Introduction to

Transaction
Processing
 Understand the broad objectives of
01 transaction cycles.
Objectives
Recognize the types of transactions
02 processed by each of the three transaction
cycles.
03 Know the basic accounting records used
in TPS
Be familiar with the documentation technique
04 used for representing manual and computer-
based systems.
Be familiar with data coding schemeused in
05 AIS
 TPS applications process financial
01 transactions.
01

⚫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.
01 TPS 3 Major Subsystem(Cycles)

REVENUE EXPENDITURE CONVERSION

Business
activities begin
Firms sell their with the Inputs are
finished goods to acquisition of converted into
customers materials, salable goods or
through the property, and services.
revenue cycle. labor in
exchange for
cash.
01 The EXPENDITURE Cycle

01 03

Cash
Purchase/AP Payroll System Fixed Asset
Disbursement
System System
System
01 The CONVERSION Cycle

Two Major Sub-system

⚫Production System

⚫Cost Accounting System

01 The REVENUE Ccyle

01 Primary Sub-
02
system

Sales Order Cash receipts

Processing
 ACCOUNTING
RECORDS- Manual
System
⚫Documents
02
⚫Journals
⚫Ledgers
⚫Audit Trail
A document provides evidence of an economic
event and may be used to initiate transaction
processing.
⚫Source Documents
⚫Product Documents
⚫Turn Around Documents
A Journal is a record of chronological entry.
⚫ Special Journal
⚫ Register
⚫ General Journal
A Ledger is a book of accounts that reflects the
financial effects of the firm's transactions after
they are posted from the various journals.
⚫General Ledgers-highly summarized
⚫Subsidiary Ledgers-detailed account
THE AUDIT TRAIL
The accounting records described previously
provide an audit trail for tracing transactions
from source documents to the financial
statements. Of the many purposes of the audit
trail, most important to accountants is the year-
end audit.
 COMPUTER-BASED
SYSTEMS
Type of Files
⚫Master File
03
⚫Transaction File
⚫Reference File
⚫Archive File
MASTER FILE.

A master file generally contains account data. The

general ledger and subsidiary ledgers are
examples of master files. Data values in master
files are updated from transactions.
TRANSACTION FILE.

A transaction file is a temporary file of

transaction records used to change or update
data in a master file. Sales orders, inventory
receipts, and cash receipts are examples of
transaction files.
REFERENCE FILE.

A reference file stores data that are used as

standards for processing transactions.
For example, the payroll program may refer to a tax
table to calculate the proper amount of withholding
taxes for payroll transactions.
ARCHIVE FILE.

An archive file contains records of past transactions that

are retained for future reference. These transactions
form an important part of the audit trail.
Archive files include journals, prior-period payroll
information, lists of former employees, records of
accounts written off, and prior-period
ledgers.
 COMPUTER-BASED
ACCOUNTING
SYSTEMS
04 ⚫Information Time-Frame
⚫Resources
⚫Operational Efficiency
 04 Information Time Frame

Batch systems assemble transactions into groups for

processing. There is always a time lag between the
point at which an economic event occurs and the
01
Keyword

point at which it is reflected in the firm’s accounts.

The amount of lag depends on the frequency of
Keyword
04
batch processing. Time lags can range from minutes
to weeks. Payroll processing is an example of a
typical batch system.
 04 Information Time Frame

Real-time systems process transactions individually

01
at the moment the event occurs. Because records
Keyword

are not grouped into batches, there are no time lags

between occurrence and recording. Keyword
04
04 Resources

Generally, batch systems demand fewer

organizational resources (such as programming
01

costs, computer Keyword

time, and user training) than real-time systems. For

Keyword
example, batch systems can use sequential files
04

stored on magnetic tape. Real-time systems use

direct access files that require more expensive
storage devices.
04

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 DATA CODING
SCHEMES
Numeric and
05 Alphabetic Coding
⚫Sequential Codes
Schemes
⚫Block Codes
⚫Alphabetic Codes
⚫Mnemonic Codes
05 Data Coding Schemes

Sequential codes represent items in some

sequential order (ascending or descending).
01
Keyword

A common application of numeric sequential

Keyword
codes is the prenumbering of source document
04
 05 Data Coding Schemes

A numeric block code is a variation on sequential

coding that can be used to represent whole classes of
01

items by restricting each class to a specific range

Keyword

within the coding scheme. A common application of

Keyword
block coding is the construction of a chart of
04

accounts.
 05 Data Coding Schemes

Alphabetic codes are used for many of the same

purposes as numeric codes.
01
Keyword

Alphabetic characters may be assigned sequentially

(in alphabetic order) or may be used in block and
Keyword
04

group coding techniques.

05 Data Coding Schemes

Mnemonic codes are alphabetic characters in the form of

acronyms and other combinations that convey
meaning. 01
Keyword
Course Type Course Number
Acctg 101
Keyword
Psyc 04
110
Mgt 270
Mktg 300
 EXERCISES /
06 SEATWORK
 06 TRANSACTION CYCLE IDENTIFICATION

Categorize each activity into the expenditure, conversion, or

revenue cycles, and identify the applicable subsystem.
a. preparing the weekly payroll for admin personnel
b. releasing raw materials for use in the
manufacturing cycle
c. recording the receipt of payment for goods sold
d. recording the order placed by a customer
e. ordering raw materials
f. determining the amount of raw materials to
order
 06 TYPES OF FILES

Indicate the appropriate related file structure: master file,

transaction file, reference file, or archive file.
a. customer ledgers
b. purchase orders
c. list of authorized vendors
d. records related to prior pay periods
e. vendor ledgers
f. hours each employee has worked during the current
pay period
g. tax tables
06 CODING SCHEME
THANK YOU