Transaction Processing and Financial Reporting Systems Overview

7/26/2019 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




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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


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



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DFD and ER Diagrams

Systems Flowcharts

Program Flowcharts




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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




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! Record layout diagrams are used to reveal the internal structure of the records that

constitute a file or database table.



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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 without 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.