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Chapter 6 Transaction Processing and Financial Reporting Systems Overview
Summary of Chapter 6
Chapter 6
Transaction Processing
Financial Reporting Systems
Summary of Chapter 6
Transaction Processing
Overview of Transaction Processing Accounting Records Documentation Techniques .Computer-Based Accounting Systems Data Coding Schemes

General Ledger System The Financial Reporting System XBRL-Reengineering Financial Reporting Controlling the FRS
Financial Transaction
An Overview of Transaction Processing
An economic event that affects the assets and equities of the firm, is reflected in its accounts, and is measured in monetary terms

Transaction Cycles
Transaction Cycles
Process most of the firms economic activity; exist in all types of businessboth profit-seeking and not-for-profit types

Transaction Cycles
Expenditure Cycle
Conversion Cycle
Revenue Cycle

Transaction Cycles
The Expenditure Cycle

Purchases/ Accounts Payable System
It recognizes the need to acquire physical inventory (such as raw materials) and places an order with the vendor. When the goods are received, the purchases system records the event by increasing inventory and establishing an account payable to be paid at a later date.
Cash Disbursements System
When the obligation created in the purchases system is due, the cash disbursements system authorizes the payment, disburses the funds to the vendor, and records the transaction by reducing the cash and accounts payable accounts.

Transaction Cycles
The Expenditure Cycle

The payroll system collects labor usage data for each employee, computes the payroll, and disburses paychecks to the employees.
Payroll System
Fixed Asset System
A firms fixed asset system processes transactions pertaining to the acquisition, maintenance, and disposal of its fixed assets. These are relatively permanent items that collectively often represent the organizations largest financial investment.

Transaction Cycles
The Conversion Cycle

Involves the planning , scheduling, and control of the physical product through the manufacturing process
Includes determining raw material requirements, authorizing the work to be performed and the release of raw materials into production, and directing the movement of the work-inprocess through its various stages of manufacturing
Production System
Cost Accounting System
Monitors the flow of cost information related to production

Information this system produces is used for inventory valuation, budgeting, cost control, performance reporting, and management decisions, such as make-or-buy decisions

Transaction Cycles
The Revenue Cycle

The majority of business sales are made on credit and involve tasks such as preparing sales orders, granting credit, shipping products (or rendering of a service) to the customer, billing customers, and recording the transaction in the accounts (accounts receivable [AR], inventory, expenses, and sales)
Sales Order Processing
Cash Receipts
Cash receipts processing includes collecting cash, depositing cash in the bank, and recording these events in the accounts (AR and cash)
Labor Materials Physical Plant Finished Goods
Customers
Expenditure Cycle
Subsystems
Conversion Cycle
Subsystems
Revenue Cycle
Subsystems
Sales Order, Processing Cash Receipts
Purchasing/ Accounts Payable Cash Disbursements Payroll Fixed Assets
Production Planning and Control Cost Accounting
Customers Cash
Figure 6.1 Relationship Between Transaction Cycles
Cash
Manual Systems
Documents Source Documents Product Documents Turnaround Documents Journals Special Journals Register General Journals Ledgers General Ledgers Subsidiary Ledgers The Audit Trail
Computer-Based Systems
Types of Files Master File Transaction File Reference File Archive File The Digital Audit Trail
Accounting Records
Accounting Records
Manual Systems
Documents
Provides evidence of an economic event and may be used to initiate transaction processing
Accounting Records
Manual Systems
Documents
Source Documents
Economic events result in some documents being created at the beginning (the source) of the transaction; are used to capture and formalize transaction data that the transaction cycle needs for processing
Customers Order
Data Collection
Source 1 Document 2 Sales Order 3
Sales System
Figure 6.2 Creation of a Source Document
Accounting Records
Manual Systems
Documents
Product Documents
Are the result of transaction processing rather than the triggering mechanism for the process
Data Collection
Customer
Bill -------------------------Remittance Advice Product Document
Sales System
Figure 6.3 A Product Document
Accounting Records
Manual Systems
Documents
Turnaround Documents
Are product documents of one system that become source documents for another system; contains important information about a customers account to help the cash receipts system process the payment
Data Collection
Customer
Bill -------------------------Remittance Advice Product Document 1 Check 2 Remittance Advice
Sales System
Cash Receipts System
Figure 6.4 A Turnaround Document
Accounting Records
Manual Systems
Journals
A record of a chronological entry; holds a complete record of transactions and thus provides a means for posting to accounts
Economic Event
Capture Event
Record Event
1
Customers Order Sales Order
Sales Journal
Figure 6.5 Sales Order Recorded in Sales Journal
Accounting Records
Manual Systems
Journals
Special Journals Used to record specific classes of transactions that occur in high volume
Sales Journal Cash Receipts Journal Cash Disbursements Journal Purchases Journal Payroll Journal
Figure 6.6 Sales Journal
Accounting Records
Manual Systems
Journals
Register Often used to denote certain types of special journals; also use to denote a log
Payroll register-payroll journal Receiving register-receiving of raw materials or merchandise ordered from vendors Shipping register-records all shipments to customers
Accounting Records
Manual Systems
Journals
General Journals
Used to record nonrecurring, infrequent, and dissimilar transactions
Periodic depreciation Closing entries
Figure 6.7 General Journal
Accounting Records
Manual Systems
Ledgers
A book of accounts that reflects the financial effects of the firms transactions after they are posted from the various journals
Journal Entry
Post Sales Journal General Journal
Customers Order
Sales Order
Post
Accounts Receivable Subsidiary Ledger
Figure 6.8 Flow of Information from the Economic Event to the General Ledger
Accounting Records
Manual Systems
Ledgers
General Ledgers Summarizes the activity for each of the organizations accounts
Figure 6.9 General Ledger
Accounting Records
Manual Systems
Ledgers
Subsidiary Ledgers Are kept in various accounting departments of the firm, including inventory, accounts payable, payroll, and AR; A mechanism for verifying the overall accuracy of accounting data that separate accounting departments have processed
Accounts Receivable Subsidiary Ledger

Hobbs XX Johnson XX
General Ledger
Cash 9,845,260
Smith XX
Accounts Receivable
Total AR= 14,205,800
14,205,800
Inventory Ray XX Howard XX 126,389,538
Figure 6.10 Relationship Between the Subsidiary Ledger and the General Ledger
Accounting Records
Manual Systems
The Audit Trail

Provided by the accounting records described previously for tracing transactions from source documents to the financial statements
Accounting Records
Types of Files
Master File Transaction File Reference File Archive File
Accounting Records
Types of Files
Master File Generally contains account data General Ledger Subsidiary Ledgers Data values are updated from transactions
Accounting Records
Types of Files
Transaction File A temporary file of transaction records used to change or update data in a master file Sales Orders Inventory Receipts Cash Receipts
Accounting Records
Types of Files
Reference File
Stores data that are used as standards for processing transactions Payroll Program Price Lists List of Authorized Suppliers Employee Rosters Customer Credit Files
Accounting Records
Types of Files
Archive File
Contains records of past transactions that are retained for future reference Journals Prior-period Payroll Information Lists of Former Employees Records of Accounts Written Off Prior-period Ledgers
Accounting Records
The Digital Audit Trail

Example
Compare the AR balance in the balance sheet with the master file AR control account balance Reconcile the AR control figure with the AR subsidiary account total Select a sample of update entries made to accounts in the AR subsidiary ledger and trace these to transactions in the sales journal (archive file) From these journal entries, identify specific source documents that can be pulled from their files and verified. If necessary, the auditor can confirm the accuracy and propriety of these source documents by contacting the customers in question
Source Document
Sales Orders
Keying 1
Audit Trail
Balance Sheet AR xxx
Reference File 4 Credit File
Transaction File
Sales Orders General Ledger Control Accounts Accounts Receivable Inventory Cost of Goods Sold Sales
Master File
Journal Archive File 3
Update Program
2 Error File AR Subsidiary
Inventory Subsidiary
Figure 6.11 Accounting Records in a Computer-Based System
Data Flow Diagrams Record Layout Diagrams Entity Relationship Diagrams
Documentation Techniques
Program Flowcharts System Flowcharts
Uses symbols to represent the data stores that pertain to a system
Data Flow Diagrams entities, data
flows, and
Are used to represent systems at different levels of detail from very general to highly detailed Used by systems analysts extensively to represent logical elements of the system Show what logical tasks are being done, but not how they are done or who (or what) is performing them
Data Flow Diagrams
Symbol
Entity Name
Description
Input source or output destination of data
A process that is triggered or supported by data

Process Description
Data Store Name
A store of data such as a transaction file, a master file, or a reference file
Direction of data flow
Figure 6.12 Data Flow Diagram Symbol Set
Data Flow Diagrams
Credit Records
Credit Records
Sales Order Customer Approve Sales
Stock Release Approve Sales
Packing Slip Carrier
Customer Bill
Approved SO
Shipping Notice
Approve Sales Posting Data
Prepare Accounts Receivable
Sales Order
Customer AR Records
Figure 6.13 Data Flow Diagram of Sales Order Processing System
Data Flow Diagrams
Entity Relationship Diagrams
A documentation technique use to represent the relationship between entities Entities are physical resources, events, and agents about which the organization wishes to capture data One common use is to model an organizations database Not, however, sufficiently refined to be the plan for a workable database

1 Salesperson Assigned 1
Company Car
1 Customer
Places
Sales Order
M Vendor
Supply
M Inventory
Figure 6.14 Entity Relationship Diagram Symbols

1 Sales Order Assigned
1 Shipping Log
1 1 Credit Record Places M Customer AR Record
Figure 6.15 Data Model
Data Flow Diagrams
Data Flow Diagrams

A model of system processes

Models the data used in or affected by the system
Entity Relationship The graphical representation of the physical Diagrams relationships among key elements of a system
These elements may include organizational departments, manual activities, computer programs, hard-copy accounting records, and digital records Also describe the type of computer media being employed in the system, such as magnetic tape, magnetic disks, and terminals
System Flowcharts
Process
A clerk in the sales department receives a hard-copy customer order by mail and manually prepares four hard copies of a sales order. The clerk sends Copy 1 of the sales order to the Credit Department for approval. The other three copies and the original customer order are filed temporarily , pending credit approval. 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 sales clerk.
Flowcharting Manual Activities
2
3
System Flowcharts

Process
When the sales clerk receives credit approval, he or she 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. The warehouse clerk picks the products from the shelves, records the transfer in the hard-copy stock records, and sends the products and Copy 2 to the Shipping Department. 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.
4 5
System Flowcharts

Observed Rules
The flowchart should be labeled to clearly identify the system that it represents.
1 2 3 4 5
The correct symbols should be used to represent the various entities in the system. All symbols on the flowchart should be labeled.
Lines should have arrowheads to clearly show the process flow and sequence of events. If complex processes need additional explanation for clarity, a text description should be included on the flowchart or in an attached document refernced by the flowchart.
System Flowcharts
Terminal showing source or destination of documents and reports Source document or report
Terminal showing source or destination of documents and reports

Source document or report
Manual operation
Manual operation
File for storing source documents and reports Accounting records (journals, registers, logs, ledgers
File for storing source documents and reports Accounting records (journals, registers, logs, ledgers
Figure 6.17 Symbol Set for Representing Manual Procedures
System Flowcharts
Sales Department
Customer
Credit Department
Warehouse
Shipping Department
Customer Order
Prepare Sales Order
Sales Order 4 Sales Order 3 Sales Order 2 Sales Order 1
FACT 1
A clerk in the in the sales department receives a hardcopy customer order by mail and manually prepares four hard copies of a sales order.
Figure 6.18 Flowchart Showing Stated Fact 1 Translated into Visual Symbols
System Flowcharts
Sales Department
Customer
Credit Department
Sales Order 1
Warehouse
Shipping Department
Customer Order
Check Credit
Credit Records
Prepare Sales Order
Signed Sales Order 1
Customer Order Sales Order 4 Sales Order 3 Sales Order 2 Sales Order 1 N Signed Sales Order 1
3 FACT 2
The clerk sends Copy 1 of credit department clerk validates the customers the sales order to the credit order against hard-copy department for approval. The credit records kept in the other three copies and the credit department. The are original customer order clerk signs copy 1 to pending filed temporarilysignify approval and returns it to the credit approval. sales clerk.
System Figure 6.19 Flowchart Showing Stated Fact 1, 2 and 3Flowcharts
Translated into Visual Symbols
Sales Department
Customer
Credit Department
Sales Order 1
Warehouse
Sales Order 2
Shipping Department
A
Customer Order
Check Credit
Credit Records
Pick Goods
Stock records
Sales Order 4 Sales Order 3
Prepare Sales Order
Signed Sales Order 1
Sales Order 2
Customer Order Sales Order 4 Sales Order 3
Pick Goods
Sales Order 4 Sales Order 2 Sales Order 1 N Signed Sales Order 1 Sales Order 2 Sales Order 3
FACT 6
Distribute SO and file Customer Order Signed Sales Order 1 Sales Order 4 Sales Order 3 Sales Order 2 A
FACT 5 FACT 4
Customer N
The shipping department clerk picks When the sales The warehouse clerk receives Copy products from the receives the the 2 andcredit approval, he goods fromshelves, records theand the the warehouse, or she files Copy 1 transfer attaches Copy 2 as a order in the customer packing in the hard-copy stock slip, and ships the goods to clerk sends department. sends records, and The the the customer. Finally, theCopy 2 to the Copy 2 and warehouse and productsto clerk files Copies 33and 44in the copies and to shipping department. the shipping department. shipping department.
Figure 6.20 Flowchart Showing All Stated Facts Translated into Visual Symbols
System Flowcharts
Permits the efficient management of a large volume of transactions
Batch Processing
A batch is a group of similar transactions that are accumulated over time and then processed together
System Flowcharts
Batch Processing
Advantages
Batch Processing provides control over the transactions process. The accuracy of the process is established by periodically reconciling the batch against the control figure.
Organizations improve operational efficiency by grouping together large numbers of transactions into batches, and processing them as a unit of work rather than processing each event separately.
Second
First
System Flowcharts
Batch Processing
Implications
Finding an error in a making Economies are derived byvery large batch may prove difficult. transaction batches as large as When a batch is small, possible. The average transaction error identification is cost is thus reduced when the much easier. processing fixed cost associated with the batch is allocated across a large number of transactions.
Second
First
System Flowcharts
Hard copy (source documents and output)
Terminal input/ output device
Flowcharting Computer Processes

Direct access storage device (disk pack) Magnetic tape (sequential storage device) Real-time (online) connection Video display device
Computer process (program run)
Process flow
Figure 6.21 Symbol Set for Representing Computer Processes
System Flowcharts
Sales Department
Customer
Computer Operations Department

Edit and Credit Check Credit History File
Warehouse
Shipping Department
Customer Order
Sales Orders Input Order
FACT 3 FACT 2 FACT 1

AR File
Customer Order
Update Program
Inventory N
The sales order transaction A computer program edits A is then processed by an fileclerk in the in the salesthe the transactions, checks department credit by a update program that posts customers receives customer order to history the transactions by mail and referencing a credit enters the information in AR corresponding records into a file, and produces a computer terminalsalesis and inventory files. that transaction file of networked to a centralized orders. computer program in the computer operations department. The original customer order is filed in the sales department.
Figure 6.22 Flowchart Showing the Translation of Facts 1, 2, and 3 into Visual Symbols
System Flowcharts
Sales Department
Customer
Computer Operations Department

Edit and Credit Check Credit History File
Warehouse
Shipping Department
A
Sales Order 1
Sales Order 3 Customer Order Pick Goods Sales Order 2 Shipping Log
Sales Orders Input Order
FACT 5 FACT 6
AR File
Sales Order 1
Ship Goods
The shipping department On receipt Order 1 and the Update Program Customer of Copy 1, the receives Copy warehouse clerk picks the goods from the warehouse. products from the shelves. The clerk reconciles the Using CopyCopies the and 3 goods with 1 and 1,2, N warehouse personal as a and attaches Copy 1 computer (PC), thethe clerk packing slip. Next, clerk records the inventory transfer ships the goods (with Copy 1 in the digital the customer. Sales Order 3 attached) to stock records that arethe clerk the PC. the Sales Order 2 Finally, kept on records Next, the clerk sends the shipment in the hard-copy Sales Order 1 physical inventory and Copy shipping log and files Copy 2 1 to the shipping department. and 3 in the shipping department.
FACT 4
Update Stock Records Sales Order 3
Inventory
Finally, the update program Sales Order produces three hard copies Sales Order 1 of the sales order. Copy 1 is sent to the warehouse, and Stock Records N Copies 2 and 3 are sent to the shipping department. Customer
Sales Order 1
Figure 6.22 Flowchart Showing All Facts Translated into Visual Symbols
System Flowcharts
Every program represented in a system flowchart should have a supporting program flowchart that describes its logic
A separate symbol represents each step of the programs logic, and each symbol represents one or more lines of computer program code
The connector lines between the symbols establish the logical order of execution
Program Flowcharts
System Flowcharts
Logical process
Logical process
Decision
Input/ Output operation (read and write records)
Flow of logical process
Program Flowcharts
Figure 6.24 Program Flowchart Symbols
Logical Steps
The program retrieves a single record from the unedited transaction file and stores it in memory
2
Program Flowcharts
The first logical test is to see if the program has reached the end-of-file (EOF) condition for the transaction file. Most file structures use a special record or marker to indicate an EOF condition. When EOF is reached, the edit program will terminate and the next program in the system will be updated. As long as there is a record in the unedited transaction file, the result of the EOF test will be no and process control is passed to the next logical step in the edit program.
Logical Steps
3
Processing involves a series of tests to identify certain clerical and logical errors. Each test, represented by a decision symbol, evaluates the presence or absence of a condition.
Error-free records are sent to the edited transaction file.
5 6
Records containing errors are sent to the error file.
The program loops back to Step 1, and the process is repeated until the EOF condition is reached.
Program Flowcharts
Unedited Transactions
Sales Orders
Customer
Read Record
EDIT
Errors
EOF
Yes
Stop
Edited Transactions
Mark Record Bad
No Yes
Error
Update
Master Files
No Yes
Error
Mark Record Bad
Edited Transactions Mark Record Bad
No Yes
Error
Update
Docs Reports
No
Bad Record
Yes No Program Flowcharts Figure 6.25 Program Flowchart for Edit Program
Write to Error File
Write to Edited File
Figure 6.26 System Flowchart
Record Layout Diagrams
Are used to reveal the internal structure of the records that constitute a file or database table
Usually shows the name, data type, and length of each attribute (or field) in the record
Shows the content of a record

Program Flowcharts
Record Layout Diagrams
Customer File Key

Customer Number Customer Name Street Address City State Zip Code Credit Limit
Figure 6.27 Record Layout Diagram for Customer File
Computer-Based Accounting Systems
Real-Time Systems

Batch Systems
Two Broad Classes of Computer-Based Accounting Systems

Differences Between Batch and Real-Time Systems
Information Time Frame
Resources
1 2 3
Operational Efficiency

Division 1
Division 2
Resources
CBAS
Division 3

Division 1
Division 2
Resources
CBAS
Division 3

CBAS
Batch Systems Lag exists between time when the economic event occurs and when it is recorded Amount of lag depends on the frequent batch processing can range from minutes to weeks An example is the payroll processing
Real-Time Systems Processing takes place when the economic event occurs There are no time lags between occurrence and recording An example is the airline reservations system

Resources
CBAS
Batch Systems Generally, fewer resources (e.g., hardware, programming, training) are required Can use sequential files stored on magnetic tape less expensive than magnetic disks In practice, however, these cost differentials are disappearing Real-Time Systems More resources are required than for batch systems May require either the time of a dedicated computer or an investment in additional computer capacity

CBAS
Batch Systems Certain records are processed after the event to avoid operational delays Improves operational efficiency by eliminating unnecessary activities at critical points in the process
Real-Time Systems Records pertaining to the event are processed separately The task of doing so takes time that, when multiplied by hundreds or thousands of transactions, can cause significant processing delays

Alternative Data Processing Approaches
Legacy Systems
Are mainframe-based applications Tend to be batch oriented Early leagacy systems use flat data storage Later-era legacy systems use hierarchical and network databases Highly structured and inflexible storage systems are very efficient data processing tools Promote a single-user environment
Modern Systems
They tend to be clientserver (network)-based and process transactions in real-time Stores transactions and master files in relational database tables May also use mainframe-based applications and batch processing

Alternative Data Processing Approaches
(PK)
Sales Order Number (SK) Account Number (SK) Inventory Number Record Structure for Sales Order Transaction File Quantity Sold Unit Price Invoice Amount
(PK) Account Number (PK) Inventory Number

Description
Record Structure for AR Master File Address Name Current Balance Credit Limit
Last Payment Date
Billing Date
Record Structure for Inventory Master File Quantity on Hand Reorder Point EOQ Vendor Number Standard Cost Total Cost
Figure 6.28 Record Structure for Sales, Inventory and Accounts Receivable Files

Database Backup Procedures
Transaction File
Sale = $50
Read $50
AR Master File Read $150 Update Program $100 + $50 = $150 Write $150 Current Balance = $100
Figure 6.29 Destructive Update Approach

Database Backup Procedures
Backup Program Backup Master
Transaction
Master
Update Program
Recovery Program
Figure 6.30 Backup and Recovery Procedures for Database Files

Batch Processing Using Real-Time Data Collection
Real-Time Data Collection
Electronically capture transaction data at the source as they occur Certain transaction errors can be prevented or detected and corrected at their source
Batch Processing
To achieve operational efficiency
Sales Department
Computer Operations
Other Departments
Real-Time Process
Customer AR Sub Inventory Sub
Sales Order
Data Input Terminal
Data Input and Edit Program
Invoice
Sales Orders
Batch Process
Customer Update and Report Program General Ledger Accounts Sales Journal
User Documents
Figure 6.31 Batch Processing with Real-Time Data Collection

Real-Time Processing
Improved Productivity Elimination/Reduction of Source Documents Reduced Inventory
Advantages
Enhanced Customer Satisfaction Decreased Lags in Customer Billing Increased Inventory Turnover
Customer
Sales
Computer Operations
Real-Time Process
Credit File Inventory
Warehouse
Shipping
Customer Order
Terminal Printer Terminal Printer
Data Input Terminal Invoice Credit and Inventory Check Stock Release
Bill Customer
Packing Slip
Reconcile Goods with Packing Slip Prepare Bill of Lading Closed Sales Orders Subsidiary and Control Accounts Terminal Printer Open Sales Orders Packing Slip BOL Ship Goods to Customers Packing Slip BOL
Figure 6.32 Real-Time Processing of Sales Orders
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Data Coding Data Coding Schemes

Involves creating simple numerical or alphabetical codes to represent complex economic phenomena that facilitate efficient data processing Instances of data coding involves the use of primary and secondary keys
Data Coding Schemes

A System without Codes
Great deal of recording space Time-consuming to record Obviously prone to many types of errors
Sales Staff Warehouse Personnel Accounting Personnel
Disadvantages
Proofs
Data Coding Schemes

A System without Codes
DR Inventory nut, inch, case-hardened steel, standard thread 1,000 CR
AP Industrial Parts Manufacturer, Cleveland Ohio
1,000
To record receipt of $1,000 worth half-inch, case-hardened steel nuts with standard threads supplied by Industrial Parts Manufacturer Cleveland, Ohio
Data Coding Schemes

A System with Codes
How it works
Using codes to represent each item The detailed facts will be kept in reference files Concisely represent large amounts of complex information that would otherwise be unmanageable Identify unique transactions and accounts within a file Support the audit function by providing an effective audit trail
Other Uses
Provide a means of accountability over the completeness of the transactions processed
Data Coding Schemes

Numeric and Alphabetic Coding Schemes
Advantages
Supports the reconciliation of a batch of transactions
Disadvantages
Carry no information content beyond their order in the sequence Are difficult to change
Data Coding Schemes

Advantages
Allows for the insertion of new codes within a block without having to reorganize the entire coding structure
Disadvantages
The information content of the block code is not readily apparent
Data Coding Schemes

Figure 6.33 Chart of Accounts
Data Coding Schemes

Advantages
They facilitate the presentation of large amounts of diverse data
They allow complex structures to be represented in a hierarchical form that is logical and more easily remembered They permit detail analysis and reporting both within an item class and across different classes of items
Disadvantages
Tend to be overused unrelated data may be linked simply because it can be done Overuse can increase storage costs, promote clerical errors, and increase processing time and effort
Store Number 04
Dept. Number 09
Item Number 476214
Salesperson 99
Data Coding Schemes

Advantages
The capacity to represent large numbers of items increased dramatically through the use of alphanumeric codes
Disadvantages
As with numeric codes, there is difficulty rationalizing the meaning of codes that have been sequentially assigned Users tend to have difficulty sorting records that are coded alphabetically
Data Coding Schemes

Advantages
Does not require the user to memorize meaning: the code itself conveys a high degree of information about the item that is being represented
Disadvantages
Limited ability to represent items within a class
Data Coding Schemes

Course Type Acctg Psyc
Course Number 101 110
Code NY CA OK
Meaning New York California Oklahoma
Mgt Mktg
270 300
Billings
Management Reporting System
Sales
The General Ledger System General Ledger

System (GLS)
Inventory Control
Cash Receipts
Cash Disbursements
Payroll
Cost Accounting Accounts Payable
Figure 6.34 Relationship of GLS to Other Information Subsystems
The General Ledger System

The Journal Voucher
The source of input to the general ledger
Can be used to represent summaries of similar 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 through these

The Journal Voucher
Figure 6.35 Journal Voucher Record Layout

The GLS Database
General Ledger Master File Journal Voucher History File
General Ledger History File
Responsibility Center File
Journal Voucher File
Budget Master File

The GLS Database
General Ledger Master File General Ledger History File Journal Voucher File
The principle file in the GLS database Is based on the organizations published chart of accounts
Same format with the GL master Primary purpose is to provide historical financial data for comparative financial reports
Is the total collection of the journal vouchers processed in the current period Provides a record of all general ledger transactions and replaces the traditional general journal

The GLS Database
Account Number Account Description Acct Class A=Asset L=Liab R=Rev E=Expense OE=Equity Normal Balance D=Debit C=Credit Beginning Balance Total Debits This Period Total Credits This Period Current Balance
Figure 6.36 Record Layout for a General Ledger Master File

The GLS Database
Journal Voucher History File Responsibility Center File Budget Master File
Contains journal vouchers for past periods Supports managements stewardship responsibility to account for resource utilization
Contains the revenues, expenditures, and other resource utilization data for each responsibility center in the organization
Contains budgeted amounts for revenues, expenditures, and other resources for responsibility centers
Sophisticated Users with Homogenous Information Needs
The Financial Reporting System
TPS, Daily Procedures

Economic Event Capture Transaction Post
GLS, Periodic ( Hourly, Daily, Etc.)

Journal Voucher
FRS, End of Period

Obtain Account Balances for Worksheet
FACT 11
General trial Ledger
4
Transactions Journals, Ledgers
Post
Prepare the post-closing balance Worksheet

11
Prepare Trial Balance
1
Prepare Journal Voucher FACT 1
FACT 6 FACT 7 Make adjusting entries Journalize and post adjusting entries
Journal Voucher
Prepare PostClosing Trial Balance
Trial Balance
FACT 2 Capture the transaction Record in special journal Voucher

Journal
FACT 8 FACT 9 Prepare the adjusted trial General 10 FACT PostPrepare the financial Journal balance Ledger Voucher Journalize statementsand post the closing entries
Journal Voucher
Post-Closing TB
Analyze Account Balances, Prepare Entries and Adjusted Trial Balance
FACT 3 FACT 4 Post to subsidiary ledger FACT 5 Post to general ledger Prepare the unadjusted trial balance
JV File
Adjusted Trial Balance
10
General Ledger
Prepare FS Financial statements
Post
Journal Voucher
Journal Voucher
Prepare Closing Entries & Post to GL
Stakeholders
Figure 6.37 Financial Reporting Process
Data Processing Department
Financial Reporting Group

Prepare Adjusting and Closing Entries
General Ledger Dept.
Daily Procedures
Sales System
GL Update and PeriodEnd Financial Reporting

GL Master GL History Other Files
Cash Rec Systemc
Adjusted Trial Bal GL Master Update GL
Purchases System JV Trans File Other TPS JV Trans File
Financial Statements
Update GL and prepare Adjusted Trial Balance, Financial Statements, and post-Closing Trial Balance
PostClosing TB
Adjusted Trial Bal
Review
Adjusted Trial Bal
Figure 6.38 GL/FRS Using Database Technology
File
eXtensible The Internet standard specifically designed for business reporting and information exchange BusinessReengineering Financial Its objective is to facilitate the publication, XBRL exchange, and processing of financial and Reporting business information Reporting Internet standard Language A derivative of another called XML (eXtensible Markup Language) (XBRL)
XBRL Reengineering Financial Reporting

XML
Is a metalanguage for describing markup languages Can be used to model the data structure of an organizations internal database
XML Extensible
Means that any markup language can be created using XML

Partial HTML Book Order
<H1>Book Order</H1> <BOLD>Understanding XML</BOLD> <H2>Doe, John</H2> <ITALIC>1</ITALIC> <BOLD>9.95</BOLD> <H2>Standard UPS</H2>
XML
End-user computer cannot process HTML and can only display the format.
Partial XML Book Order

<ORDERTYPE>Book Order</ORDERTYPE> <TITLE>Understanding XML</TITLE> <AUTHOR>Doe</AUTHOR> <QUANTITY>1</QUANTITY> <PRICE>9.95</PRICE> <SHIPPING>Standard UPS</SHIPPING>
End-user computer can recognize XML and process accordingly, relieving some of the burden currently placed on web servers.
Figure 6.39 Comparison of HTML and XML Documents

XBRL
Are classification schemes that are compliant with XBRL specifications to accomplish a specific information exchange or reporting objective such as filing with the SEC Specifies the data to be included in an exchange or report
Taxonomy

XBRL
Information-Reporting Organization
XBRL Taxonomy Taxonomy Mapper
Reporting Organizations Financial Database
Reporting Organizations Financial Database with Embedded Tags
XBRL Instance Document (Financial Report)
Reporting Organizations Web Site
Information-Reporting Organization
Analyze Financial Information Download Financial Report to Users System
Figure 6.40 Overview of XBRL Reporting Process

XBRL
The actual financial reports Publishable and available to users Can be placed on an intranet for internal use Can also be placed on a private extranet for limited dissemination to customers or trading partners Can also be placed on the Internet for public dissemination
XBRL Instance Documents

XBRL
Figure 6.44 XBRL Instance Document

The Current State of XBRL Reporting
September 2006
April 2005
The SEC began a voluntary financial reporting program that allows registrants to supplement their required filings with exhibits using XBRL The SEC announced its new electronic reporting system to receive XBRL filings called IDEA (Interactive Data Electronic Application)
May 2008
The SEC issued rules requiring large publicly held companies to adopt XBRL by December 15 to meet financial reporting requirements
October 2005
US Banking regulators have required quarterly call reports to be filed in XBRL
A defective audit trail
Unauthorized access to the general ledger
Controlling the FRS Potential

Risks to the FRS
GL accounts that are out of balance with subsidiary accounts
Incorrect GL account balances because of unauthorized or incorrect journal vouchers
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Welcome to the Group of the 4 presentation

Brainy High Group

Chapter 6 Transaction Processing and Financial Reporting Systems Overview

Financial Reporting Systems

An Overview of Transaction Processing

An Overview of Transaction Processing

An Overview of Transaction Processing

The Expenditure Cycle

Cash Disbursements System

An Overview of Transaction Processing

The Expenditure Cycle

Fixed Asset System

An Overview of Transaction Processing

The Conversion Cycle

Cost Accounting System

Monitors the flow of cost information related to production

An Overview of Transaction Processing

The Revenue Cycle

Sales Order Processing

Labor Materials Physical Plant Finished Goods

Purchasing/ Accounts Payable Cash Disbursements Payroll Fixed Assets

Production Planning and Control Cost Accounting

Figure 6.1 Relationship Between Transaction Cycles

Source 1 Document 2 Sales Order 3

Figure 6.2 Creation of a Source Document

Source 1 Document 2 Sales Order 3

Bill -------------------------Remittance Advice Product Document

Figure 6.3 A Product Document

Source 1 Document 2 Sales Order 3

Bill -------------------------Remittance Advice Product Document 1 Check 2 Remittance Advice

Cash Receipts System

Figure 6.4 A Turnaround Document

Figure 6.5 Sales Order Recorded in Sales Journal

Figure 6.6 Sales Journal

Figure 6.7 General Journal

Post Sales Journal General Journal

Accounts Receivable Subsidiary Ledger

Figure 6.9 General Ledger

Accounts Receivable Subsidiary Ledger

Total AR= 14,205,800

Inventory Ray XX Howard XX 126,389,538

The Audit Trail

The Digital Audit Trail

Balance Sheet AR xxx

Reference File 4 Credit File

Journal Archive File 3

2 Error File AR Subsidiary

Figure 6.11 Accounting Records in a Computer-Based System

Data Flow Diagrams Record Layout Diagrams Entity Relationship Diagrams

Program Flowcharts System Flowcharts

Uses symbols to represent the data stores that pertain to a system

Data Flow Diagrams entities, data

Data Flow Diagrams

A process that is triggered or supported by data

Data Store Name

A store of data such as a transaction file, a master file, or a reference file

Direction of data flow

Figure 6.12 Data Flow Diagram Symbol Set

Data Flow Diagrams