Data Processing Cycle

The operations performed on data to generate meaningful and relevant information. It has four
stages: data input, data storage, data processing, and information output.

Source Documents
Contain the initial record of a transaction that takes place. Examples which are usually recorded
on preprinted forms, include sales invoices, purchase orders, and employee time cards.

Turnaround Documents
records of company data sent to an external party and then returned to the system as input. When
paper documents are exchanged with customers or suppliers, data input accuracy and efficiency
are improved by turnaround documents which are prepared in machine readable form to facilitate
their subsequent processing as input records. i.e. utility bill

Source Data Automation

The collection of transaction data in machine readable form at the time and place of origin.
Example: optical scanners and ATMs.

General Ledger
Contains summary-level data for every asset, liability, equity, revenue, and expense account.

Subsidiary ledger
Contains detailed data for any general ledger account with many individual subaccounts

Control Account
A general ledger account that summarizes the content of a specific subsidiary ledger.

Coding
The systematic assignment of numbers or letters to items to classify and organize them.

Sequence Codes
Items are numbered consecutively to account for all items

Block Code
Blocks of numbers are reserved for specific categories of data.

Group Codes
Two or more subgroups of digits used to code items, are often used in conjunction with block
codes Ex. p49

Mnemonic Codes
Letter and numbers are interspersed to identify an item

Chart of Accounts
List of accounts used by a company; includes an identification number for each account.
General Journal
Used to record infrequent or non routine transactions, such as loan payments and end-of-period
adjusting and closing entries

Audit Trail
A traceable path of a transaction through a data processing system from point of origin to final
output, or backwards from final output to point of origin.

Entity
Something about which information is stored.

Attributes
Characteristics of interest about an entity

Field
Contain data about entity attributes...constitutes a record

Transaction File
Contins records of individual business transactions that occur during a specific time.

Database
A set of interrelated, centrally coordinated files

Batch Processing
Updating done periodically, such as daily

Online, Real-Time Processing

Ensures that stored info is always current, thereby increasing its decision-making usefulness.

Documents
Records of transaction or other company data

Reports
Used by employees to control operational activities and by managers to make decisions and to
formulate business strategies

Query
Used to provide the info needed to deal with problems and questions that need rapid actions or
answers

Enterprise Resource Planning (ERP) Systems

They integrate all aspects of a company's operations with a traditional AIS.
Data processing cycle
The four operations (data input, data storage, data processing, and information output)
performed on data to generate meaningful and relevant information.

Source documents
Documents used to capture transaction data at its source - when the transaction takes
place. Examples include sales orders, purchase orders, and employee time cards

Turnaround documents
Records of company data sent to an external party and then returned to the system as
input

Source data automation

The collection of transaction data in machine-readable form at the time and place of the
origin

General ledger
A ledger that contains summary-level data for every asset, liability, equity, revenue, and
expense account of the organization

Control account
A title given to a general ledger account that summarizes the total amounts recorded in
a subsidiary ledger

Coding
The systematic assignment of numbers or letters to items to classify and organize them

Sequence code
Items are numbered consecutively so that gaps in the sequence code indicate missing
items that should be investigated

Block code
Blocks are numbers that are reserved for specific categories of data thereby helping to
organize the data, for example a chart of accounts

Group code
Two or more subgroups of digits that are used to code an item

Mnemonic code
Letters and numbers that are interspersed to identify an item. Derived from the
description of the item and is usually easy to memorize

Chart of accounts
A listing of all the numbers assigned to balance sheet and income statement accounts
Specialized journal
A journal used to record a large number of repetitive transactions such as credit sales,
cash receipts, purchases, and cash disbursements

Audit trail
A path that allows a transaction to be traced through a data processing system from
point of origin to output or backwards from output to point of origin

Entity
The item about which information is stored in a record, for example an employee, an
inventory item, and a customer

Attributes
The properties, identifying numbers, and characteristics of interest of an entity that is
stored in a database

Field
The portion of a data record where the data value for a particular attribute is stored

Record
A set of fields whose data values describe specific attributes of an entity, such as all
payroll data relating to a single employee

Data value
The actual value stored in a field

File
A set of logically related records, such as the payroll records of all employees

Master file
A permanent file of records that stores cumulative data about an organization

Transaction file
A file that contains the individual business transactions that occur during a specific fiscal
period

Database
A set of interrelated, centrally coordinated files that are stored with little data
redundancy as possible

Batch processing
Accumulating transaction records into groups or batches for processing at a regular
interval such as daily or weekly
Online, real-time processing
The computer system processes data immediately after capture and provides updated
information to users on a timely basis

Document
Records of transactions or other company data, such as checks, invoices, receiving
reports, and purchasing requisitions

Report
System output, organized in a meaningful fashion, that is used by employees to control
operational activities, by managers to make decisions and design strategies, and by
investors/creditors to understand a company's business activities

Query
A request for the data base to provide the information needed to deal with a problem or
answer a question

Enterprise resource planning (ERP) system

A system that integrates all aspects of an organization's activities - such as accounting,
finance, marketing, human resources, manufacturing, inventory management - in one
system

Account
A summary of the effects of all transactions related to a particular item over a period of
time.

Chart of accounts
A list of all account names used to record transactions of a company.

External transactions
Transactions the firm conducts with a separate economic entity.

General ledger
All accounts used to record the company's transactions.

Internal transactions
Events that affect the financial position of the company but do not include an exchange
with a separate economic entity.

Journal
A chronological record of all transactions affecting a firm.

Posting
The process of transferring the debit and credit information from the journal to individual
accounts in the general ledger.
T-account
A simplified form of a general ledger account with space at the top for the account title
and two sides for recording debits and credits.

Trial balance
A list of all accounts and their balances at a particular date, showing that total debits
equal total credits.

Historical Cost Principle

Activities of a company are initially measured at their cost-the exchange price at the
time the activity occurs

Revenue recognition principle

Revenues are recorded and reported when they are earned, not necessarily when they
are received in cash.

Matching principle
Expenses are recorded and reported in the same period as the revenue that it helped
generate.

Conservatism principle
Avoid overstating assets or income when they prepare financial statements, choose the
most conservative alternative.

Accounting Cycle Steps

1. Analyze Transactions
2. Journalize Transactions
3. Post to the ledger
4. Prepare a trial balance
5. Adjust the accounts
6. Prepare financial statements
7. Close the accounts
2.
Accounting Cycle
A simple and orderly process based on a series of steps and conventions.

Double-entry accounting
Under double-entry accounting, each transaction effects at least two accounts
The left side of the T account: ?
The right side of the T account: ?
Left side: Debit
Right side: Credit

Transaction analysis
The process of determining the economic effects of a transaction on the elements of the
accounting equation.
General Journal
A chronological record showing the debit and credit effects of transactions on a
company. Each transaction is represented by a journal entry.

General ledger
A collection of all the individual financial statement accounts that a company uses,
based on its chart of accounts, which is a numbering system of accounts.

Trial Balance
A list of all active accounts and each account's debit or credit balance
A Trial balance will not detect errors of analysis or amounts, it will only prove the
_______ of debits and credits.
Equality

Economic Entity Assumption

Keep the company's records separate from the owner's personal records.

Continuity (or going-concern) Assumption

A company will continue to operate long enough to carry out its existing commitments

Time Period Assumption

Life of a company can be divided into artificial time periods (e.g. monthly, quarterly,
annually)

Monetary Unit Assumption

Financial results in monetary terms

Cross-functional
crosses different functional business areas (accounting, finance, inventory
management, human resources, etc.)

Efficiency Online Transaction Processing (OLTP)

Value of TPS

Efficiency
Paperless Transactions
Reduce manual data entry (errors)
Speed up transaction process
Elimination of redundant steps

Online Transaction Processing (OLTP)

Real-time systems, immediate feedback
Real-time Reports and databases updates

Paperless Transactions
Reduce manual data entry (errors)
Speed up transaction process
Elimination of redundant steps
Value of TPS under Efficiency

Real-time systems, immediate feedback

Real-time Reports and databases updates
Value of TPS under Online Transaction Processing (OLTP)

Batch Processing
The transaction data are accumulated and processed periodically

Real-time Processing
It is also called online and transaction data are immediately processed but has
synchronization issues.

Data Entry
Collecting and capturing transactions

Transaction Processing
Synchronization Issues:
- Which transaction to process next.
- Breaking ties
- Dependencies

Database Maintenance
TPS helps ensure the databases are up-to-date and correct

Inventory Database
A single purchase decreases quantity and affects what database?

Credit Card Database

A single purchase decreases credit and affects what database?

Sales Database
A single purchase increase sales and affects what database?

Single Purchase
It decreases quantity in Inventory Database, decreases credit in Credit Card Database
and increase sales in Sales Database.

Document/Report Generation
These are the purchase orders, pay checks, sales receipts, invoices and bank
statements.
Inquiry Processing
Examples of this are when was a purchase made, does a customer have any credits on
their account, was an item scheduled for delivery, and was a package signed for.

Accounting data
Inventory data
Customer data
Financial data
Invoicing data
An Order Entry System affects

Enhanced Feedback
Inventory is updated at the point of ordering, not at the point of fulfillment and eliminates
surprise back orders

Order Entry System

It affects accounting data, inventory data, customer data, financial data and invoicing
data.

Reduce Transactions
The Customer can be notified of back order before credit authorization and customer
could cancel or change order and avoids unnecessary transactions

Faster Feedback
Pricing or production levels could be set based on current inventory and order status.
Increase price if production can't keep up with orders. Decrease price if inventory levels
are high.

Financial Transaction
an economic event that affects the assets and equities of the firm, is reflected in its
accounts, and is measured in monetary terms

The expenditure cycle

The conversion cycle
The revenue cycle
Similar types of transactions are grouped together into three transaction cycles. What
are those?

Expenditure Cycle
time lag between the two due to credit relations with suppliers

Physical Component
Financial Component
2 primary subsystem of Expenditure Cycle
physical component
acquisition of goods
financial component
cash disbursements to the supplier

Production System
Cost Accounting System
2 primary subsystem of Conversion Cycle

Production System
planning, scheduling, and control of the physical product through the manufacturing
process

Cost Accounting System

monitors the flow of cost information related to production

Revenue Cycle
time lag between the two due to credit relations with customers

Physical Component
Financial Component
2 primary subsystem of Revenue Cycle

Physical Component
sales order processing

Financial Component
Cash receipts

Source Documents
used to capture and formalize transaction data needed for transaction processing

Product Documents
the result of transaction processing

Turnaround Documents
a product document of one system that becomes a source document for another system

Journals
a record of chronological entry

special journals
specific classes of transactions that occur in high frequency

general journal
nonrecurring, infrequent, and dissimilar transactions
Ledger
a book of financial accounts

general ledger
shows activity for each account listed on the chart of accounts

subsidiary ledger
shows activity by detail for each account type

True
The audit trail is less observable in computer-based systems than traditional manual
systems. True or False?

Computer-Based Systems
The data entry and computer programs are the physical trail and the data are stored in
magnetic files.

Master File
generally contains account data (e.g., general ledger and subsidiary file)

Transaction File
a temporary file containing transactions since the last update

Reference File
contains relatively constant information used in processing (e.g., tax tables, customer
addresses)

Archive File
contains past transactions for reference purposes

Entity Relationship Diagram

Data Flow Diagrams
Document Flowcharts
System Flowcharts
Program Flowcharts
Five common documentation techniques

Entity Relationship Diagram (ERD)

A documentation technique to represent the relationship between entities in a system.

True
The REA model version of ERD is widely used in AIS. True or False?
Resources
Events
Agents
REA uses 3 types of entities

Resources
cash, raw materials

Events
release of raw materials into the production process

Agents
inventory control clerk, vendor, production worker

Cardinalities
Represent the numerical mapping between entities:
one-to-one
one-to-many
many-to-many

Data Flow Diagrams (DFD)

Use symbols to represent the processes, data sources, data flows, and entities in a
system and represent the logical elements of the system but do not represent the
physical system.

System Flowcharts
illustrate the relationship among processes and the documents that flow between them

System Flowcharts
contain more details than data flow diagrams

System Flowcharts
clearly depict the separation of functions in a system

System Flowcharts
are used to represent the relationship between the key elements--input sources,
programs, and output products--of computer systems

System Flowcharts
depict the type of media being used (paper, magnetic tape, magnetic disks, and
terminals)

Program Flowcharts
illustrate the logic used in programs
Modern systems
The client-server based and process transactions in real time, use relational database
tables and have high degree of process integration and data sharing; some are
mainframe based and use batch processing

Legacy systems
It is mainframe-based applications, batch oriented, use flat files for data storage or use
hierarchical and network databases and data storage systems promote a single-user
environment that discourages information integration

batch systems
real-time systems
Two broad classes of systems

Batch
a group of similar transactions that are accumulated over time and then processed
together

Batch Processing
The transactions must be independent of one another during the time period over which
the transactions are accumulated in order for batch processing to be appropriate

Time Lag
exists between the event and the processing

Keystroke
source documents are transcribed by clerks to magnetic tape for processing later

Edit Run
Identifies clerical errors in the batch and places them into an error file

Sort Run
places the transaction file in the same order as the master file using a primary key

Update Run
changes the value of appropriate fields in the master file to reflect the transaction

Backup Procedure
the original master continues to exist and a new master file is created

Steps in Batch Processing/Sequential File

Keystroke
source documents are transcribed by clerks to magnetic tape for processing later

Edit Run
Identifies clerical errors in the batch and places them into an error file
Sort Run
places the transaction file in the same order as the master file using a primary key

Update Run
changes the value of appropriate fields in the master file to reflect the transaction

Backup Procedure
the original master continues to exist and a new master file is created

increase efficiency
Organizations can ______________________ by grouping large numbers of
transactions into batches rather than processing each event separately

Batch Processing
provides control over the transaction process via control figures

Real-Time Systems
process transactions individually at the moment the economic event occurs

Real-Time Systems
have no time lag between the economic event and the processing

Real-Time Systems
generally require greater resources than batch processing since they require dedicated
processing capacity; however, these cost differentials are decreasing

Real-Time Systems
oftentimes have longer systems development time

AIS processing
characterized by high-volume, independent transactions, such are recording cash
receipts checks received in the mail

Sequential Codes
These represent items in sequential order, used to prenumber source documents. track
each transaction processed and identify any out-of-sequence documents

Sequential Codes
Disadvantages of this are the arbitrary information and difficulty to make changes and
insertions

Block Codes
Represent whole classes by assigning each class a specific range within the coding
scheme
Block Codes
Used for chart of accounts and Allows for the easy insertion of new codes within a block

Block Codes
The basis of the general ledger

Block Codes and Alphabetic Codes

Disadvantage of this is the arbitrary information

Group Codes
Represent complex items or events involving two or more pieces of data using fields
with specific meaning

Group Codes
Disadvantages of this are the arbitrary information and being overused

Alphabetic Codes
Used for many of the same purposes as numeric codes, can be assigned sequentially
or used in block and group coding techniques and may be used to represent large
numbers of items

Mnemonic Codes
Alphabetic characters used as abbreviations, acronyms, and other types of
combinations

Mnemonic Codes
Do not require users to memorize the meaning since the code itself is informative - and
not arbitrary

Mnemonic Codes
Disadvantage of this is limited usability and availability

The four operations (data input, data storage, data processing, and information output) performed
on data to generate meaningful and relevant information
Data Processing Cycle

What are the 4 operations of the Data Processing Cycle?

-Data input
-Data storage
-Data processing
-Information output

What is the first step in processing input?

To capture transaction data and enter them into the system
What is the data capture process usually triggered by?
A business activity

What 3 facets of each business activity must data be collected?

-Each activity of interest
-The resource(s) affected by each activity
-The people who participate in each activity

Documents used to capture transaction data at its source when the transaction takes place
Source Documents

Records of company data sent to an external party and then returned to the system as input
Turnaround Documents

True/False: A utility bill is an example of a Turnaround Document.

True

True/False: Turnaround documents are in machine-readable form to facilitate their subsequent

processing as input records.
True

The collection of transaction data in machine-readable form at the time and place of origin
Source Data Automation

What are POS terminals and ATMs examples of?

Source Data Automation

What is the second step in processing input?

To make sure captured data are accurate and complete

What is one way to improve accuracy and completeness of captured data?

To use source data automation or well-designed turnaround documents and data entry screens

How do users improve control of captured data?

By either using pre-numbered source documents or by having the system automatically assign a
sequential number to each new transaction

What is the third step in processing input?

To make sure company policies are followed

A ledger that contains summary-level data for every asset, liability, equity, revenue, and expense
account of the organization
General Ledger
A ledger used to record detailed data for a general ledger account with many individual
subaccounts, such as A/R, inventory, and A/P
Subsidiary Ledger

A title given to a general ledger account that summarizes the total amounts recorded in a
subsidiary ledger
Control Account

What does the relationship between the General Ledger Control Account to the total of
individual Subsidiary Ledger balances account help do?
Helps maintain the accuracy of AIS data

The systematic assignment of numbers or letters to items to classify and organize them
Coding

Items are numbered consecutively so the gaps in the sequence code indicate missing items that
should be investigated
Sequence Coding

Blocks of numbers that are reserved for specific categories of data, thereby helping organize the
data
Block Code

Two or more sub-groups of digits that are used to code an item

Group Codes

_______________ are often used in conjunction with a Block Code and is often applied to
general ledger account numbers.
Group Codes

Letters and numbers that are interspersed to identify an item

Mnemonic Code

The _________________ is derived from the description of the item and is usually easy to
memorize.
Mnemonic Code

What 4 guidelines result in a better coding system?

o Be consistent with its intended use
o Allow for growth
o Be as simple as possible
o Be consistent with the company's organizational structure and across the company's divisions

A listing of all the numbers assigned to balance sheet and income statement accounts
Chart of Accounts
How long is each Chart of Account number?
3 digits

What does the first digit in the Chart of Account number represent?
Represents the major account category and indicates where it appears on financial statements

What does the second digit in the Chart of Account number represent?
Represents the primary financial subaccounts within each category

What does the third digit in the Chart of Account number represent?
Identifies the specific account to which the transaction data will be posted

True/False: Subsidiary ledger accounts often have shorter account codes than general ledger
accounts.
False (longer account codes)

True/False: Transaction data are often recorded in a journal before they are entered into a ledger.
True

A journal used to record infrequent or non-routine transactions, such as loan payments and end-
of-period adjusting and closing entries
General Journal

A journal used to record a large number of repetitive transactions such as credit sales, cash
receipts, purchases, and cash disbursements
Specialized Journal

A path that allows a transaction to be traced through a data processing system from point of
origin to output or backwards from output to point of origin
Audit Trail

What is the Audit Trail used for?

It is used to check the accuracy and validity of ledger positing and to trace changes in general
ledger accounts from their beginning balance to their ending balance

The item about which information is stored in a record

Entity

Each entity has _______________.

Attributes

The properties, identifying numbers, and characteristics of interest of an entity that is stored in a
database
Attributes
The portion of a data record where the data value for a particular attribute is stored
Field

A set of fields whose data values describe specific attributes of an entity , such as payroll data
relating to a single employee
Record

The actual value stored in a field

Data Value

What does Data Value describe?

It describes a particular attribute of an entity

A set of logically related records, such as the payroll records of all employees
File

A permanent file of records stores cumulative data about an organization

Master File

True/False: When transactions take place, individual records within a master file are updated
every few weeks to keep up with them.
False (Updated when they take place to keep them current)

A file that contains the individual business transactions that occur during a specific fiscal period
Transaction File

True/False: Transaction Files are not permanent and may not be needed beyond the current fiscal
period.
True

A set of interrelated, centrally controlled data files that are stored with as little data redundancy
as possible
Database

What does a Database do?

A database consolidates records previously stored in separate files into a common pool and
serves a variety of users and data processing applications

What are the different data processing activities, often referred to as CRUD?
• CREATING new data records
• READING, retrieving, or viewing existing data
• UPDATING previously stored data
• DELETING data
Updating done periodically, such as daily, is referred to as _________________.
Batch Processing

Accumulating transaction records into groups or batches for processing at regular interval such
as daily or weekly
Batch Processing

What is Batch Processing used for?

This is only used for applications that do not need frequent updating and that naturally occur or
are processed at fixed time periods because the data are only current and accurate immediately
after processing

Most companies update each transaction as it occurs, referred to as

_________________________.
Online, Real-Time Processing

Why do most companies use Online, Real-Time Processing?

Because it ensures that stored information is always current, thereby increasing its decision-
making usefulness

The computer system processes data immediately after capture and provides updated information
to users on a timely basis
Online, Real-Time Processing

When displayed on a monitor, output is referred to as _____________.

"Soft Copy"

When printed on paper, output is referred to as _____________.

"Hard Copy"

A record of a transaction or other company data

Documents

System output, organized in a meaningful fashion, that is used by employees to control operation
activities, by managers to make decisions and design strategies, and by investors and creditors to
understand a company's business activities
Reports

Why should the need for Reports be periodically assessed?

Because they are often prepared long after they are needed, wasting time, money, and resources
A request for the data base to provide the information needed to deal with a problem or answer a
question
Query

Who are repetitive queries often developed by?

Information Systems Specialists
Who are one-time queries often developed by?
Users

A system that integrates all aspects of an organization's activities into one system
Enterprise Resource Planning (ERP) System

What does an ERP System facilitate?

An ERP facilitates information flow among the company's various business functions and
manages communications with outside stakeholders

What does an ERP use to share information across business processes and coordinate activities?
Centralized Database

Why is it important that ERP uses a centralized database to share information across business
processes and coordinate activities?
This is important because an activity that is part of one business process often triggers a complex
series of activities throughout many different parts of the organization

What are 7 advantages of an ERP system?

-Provides integrated, enterprise-wide, single view of the organization's data and financial
situation
-Data input is captured or keyed once as it is entered into different systems
-Management gains greater visibility into every area of the enterprise and greater monitoring
capabilities
-The organization gains better access control
-Procedures and reports are standardized across business units
-Customer service improves
-Manufacturing plants receive new orders in real time leading to increased productivity

What are 5 disadvantages of an ERP system?

-Cost
-Amount of time required
-Changes to business processes
-Complexity
-Resistance