Chapter 2

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CHAPTER

Introduction to Transaction Processing
hapter 1 introduced the transaction processing system (TPS) as an activity consisting of three major subsystems called cycles: the revenue cycle, the expenditure cycle, and the conversion cycle. Even though each cycle performs different specific tasks and supports different objectives, they share common characteristics. For example, all three TPS cycles capture financial transactions, record the effects of transactions in accounting records, and provide information about transactions to users in support of their day-to-day activities. In addition, transaction cycles produce much of the raw data from which management reports and financial statements are derived. Because of their financial impact on the firm, transaction cycles command much of the accountant’s professional attention. The purpose of this chapter is to present some preliminary topics that are common to all three transaction processing cycles. In subsequent chapters, we will draw heavily from this material as we examine the individual subsystems of each cycle in detail. This chapter is organized into six major sections. The first is an overview of transaction processing. This section defines the broad objective of the three transaction cycles and specifies the roles of their individual subsystems. The second section describes the relationship among accounting records, both traditional and digital, in forming an audit trail. The third section describes the key features of flat file and database structures used to store accounting data. The fourth section examines several documentation techniques used to represent systems including manual procedures and the computer components of system. The fifth section addresses alternative transaction processing approaches. It reviews the fundamental features of batch and real-time technologies and their implication for transaction processing. The final section examines data coding schemes and their role in transaction processing.

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After studying this chapter, you should:
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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 transaction processing systems. Understand the relationship between traditional accounting records and their digital equivalents in computerbased systems. Be familiar with the documentation techniques used for representing manual procedures and the computer components of systems. Understand the differences between batch and real-time processing and the impact of these technologies on transaction processing. Be familiar with data coding schemes used in accounting information systems.

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PART I

Overview of Accounting Information Systems

An Overview of Transaction Processing
TPS applications process financial transactions. A financial transaction was defined in Chapter 1 as

An economic event that affects the assets and equities of the firm, is reflected in its accounts, and is measured in monetary terms. The most common financial transactions are economic exchanges with external parties. These include the sale of goods or services, the purchase of inventory, the discharge of financial obligations, and the receipt of cash on account from customers. Financial transactions also include certain internal events such as the depreciation of fixed assets; the application of labor, raw materials, and overhead to the production process; and the transfer of inventory from one department to another. Financial transactions are common business events that occur regularly. For instance, thousands of transactions of a particular type (sales to customers) may occur daily. To deal efficiently with...
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