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Chapter 2 (TPS)

The document discusses transaction processing, accounting records, audit trails, documentation techniques, and processing methods. It covers transaction cycles, manual versus computerized accounting systems, batch processing versus real-time processing, and defines legacy systems as outdated computer systems still used instead of available upgrades.

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dero hamid
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173 views

Chapter 2 (TPS)

The document discusses transaction processing, accounting records, audit trails, documentation techniques, and processing methods. It covers transaction cycles, manual versus computerized accounting systems, batch processing versus real-time processing, and defines legacy systems as outdated computer systems still used instead of available upgrades.

Uploaded by

dero hamid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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➢ Transaction Process and Transaction Cycles

➢ Accounting Records (Manual Vs System)

➢ Audit Trail

➢ Documentation Techniques (Flow Charts)

➢ Batch Processing vs Real time Processing

➢ Legacy System
 Processing of transaction from its origin to its
destination.
 TPS Applications process financial transactions.

 Common financial transactions are economic


exchanges of resources which include:
❖Sales of goods or services
❖Purchases of inventory
❖Discharge of obligations
❖Receipt of cash on account of customers
❖Depreciation of Fixed Assets
❖Application of Labour, RM &OHs to production process.
❖Transfer of inventory from one dept. to another.
 Processing of transaction from its origin to its destination.

 The flow of different parts of a transaction through different


areas are known as transaction cycle. Most of the firm’s
economic activities are processed through these cycles

 Types of transaction cycle


1. Expenditure Cycle
Incurs expenditures in exchange of resources

2. Conversion Cycle
Provides value added through its products or services

3. Revenue Cycle
Receives revenue from outside resources.
Expenditure Cycle: (Chapter 5&6)
Sub systems involved are:
1. Purchase/ Accounts payable system
2. Cash disbursement system
3. Payroll system
4. Fixed Asset system

From system perspective a purchase transaction has two


components.
1. Physical Component (Acquisition of goods)
2. Financial Component (Cash disbursement to vendor)
A separate subsystem of cycles processes theses
components.
Acquisition of goods = Purchase system
Cash disbursement to vendor = Cash disbursement system
The Conversion Cycle: (Chapter 7)
Manufacturing firms convert RM into FG through formal
conversion cycle operations.

Subsystems involved are:

1. The Production Planning and Control System


This includes RM requirements, authorizing the work tobe
performed and release of RM into production and directing
the movement of WIP through various stages of
manufacturing.
1. Costing System Accounting
It monitors the valuation, budgeting, cost control performance
reporting and management decisions such as make or buy
decisions.
The Revenue Cycle: (Chapter 7)
Sale of FG to customers is done through revenue cycle and
includes cash sale, credit sale, receipt of cash following credit sale.

Subsystems involved are:


1. Sale order processing:
Involves preparing SOs (Sales orders), granting credits,
shipping products, billing customers, recording of transaction
in the accounts (A/C receivables and Inventory).
2. Cash receipts processing:
Involves collecting cash, depositing cash in bank and recording
these events in accounts (accounts receivables and cash)
Here we will discuss the accounting records
(documents) used in transaction cycles in each of
two below mentioned systems

1. Manual Systems

2. Computer Based Systems

Document: Is an evidence of an economic event used to initiate transaction


processing.
Source Document: An economic event result in some documents being created
at the beginning of the transaction.
Accounting Records
Manual Systems

Journals:
Primary books source documents are
recording mechanism for journals.

 Journals are categorized into two types


special journals and general journals. The
journals are also referred as registers.
Ledger:
 The information is then transferred to Ledgers.

 Journal show chronological effect of business


activity whereas ledger show activity by account
type.

 There are two types of ledgers

1. General Ledger: contain firm’s account


information in form of highly summarized
control accounts
2. Subsidiary Ledger: contain details of individual
accounts that constitute particular control
account.
The Audit Trail

➢ System that traces the detailed transactions


relating to any item in an accounting record.

➢ One of the most important purposes of AT is the year-


end audit.

➢ Tracing transaction from source documents to


financial statements.
For Example: Receivables audit trail.

➢ Audit Trail can be Manual or Digital Audit Trail.


Computer based Systems
Types of Files:
 Master File:
It usually contains Account data.
E.g: General ledger and subsidiary ledger. Data in master file
is updated from transactions.

 Transaction File:
Used for storing the records. (Temporary basis)
E.g: Sales order, inventory receipt and cash receipts.

 Reference file:
Used for keeping references.
Credit limits, tax rates

 Archives File:
Contains record for past records.
E.g: Journal, Past payroll info, list of employees, records of accounts
written off.
1. Batch Processing / Batch System:

➢ Numerous similar transactions are processed together/ system that


assembles transactions in to groups for processing.
➢ Batch processing improves operational efficiency. Economies of
scale. When large scale data is processed is at one time reduces as
well as the cost reduces.
➢ Control over transaction processes. Reconciliation becomes easy.
➢ Error identification in in small batches becomes easier.
➢ There is a time lag between the point at which economic event
occurs and the point at which it is reflected in the accounts.

➢ Example: Payroll processing


The economic event – application of labour- occur continuously
through out the pay period however pay cheques of all employees
are prepared to gather as a batch.
1. Real time Processing / Real time System:

➢ It involves a continual input ,process and output of data.

➢ It processes transactions at the moment the event


occurs.

➢ Real Time processing improves operational efficiency

➢ There is no time lag between occurrence and recording


of an event.

➢ For continuous operations real time processing is


relevant.

Example: Air line reservations system


➢In the context of computing, it refers to outdated
computer systems, technology, programming languages
or application software / Program that are used instead of
available upgraded versions.

Examples:
Hardware in power plants, manufacturing machines
controlled by computers running MS-DOS, or outdated
financial systems.

➢ Modern systems are network based and client centric.

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