transaction processing and financial reporting systems overview
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TRANSACTIONPROCESSING
AND FINANCIAL REPORTINGSYSTEMS OVERVIEW
GROUP 6
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TRANSACTION CYCLE
EXPENDITURE CYCLE
Subsystems:-Purchasing or A/P-Cash Disbursements
-Payroll-Fixed Assets
CONVERSION CYCLE
Subsystems:-Production Planning and
Control-Cost Accounting
REVENUE CYCLE
Subsystems:
-Sales Order PurchasingCash Receipts
Labor
Materials
Physical Plant
Customers
CASH
CASH
FG
Finished GoodsCASH
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ACCOUNTINGRECORDS
ManualSystems
Computer-Based
Systems
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ACCOUNTING RECORDSManual Systems
!
Documents! Source Documents
! Product Documents
! Turnaround
Documents! Journals
! Ledgers
Computer Based Systems
!
Master File! Transaction File
! Reference File
! Archive File
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DFD and ER Diagrams
Systems Flowcharts
Program Flowcharts
Record Layout Diagrams
D UMENTATI NTECHNIQUES
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ENTITY
NAME
N
Process
Description
Data Store
Name
Direction of Data Flow
DFD and ER Diagrams
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RELATIONSHIP BETWEEN ERDIAGRAMS AND DATA FLOW
DIAGRAMS
! The two diagrams are related throughdata; each data store in the DFDrepresents a corresponding data entity
in the ER diagram.
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DFD and ER Diagrams
Systems Flowcharts
Program Flowcharts
Record Layout Diagrams
D UMENTATI NTECHNIQUES
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! A system flowchart is the graphical
representation of the physical relationshipsamong key elements of a system.
oorganizational departments
omanual activities
o
computer programsohard-copy accounting records
odigital records
Systems Flowcharts
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FLOWCHARTING MANUALACTIVITIES1. A clerk in the sales department receives a hard-copy customer
order by mail and manually prepares four hard copies of a salesorder.
2. The clerk sends Copy 1 of the sales order the credit department
for approval. The other three copies and the original customer
order are filed temporarily, pending credit approval.
3. The credit department clerk validates the customers order
against hard-copy credit records kept in the credit department.
The clerk signs Copy 1 to signify approval and returns it to the salesclerk.
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4. When the sales clerk receives credit approval, he orshe files Copy 1 and the customer order in the
department. The clerk sends Copy 2 to the warehouse
and Copies 3 and 4 to the shipping department.
5. The warehouse clerk picks the products from the
shelves, records the transfer in the hard-copy stockrecords, and sends the products and Copy 2 to the
shipping department.
6. The shipping department receives Copy 2 and the
goods from the warehouse, attaches Copy 2 as a
packing slip, and ships the goods to the customer. Finally,the clerk files Copies 3 and 4 in the shipping department
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LAY OUT THE PHYSICAL AREAS OF
ACTIVITY! a flowchart reflects the physical system, which is represented as vertical
columns of events and actions separated by lines of demarcation.
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TRANSCRIBE THE WRITTEN FACTS INTO VISUAL
FORMAT
! The symbols used for this purpose will be selected from the set presented.
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1. A clerk in the sales department receives hard-copy
customer order by mail and manually prepares four hardcopies of a sales order.
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2. The clerk sends Copy 1 of the sales order to thecredit department for approval. The other three
copies and the original customer order are filedtemporarily, pending credit approval.
3. The credit department clerk validates thecustomers order against hard-copy credit records
kept in the credit department. The clerk signs Copy 1
to signify approval and returns it to the sales clerk.
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4. When the sales clerk receives credit approval, he or she filesCopy 1 and the customer order in the department. The clerk
sends Copy 2 to the warehouse and Copies 3 and 4 to the
shipping department.
5. The warehouse clerk picks the products from the shelves,
records the transfer in the hard-copy stock records, and sendsthe products and Copy 2 to the shipping department.
6. The shipping department receives Copy 2 and the goodsfrom the warehouse, attaches Copy 2 as a packing slip, and
ships the goods to the customer. Finally, the clerk files Copies 3
and 4 in the shipping department.
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BATCH PROCESSING
!
Batch processing permits the efficientmanagement of a large volume of transactions.
! A batch is a group of similar transactions (such assales orders) that are accumulated over timeand then processed together
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Our example is based on a sales order system with the following facts:
1. A clerk in the sales department receives a customer order by mail and
enters the information into a computer terminal that is networked to a
centralized computer program in the computer operations department.
The original customer order is filed in the sales department. Facts 2, 3,
and 4 relate to activities that occur in the computer operationsdepartment.
2. A computer program edits the transactions, checks the customers
credit by referencing a credit history file, and produces a transaction file
of sales orders.
3. The sales order transaction file is then processed by an update
program that posts the transactions to corresponding records in AR andinventory files.
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! 4. Finally, the update program produces three hard copies of the
sales order. Copy 1 is sent to the warehouse, and Copies 2 and 3 aresent to the shipping department.
! 5. On receipt of Copy 1, the warehouse clerk picks the products from
the shelves. Using Copy 1 and the warehouse personal computer
(PC), the clerk records the inventory transfer in the digital stockrecords that are kept on the PC. Next, the clerk sends the physical
inventory and Copy 1 to the shipping department.
! 6. The shipping department receives Copy 1 and the goods from the
warehouse. The clerk reconciles the goods with Copies 1, 2, and 3
and attaches Copy 1 as a packing slip. Next, the clerk ships the goods
(with Copy 1 attached) to the customer. Finally, the clerk records theshipment in the hard-copy shipping log and files Copies 2 and 3 in the
shipping department.
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DFD and ER Diagrams
Systems Flowcharts
Program Flowcharts
Record Layout Diagrams
D UMENTATI NTECHNIQUES
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! Accountants sometimes use
program flowcharts to verify thecorrectness of program logic.
Program Flowcharts
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DFD and ER Diagrams
Systems Flowcharts
Program Flowcharts
Record Layout Diagrams
D UMENTATI NTECHNIQUES
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! Record layout diagrams are used to reveal the internal structure of the records that
constitute a file or database table.
Record Layout Diagrams
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COMPUTER-BASEDACCOUNTING SYSTEMS
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BATCH SYSTEMS VS. REAL-TIME
SYSTEMSDistinguishing
Feature
BATCH REAL TIME
Information
time frame
Lag exists between time when theeconomic
event occurs and when it isrecorded.
Processing takes place
when the economic
eventoccurs.
Resources Generally, fewer resources (e.g.,hardware,
programming, training) are
required.
More resources arerequired than for batch
processing.
Operationalefficiency
Certain records are processedafter the
event to avoid operational delays.
All records pertaining tothe event are processed
immediately
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ALTERNATIVE DATA
PROCESSINGAPPROACHES
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LEGACY SYSTEMS VS.MODERN SYSTEMS
Legacy systems
! mainframe-based applications;
! tend to be batch oriented;
! early legacy systems use flat files fordata storage, but hierarchical andnetwork databases are oftenassociated with later-era legacysystems.
Modern systems
! tend to be client-server (network)based and process transactions inreal time.
! Unlike their predecessors, modernsystems store transactions andmaster files in relational databasetables. A major advantage of
database storage is the degree ofprocess integration and datasharing that can be achieved.
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UPDATING MASTER FILES FROM
TRANSACTIONS! Whether batch or real-time processing is being used, updating a master file record
involves changing the value of one or more of its variable fields to reflect the effects ofa transaction.
! The update procedure in this example involves the following steps:
1. A sales order record is read by the system.
2. ACCOUNT NUMBER is used to search the AR master file and retrieve the
corresponding AR record.
3. The AR update procedure calculates the new customer balance by adding the
value stored in the INVOICE AMOUNT field of the sales order record to the
CURRENTBALANCE field value in the AR master record.
4. Next, INVENTORY NUMBER is used to search for the corresponding record in the
inventory master file.
5. The inventory update program reduces inventory levels by deducting the QUAN-TITY
SOLD value in a transaction record from the QUANTITY ON HAND field value in the
inventory record.
6. A new sales order record is read, and the process is repeated.
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UPDATING MASTER FILES FROM TRANSACTIONS
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DATABASE BACKUP PROCEDURES
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DATABASE BACKUP PROCEDURES
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BATCH PROCESSING USING REAL-TIMEDATA COLLECTION! Key steps in the process are:
1. The sales department clerk captures customer sales data pertaining to the item(s)
being purchased and the customers account.
2. The system then checks the customers credit limit from data in the customer record(account receivable subsidiary file) and updates his or her account balance to
reflect the amount of the sale.
3. Next, the system updates the quantity-on-hand field in the inventory record
(inventory subsidiary file) to reflect the reduction in inventory. This provides up-to-
date information to other clerks as to inventory availability.
4. A record of the sale is then added to the sales order file (transaction file), which is
processed in batch mode at the end of the business day. This batch process recordseach transaction in the sales journal and updates the affected general ledger
accounts.
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BATCH PROCESSING USING REAL-TIME
DATA COLLECTION
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REAL-TIME PROCESSING
! Real-time systems process the entire transaction as it occurs. For
example, a sales order processed by the system in Figure 6.32can be captured, filled, and shipped the same day. Such a
system has many potential benefits, including improved
productivity, reduced inventory, increased inventory turnover,
decreased lags in customer billing, and enhanced customer
satisfaction. Because transaction information is transmitteddigitally, physical source documents can be eliminated or greatly
reduced.
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REAL-TIME PROCESSING
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DATA CODING SCHEMES
!
Within the context of transactionprocessing, data coding involves creatingsimple numerical or alphabetical codes to
represent complex economic phenomena
that facilitate efficient data processing.
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A SYSTEM WITHOUT CODES! The negative effects of this approach may be seen in many parts
of the organization:
1. Sales staff. Properly identifying the items sold requires the
transcription of large amounts of detail onto source documents.Apart from the time and effort involved, this tends to promote
clerical errors and incorrect shipments.
2. Warehouse personnel. Locating and picking goods for shipment
are impeded and shipping errors will likely result.
3. Accounting personnel. Postings to ledger accounts will require
searching through the subsidiary files using lengthy descriptionsas the key. This will be painfully slow, and postings to the wrong
accounts will be common.
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A SYSTEM WITH CODES
! uses of data coding in AIS are to:
1. Concisely represent large amounts of complex
information that would otherwise be unmanageable.
2. Provide a means of accountability over the
completeness of the transactions processed.
3. Identify unique transactions and accounts within a file.
4. Support the audit function by providing an effectiveaudit trail.
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SEQUENTIAL CODESMEANING ADVANTAGE(S) DISADVANTAGE(S)
represent items in some
sequential order (pre-
numbering of sourcedocuments.)
!supports the
reconciliation of a batch
of transactions,!it alerts management to
the possibility of a
missing or misplaced
transaction.
!carry no information
content beyond their
order in the sequence.!difficult to change.
!In applications where
record types must be
grouped togetherlogically and where
additions and deletionsoccur regularly, this
coding scheme is
inappropriate.
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BLOCK CODESMEANING ADVANTAGE(S) DISADVANTAGE(S)
!a variation on sequential
coding that partly
remedies thedisadvantages just
described
!used to represent whole
classes of items byrestricting each class to
a specific range withinthe coding scheme
!the construction of a
chart of accounts.
!allows for the insertion of
new codes within a
block with- out having toreorganize the entire
coding structure.
!the information content
of the block code is not
readily apparent.
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GROUP CODESMEANING ADVANTAGE(S) DISADVANTAGE(S)
!are used to represent
complex items or events
involving two or morepieces of related data.
!The code consists of
zones or fields thatpossess specific
meaning.
! facilitate the
representation of large
amounts of diversedata.
! allow complex data
structures to be
represented in ahierarchical form
! permit detailed analysis andreporting both within an itemclass and across differentclasses of items.
!classification tool
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ALPHABETIC CODESMEANING ADVANTAGE(S) DISADVANTAGE(S)
!may be assigned
sequentially (in
alphabetical order) ormay be used in block
and group coding
techniques.
! capacity to represent
large numbers of items is
increased dramaticallythrough the use of pure
alphabetic codes or
alphabetic characters
embedded withinnumeric codes
(alphanumeric codes)
!difficulty rationalizing the
meaning of codes that
have been sequentiallyas- signed
!users tend to have
difficulty sorting records
that are codedalphabetically.
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MNEMONIC CODESMEANING ADVANTAGE(S) DISADVANTAGE(S)
!alphabetic characters in
the form of acronyms
and other combinationsthat convey meaning.
! does not require the
user to memorize
meaning; the code itselfconveys a high degree
of information about the
item that is being
represented.
!limited ability to
represent items within a
class.
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GENERAL LEDGERSYSTEM
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GENERAL LEDGER SYSTEM
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THE JOURNAL VOUCHER
! The source of input to the general ledger is the journal voucher,
!
A journal voucher, which can be used to represent summaries ofsimilar transactions or a single unique transaction, identifies the
financial amounts and affected general ledger (GL) accounts.
! Routine transactions, adjusting entries, and closing entries are all
entered into the GL via journal vouchers. Because a responsiblemanager must approve journal vouchers, they offer a degree of
control against unauthorized GL entries.
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THE JOURNAL VOUCHER
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THE GENERALLEDGER SYSTEM
!A HUB CONNECTED TO THE
OTHER SYSTEMS OF THE FIRM THROUGH SPOKESOF INFORMATION FLOWS
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THE GENERAL LEDGER SYSTEM
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THE JOURNAL VOUCHER
! The source of input to the general ledger
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THE GLS DATABASE
! General Ledger Master File
-the principle file in the GLS database
! General Ledger History File
-has the same format as the GL master
! Journal Voucher File
-the total collection of the journal vouchers processed in the
current period.
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THE GLS DATABASE! Responsibility Center File
-contains the revenues, expenditures, and other
resource utilization data for each responsibilitycenter in the organization.
! Budget Master File
-contains budgeted amounts for revenues,expenditures, and other resources forresponsibility centers.
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THE FINANCIALREPORTING SYSTEM
!THE LAW DICTATES MANAGEMENTSRESPONSIBILITY FOR PROVIDING STEWARDSHIP
INFORMATION TO EXTERNAL PARTIES. THIS
REPORTING OBLIGATION IS MET VIA THE FRS.
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FINANCIAL REPORTINGPROCEDURES
1. Capture the transaction
2. Record in special journal3. Post to subsidiary ledger
4. Post to general ledger
5. Prepare the unadjusted trial balance
6. Make adjusting entries
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FINANCIAL REPORTINGPROCEDURES
7. Journalize and post adjusting entries.
8. Prepare the adjusted trial balance9. Prepare the financial statements
10.Journalize and post the closing entries
11.Prepare the post-closing trial balance
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XBRL
REENGINEERINGFINANCIAL REPORTING!THE INTERNET STANDARD
SPECIFICALLY DESIGNED FOR BUSINESSREPORTING AND INFORMATIONEXCHANGE.
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XML
! metalanguage for describing markup languages
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XBRL
!an XML-based language that was
designed to provide the financialcommunity with a standardized method forpreparing, publishing, and automaticallyexchanging financial information, includingfinancial statements of publicly held
companies.
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1. SELECT AN XBRL TAXONOMY!Taxonomies are classification schemes that are
compliant with XBRL specifications toaccomplish a specific information exchange or
reporting objective such as filing with the SEC.
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2. CROSS-REFERENCE EACH
ACCOUNT
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3 MAPPING THE ORGANIZATIONS
INTERNAL
DATA TO XBRL TAXONOMY ELEMENTS
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4. STORED TAG AS DEPICTED BYTHE TAXONOMY ELEMENT FIELD
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THE CURRENT STATE OF XBRLREPORTING
Since October 2005, U.S. banking regulators have requiredquarterly call reports to be filed in XBRL. This requirement
impacts more than 8,000 banks. In April 2005, the SEC began a voluntary financial reporting
program that allows registrants to supplement their required
filings with exhibits using XBRL.
In September 2006, the SEC announced its new electronic
reporting system to receive XBRL filings. The new system iscalled IDEA, short for interactive data electronic application.
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CONTROLLING THE FRS
The potential risks to the FRS include:
1. A defective audit trail.
2. Unauthorized access to the general ledger.
3. GL accounts that are out of balance with subsidiary
accounts.
4. Incorrect GL account balances because of
unauthorized or incorrect journal vouchers.
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COSO INTERNAL CONTROLISSUES!Transaction Authorization
!Segregation of Duties
1. Have record-keeping responsibility for special journals orsubsidiary ledgers.
2. Prepare journal vouchers.
3. Have custody of physical assets
!Access Controls
!Accounting Records
!Independent Verification
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INTERNAL CONTROL IMPLICATIONS
OF XBRL
!Taxonomy Creation
!Taxonomy Mapping Error
!Validation of Instance Documents
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QUIZ
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1. Data coding schemes
2. A System without Codes
3. A System with Codes
4. Sequential Codes
5. Block Codes
6. Group Codes
7. Alphabetic Codes
8. Mnemonic Codes
a. Represent items in some sequential order (pre-numbering of source documents.)
b. Advantage is it does not require the user to memorizemeaning.
c. Concisely represent large amounts of complexinformation that would otherwise be unmanageable.
d. A variation on sequential coding that partly remediesthe disadvantages just described
e. Creating simple numerical or alphabetical codes torepresent complex economic phenomena
f. used to represent complex items or events involving twoor more pieces of related data.
g. Disadvantages are: sales staff. Warehouse personneland accounting personnel.
h. may be assigned sequentially or may be used in blockand group coding techniques.
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