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The introduction to transaction processing

22 important questions on The introduction to transaction processing

What are source documents?

They are used to capture and formalize transaction data that the transaction cycle needs for processing – creation of a source document is for example: customer order  data collection   sales order (the source document) which is processed by the sales system. 

What is a turnaround document?

They are product documents of one system that become source documents for another system, for example: the sales system produces a bill including the remittance advice (the product document) which is send to the customer. Customer checks the bill and sends the remittance advice plus payment back to the company. The payment is processed by the company by the cash receipt system.

What is a special journal?

They are used to record specific classes of transactions that occur in high volume. Such transactions can be grouped together in a special journal (with specified columns) and processed more efficiently that a general journal permits, for example all sales transactions.
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What is a register?

This term is often used to denote certain types of special journals, e.g. payroll journal is called the payroll register.

What is a general journal?

Used to record nonrecurring infrequent, and dissimilar transactions.   

What is a ledger?

A book of accounts that reflect the financial effects of the firm’s transactions after they are posted form the various journals. Whereas journals show the chronological effect of business activity, ledgers show activity by account type. A ledger indicates the increases, decreases, and current balance of each account.

What are subsidiary ledgers?

They are kept in various accounting departments of the firm, including inventory, account payable, payroll, and accounts receivable. This separation provides better control and support of operations. Thus, in addition to providing financial statements information, the general ledger is a mechanism for verifying the overall accuracy of accounting data that separate accounting departments have processed. By periodically reconciling summary balances form subsidiary accounts, journals, and control accounts, the completeness and accuracy of transaction processing can be formally addressed.

What is the master file?

It generally contains account data, examples: general and the subsidiary ledger. Data values in master files are updated from transactions.

What is the archive file?

It contains past transactions that are retained for future reference. These transactions form an important part of the audit trail. Examples: journals, prior period payroll info, list of formal employees, records of accounts.

What is a digital flow diagram (DFD)?

The DFD uses symbols to represent the entities, processes, data flows, and data stores that pertain to a system.

What is an entity relationship diagram (ERD)?

ERD is a documentation technique used to represent the relationship between entities. Entities are physical resources (automobiles, cash, etc.) events (ordering, receiving cash, etc.), and agents (sales persons, customer, etc.) about which the organization wishes to capture data.

What is batch processing and what are the advantages?

Batch: group of similar transactions that are accumulated over time and then processed together. The advantages:
-  Improved efficiency by grouping together large numbers of transactions into batches rather than processing each event separately.
-  Batch processing provides control over the transaction process. F.e.: the value of the sales order can be recorded when the batch is first assembled and then recalculated at various points during its processing. If an error occurs during processing, then the recalculated batch total will not equal the original batch total and the problem will be detected.

What are the implications for designing batch systems?

-  Economies are derived from having batches that are as large as possible.
-  Finding an error in a very large batch may prove difficult.
The accountant should seek a balance between the economic advantage of large batches and the troubleshooting advantage of small batches. This decision is based on operational (f.e. volume of transaction), business (f.e.: competitiveness industry) and economic factors (f.e. costs of processing).

Which two broad classes are there for computer bases systems?

Batch systems and real-time systems.

What is the trade-off between batch and real-time systems?

When immediate access to current information is critical to the user’s needs, then the real-time processing is the logical choice. When time flags in information have no detrimental effects on the user’s performance and operational efficiencies can be achieved by processing data in batches, batch processing is probably the superior choice.

What are the differences between legacy and modern systems?

Some firms employ legacy systems for certain aspects of their data processing. When legacy systems are used to process financially significant transactions, auditors need to know how to evaluate them. This could be highly structured and inflexible storage systems promoting a single-user environment that discourages information integration within business organizations.
Modern systems tend to be client-server based and processes transaction in real time. Most of these organizations use batch processing and store transactions and master files in relational database tables. Advantage: the degree of process integration and data sharing.

How is a destroyed master file reconstructed?

A special recovery program uses the backup file to create a pre-updated version of the master file. The file update process is repeated using the previous batch of transactions to restore the master.

What is real time processing and the advantages of it?

Real-time systems process the entire transaction as it occurs. Advantages: improved productivity, reduced inventory, increased inventory turnover, decreased lags in customer billing, and enhanced customer satisfaction. However, it suits that processes with lower transaction volumes, and those that do not share common records. They make extensive use of Local Area Network (LAN) and Wide Area Network (WAN) technology. Terminals at distributed sites throughout the organization are used for receiving, processing, and sending information about current transactions.

What are systems with codes?

When codes are introduces, a great amount of the problems will be reduced. Detailed information about for example inventory will be kept in reference files and used for such purposes as the preparation of parts lists, catalogs, bills of material, and mailing information. Other uses of data coding in AIS are to:
1)  Concisely represent large amounts of complex information that would otherwise be manageable.
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 effective audit trial.

What are sequential codes and the advantages and disadvantages associated with them?

This represents items in some sequential order (ascending or descending). The advantages are that it supports the reconciliation of a batch of transactions, such as sales orders, at the end of processing. Moreover, management can determine the cause and effect of errors. The disadvantages are that sequential codes carry no information content beyond their order in the sequence, because the codes tell us nothing about the attributes of the item ( type, size, material etc). Also, these codes schemes are difficult to change.

What are alphabetic codes and the advantages and disadvantages associated with them?

These are used for many of the same purposes as numeric codes. The advantage is that the capacity to represent large numbers of items is increased through the use of pure alphabetic codes or alphabetic characters embedded within number codes. The disadvantage is that there is a difficulty rationalizing the meaning of codes that have been sequentially assigned and users tend to have difficulty sorting records that are codes alphabetically.

What are mnemonic codes and the advantages and disadvantages associated with them?

These are alphabetic characters in the form of acronyms and other combinations that convey meaning. The advantage is that this does not require the use to memorize meaning; the code itself conveys a high degree of information about the item that is being represented.
But, these codes have a limited ability to represent items within a class. For example, the entire class could be represented by the mnemonic code AR, but we could quickly exhaust meaningful combinations of alphabetic characters if we attempted to represent the individual accounts that make up this class.

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AIS [Hall]

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