowcharts are introduced as a documentation technique that illustrates the relationships among processes and the documents flowing between them. They provide more detail than data flow diagrams.

The distinction between data flow diagrams and system flowcharts is highlighted, noting that flowcharts depict separation of functions clearly within a particular system.

Symbols Used in Flowcharting

Various symbols used for representing manual procedures in system flowcharts are discussed, including terminals, source documents, operations, and connectors. Each symbol serves a specific purpose in illustrating document flows.

A general symbol set is presented for representing manual procedures within a system flowchart context. This includes symbols for different types of processes and document flows.

Example: Sales Order Process

An example is provided detailing the sales order process starting from the CCS department receiving customer orders by mail to various departments handling approvals and documentation. This illustrates how information flows through different stages of processing an order.

The sales department prepares hard copies of sales orders which are then sent to the credit department for approval before further processing occurs, demonstrating inter-departmental communication and workflow management.

Final Steps in Order Processing

After credit approval, copies of the sales order are filed temporarily while awaiting finalization; this step ensures proper record keeping throughout the process.

The shipping department's role is explained as they receive approved orders from both sales and credit departments to prepare goods for shipment, highlighting coordination across departments until delivery completion.

Understanding System Flowcharts and Data Processing Approaches

Overview of System Flowcharts

System flowcharts illustrate the relationships between key elements in a computer system, including input sources and program outputs.

They depict major components such as terminals, magnetic tape, and other storage methods used in data processing.

The discussion includes documentation techniques like program flowcharts that represent logic within programs.

Types of Flowchart Symbols

Program flowcharts use specific symbols: rectangles for processes, diamonds for decisions, and parallelograms for input/output operations.

These symbols help visualize logical paths within a program's structure.

Documentation Techniques

Various documentation techniques are introduced to enhance understanding of system design and functionality.

The importance of collaboration with IT departments is emphasized for effective system design.

Alternative Data Processing Approaches

Modern vs. Legacy Systems

A transition to discussing alternative data processing approaches highlights the differences between modern systems and legacy systems.

Modern systems are characterized by client-server architecture, real-time transaction processing, and high integration levels using relational tables.

Characteristics of Legacy Systems

Legacy systems are often mainframe-based, batch-oriented, and utilize flat files for data storage which limits information integration.

An example is provided comparing Oracle 11 (a legacy system) with Oracle 12 (a modern system), illustrating the evolution in technology.

Challenges with Legacy Systems

Legacy systems can become outdated over time; organizations may still rely on them due to historical dependencies or gradual upgrades.

Migration from Legacy Systems to Modern Systems

Transitioning to a New System

Discussion on migrating from a legacy system to a new system, emphasizing the importance of modernizing processes.

Introduction of client-server based systems and relational database tables as part of the modernization effort.

Importance of Procedures in Computerized Systems

Highlighting the necessity of having established procedures for effective operation within computerized environments.

Comparison between manual documentation and computerized systems, stressing the need for clear procedural manuals.

Data Backup and Recovery Strategies

Challenges with Data Preservation

Explanation that destructive updates can lead to data loss if proper backup procedures are not followed.

Emphasis on maintaining updated master files and implementing robust backup strategies to ensure data integrity.

Master File Management

Description of how master files should be regularly updated and backed up, including potential time lags in processing updates.

Overview of recovery programs that utilize backups to restore master file versions when necessary.

Batch Processing vs. Real-Time Processing

Understanding Batch Processing

Definition of batch processing as accumulating similar transactions over time for collective processing.

Discussion on the independence required among transactions during accumulation periods for effective batch processing.

Advantages and Use Cases

Insights into why batch processing is utilized, particularly when real-time processing may not be feasible due to timing constraints or high transaction volumes.

Batch Processing and Real-Time Systems

Understanding Batch Processing

The discussion begins with the concept of batch processing, where transactions are accumulated over a period (e.g., a day) before being processed collectively. This method contrasts with real-time processing.

It is noted that sales records can be logged in batches rather than per transaction, which enhances efficiency by grouping similar transactions together.

Key steps in batch processing include capturing input data, identifying clerical errors, sorting transactions, and updating master files to reflect changes accurately.

An error file is created during the editing process to manage any discrepancies found within the batch before proceeding with updates.

The importance of sequential file usage is highlighted; it allows for efficient error checking and data rearrangement based on key fields before final updates are made.

Advantages of Batch Processing

Organizations benefit from increased efficiency by processing large numbers of transactions at once instead of individually, which streamlines operations significantly.

Control figures are utilized in batch processing to verify accuracy against expected totals, enhancing oversight and reducing errors in financial reporting.

Higher control levels in batch processing allow organizations to ensure that all entries match expected outcomes through systematic checks against input records.

Transitioning to Real-Time Systems

A shift towards real-time systems is introduced, where transactions are processed immediately as they occur. This contrasts sharply with the delayed nature of batch processing.

Real-time systems require more resources due to their need for dedicated capacity but offer immediate transaction reflection without waiting for batches to complete.

Examples illustrate how real-time systems function effectively in environments like banking, where deposits or withdrawals are recorded instantly upon action by users.

The development time for real-time systems tends to be longer compared to batch systems due to the complexity involved in ensuring immediate updates across platforms.

Data Processing: Batch vs. Real-Time

Overview of Data Processing Methods

Batch processing involves a delay between the occurrence of an economic event and its recording, while real-time processing captures events immediately after they occur.

Fewer resources are typically required for batch processing, as it may only need one person to manage tasks compared to multiple individuals needed for real-time updates.

Operational efficiency is higher in real-time processing since all records related to an event are processed immediately, enhancing feedback and data visibility.

Use Cases for Batch Processing

Many entities prefer batch processing due to its effectiveness in handling high-volume independent transactions, such as cash receipts or checks.

High volumes can be processed during off-peak hours, optimizing resource use and system performance.

Transitioning Between Processing Types

Some organizations may require both batch and real-time processing depending on their specific needs and operational context.

Understanding Coding in Data Management

Importance of Coding

Coding simplifies complex information management by providing structured terminology that enhances accountability and transaction completeness.

It supports audit functions by maintaining effective trails within files, ensuring data integrity.

Types of Codes Used

Sequential Codes

Sequential codes represent items in a specific order using plain numbered documents; they help track transactions and identify any out-of-sequence documents.

Advantages & Disadvantages

While sequential codes provide organization, they carry no inherent information about item attributes (e.g., size or material), making them less informative for analysis.

Changing sequential coding schemes can be challenging; inserting new items requires renumbering existing entries, complicating the process.

Understanding Block Codes and Their Applications

Overview of Block Codes

A block code represents whole classes by assigning each class a specific range within a coding scheme, facilitating the organization of accounts in the general ledger.

An example includes a chart of accounts structured with assets, liabilities, equity, income, and expenses categorized under specific codes.

The system allows for easy insertion of new codes without reorganizing the entire coding structure.

Advantages and Disadvantages of Block Codes

While block codes allow for new entries, they can lead to arbitrary information that lacks apparent meaning until referenced against the chart of accounts.

The disadvantage is that account numbers may not convey useful information on their own; context from the chart is necessary for understanding.

Exploring Group Codes

Definition and Structure

Group codes represent complex items or events using multiple data fields, allowing for detailed tracking (e.g., sales).

An example includes a code where segments represent different attributes like department number and item number.

Benefits and Challenges

Group codes facilitate representation of diverse data in a logical hierarchy that is easier to remember.

However, overuse can complicate information interpretation, leading to unnecessary complexity that may confuse users unfamiliar with the coding system.

Alphabetic Codes: Characteristics and Usage

Purpose and Functionality

Alphabetic codes serve similar purposes as numeric codes but utilize letters which can be assigned sequentially or through other techniques.

They expand possible combinations beyond numeric limits (26 variations per field), enhancing categorization capabilities.

Advantages vs. Limitations

The use of alphabetic characters increases potential blocks but also introduces challenges in rationalizing meanings compared to numeric systems.

Sorting records coded alphabetically can be difficult due to varied combinations, making it less straightforward than numeric sorting methods.

Understanding Codes in Financial Transactions

Types of Codes Used in Accounting

The discussion begins with the concept of a chart of accounts, which combines black codes and alphabetic codes to categorize financial data. Key categories include assets, liabilities, capital, income, and expenses.

The speaker emphasizes the importance of mnemonic codes that help users remember account types without needing to memorize arbitrary meanings. Examples include cash accounts and inventory accounts.

Mnemonic codes are defined as alphabetical characters used for abbreviations or acronyms. They provide informative coding schemes that enhance user understanding without requiring memorization.

An example is given where mnemonic rules simplify understanding by representing classes of items effectively. However, they have limitations in representing specific items within those classes.

The speaker notes that while mnemonic codes can be unique to an entity's needs, their ability to represent diverse items is limited. This limitation poses challenges when trying to create comprehensive coding systems.

Transaction Processing Overview

A transition occurs towards discussing transaction processing methods after covering various code types. The speaker mentions the introduction of buyer cycles and documentation techniques relevant to financial transactions.

Real-time processing and batch processing are highlighted as essential components in managing financial transactions efficiently. The session concludes with an invitation for questions regarding the discussed topics.