Accounting Cycle & Transaction Processing PDF

The The Accounting Accounting Cycle Cycle Illustration 3-6 Transactions Transactions (Documents) (Documents) 9. 9. Re...

The The Accounting Accounting Cycle Cycle Illustration 3-6 Transactions Transactions (Documents) (Documents) 9. 9. Reversing Reversing entries entries 1. 1. Journalization Journalization 8. 8. Post-closing Post-closing trail trail balance balance 2. 2. Posting Posting 7. 7. Closing Closing entries entries 3. 3. Trial Trial balance balance Work Work 6. 6. Financial Financial Statements Statements Sheet Sheet 4. 4. Adjustments Adjustments 5. 5. Adjusted Adjusted trial trial balance balance LO 3 Identify steps in the accounting cycle.  Chapter 2 Introduct ion to Transacti on Processin g Accounting Information Systems 9e James A. Hall © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Objectives for Chapter 2 Understand the broad objectives of transaction cycles. Recognize the types of transactions processed by each of the three transaction cycles. Know the basic accounting records used in TPS. Understand the relationship between traditional accounting records and their computer-based digital equivalents. Be familiar with documentation techniques. Understand the differences between batch and real-time processing and their impact on transaction processing. Be familiar with data coding schemes used in AIS. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3  An Overview of Transaction Processing 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. Three transaction cycles: the expenditure cycle, the conversion cycle and the revenue cycle. Every business: – Incurs expenditures in exchange for resources (expenditure cycle). – Provides value added through its products or services (conversion cycle). – Receives revenue from outside sources (revenue cycle). © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4  An Overview of Transaction Processing Expenditure Cycle: Time lag between components due to credit relationship 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 components due to credit relationship with customers. – physical component (sales order processing) – financial component (cash receipts) © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5  An Overview of Transaction Processing © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 6  Accounting Records: Manual Systems Source documents are used to capture and formalize transaction data needed for transaction processing. Product documents are the result of transaction processing. Turnaround documents - product documents of one system that becomes source documents for another. Journals are chronological records of transactions. – Special journals are used to record specific classes of transactions that occur in high frequency. – Register denotes certain types of special journals. – General journal is used to record nonrecurring, infrequent, and dissimilar transactions. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 7  Accounting Records: Manual Systems © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8  Accounting Records: Manual Systems © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9  Accounting Records: Manual Systems © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 10 Accounting Records: Manual Systems © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11 Accounting Records: Manual Systems © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 12  Accounting Records: Manual Systems Ledger is a book of accounts that reflects the financial effects of a firm’s transactions as they are posted from the various journals. – General ledgers contain account information in highly summarized control accounts. – Subsidiary ledgers contain details for each 0f the individual accounts that constitute a particular control account. Together the accounting records provide an audit trail for tracing account balances contained in the financial statements back to the source documents and events that created them. – Important in the conduct of a financial audit. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 13 Accounting Records: Manual Systems © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14  Accounting Records: Manual Systems © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 15  Accounting Records: Manual Systems © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 16  Digital Accounting Records Master file contains account data. Transaction file is a temporary file of transaction records used to update data in a master file. Reference file stores data that are use as standards for processing transactions. Archive file contains records of past transactions retained for future reference – Form an important part of the audit trail. Digit record audit trails are less observable than those between hard-copy documents, but they still exist. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 17  File Structures © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 18  File Structures The flat-file model describes an environment where individual data files are not related to other files. Leads to three significant data redundancy problems: Data Storage: – Organizations must incur the costs of multiple collection and storage procedures. Data Updating: – Changes or additions must be performed multiple times which adds significantly to the task and cost of data management. Currency of Information: – If update information is not properly disseminated, changes will not be reflected in some users’ data, resulting in decisions based on outdated information. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 19  File Structures Other problems with the flat-file approach: Task-Data Dependency: – User’s information set is constrained by the data user possess and controls. This leads to the inability to obtain additional information as needs change. Data Integration: – Separate files are difficult to integrate across multiple users. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20  The Database Model © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 21  Documentation Techniques Data flow diagram (DFD) uses symbols to represent entities, processes, data flows and data stores. – Used extensively by systems analysts to represent the logical elements of the system but does not depict the physical system. Entity relationship diagram (ER) is a technique used to represent the relationship between business entities. – The degree of the relationship (cardinality) is the numeric mapping between entities: one-to-one (1:1), one-to-many (1:M) or many-to-many (M:M). – A data model is a blueprint for the physical database. DFDs and ER diagrams document different system aspects but are related. – DFDs model systems processes and ER diagrams system data. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 22  Documentation Techniques © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 23  Documentation Techniques © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 24  Documentation Techniques System flowchart is the graphical representation of the physical relationships among key elements of a system. – Elements include departments, manual activities, computer programs, hard-copy and digital accounting records. – Also describe the physical computer media being employed. – Shows the processing of a single transaction only. Program flowchart provides operational details for every program represented in a system flowchart. – Sometimes used by accountants to verify the correctness of program logic. Record layout diagrams reveal the internal structure of digital records in a database table. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 25  Documentation Techniques © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 26  Documentation Techniques © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 27  Documentation Techniques © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 28  Documentation Techniques © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 29  Documentation Techniques © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 30  Documentation Techniques © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 31  Documentation Techniques © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 32  Documentation Techniques © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 33  Documentation Techniques © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 34  Documentation Techniques © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 35  Transaction Processing Models © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 36  Transaction Processing Models: Batch vs. Real-Time Information time frame: – Batch systems assemble transactions in groups, resulting in a time lag. Real-time systems process transactions individually as they occur with no time lag. Resources: – Generally fewer required with a batch system. Operational efficiency: – Batch processing of noncritical accounts eliminates unnecessary activities at critical points in the process. Designer must consider the trade-off between efficiency and effectiveness. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 37  Transaction Processing Models: Batch vs. Real-Time Updating master files from transactions: – Involves changing the value of one or more variable fields to reflect the effects of a transaction (batch and real-time). Master file backup is a standard procedure to maintain file integrity in the event that: – An update program error corrupts the master file being updated. – Undetected transaction errors result in corrupted balances. – A disaster physically destroys current master files. Batch processing using real-time data collection: – Popular approach that captures and processes some aspects of a transaction when in occurs and other aspects in batch mode. Real-time systems process entire transactions as they occur. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 38 Transaction Processing Models © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 39  Transaction Processing Models © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 40  Transaction Processing Models © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 41  Data Coding Schemes Involves creating simple codes to facilitate efficient data processing. Business organizations process large volumes of transactions with similar basic attributes. – Uncoded entries require extensive recording space, are time consuming to record and are error prone. Advantages of data coding in AIS: – Concisely represents large amounts of complex information that would otherwise be unmanageable. – Provides accountability over transaction completeness. – Identifies unique transactions and accounts within a file – Supports the audit function by providing an effective audit trail. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 42  Data Coding Schemes © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 43  Data Coding Schemes Numeric group codes are used to represent complex items or events involving two or more pieces of related data. – Zones or fields have specific meanings. For example, a coding scheme for tracking sales might be 04-09-476214-99, meaning: Store Number Dept. Number Item Number Salesperson 04 09 476214 99 Facilitates representation of large amounts of diverse data. Allows complex data to be logically represented. Permits detailed analysis and reporting. Disadvantages are overuse which can increase costs and linking of unrelated data. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 44  Data Coding Schemes Alphabetic codes are used for many of the same purposes as numeric codes. – May use sequential, block or group coding techniques. – Dramatically increases the capacity to represent large numbers of items. – Disadvantages are it is difficult to rationalize the meaning of the codes and they tend to be difficult for users to sort. Mnemonic codes are alphabetic character acronyms and other combinations that convey meaning. – Common application is the two code state abbreviations or college course coding (in combination with numeric codes). – Codes convey a high degree of information. – Disadvantage is limited ability to represent items within a class. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 45