Chapter 7

Electronic Data Processing Systems
Chapter 7
2013 Pearson Education, Inc. Publishing as Prentice Hall, AIS, 11/e, by Bodnar/Hopwood
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Learning Objective 1 Describe how application controls are used in data processing systems to ensure accuracy and integrity of input, processing, and output.
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Manual Input Systems

In some computerized accounting
systems, inputs are based on handwritten or typed paper documents. These manually prepared documents are collected and forwarded to the data processing department for error checking and processing.
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Preparation and Completion of Source Documents

Source documents, such as customer orders,
are physical evidence of inputs into the transaction processing system and serve several purposes:
Capture data; Facilitate operations; Standardize operations; Provide a permanent file for future analysis.
Source documents should be standardized
and designed for ease of use and accurate data capture to minimize errors.
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Transfer of Source Documents to Data Processing

Batch Control Totals Data Transfer Registers
User Departments
Data
Data Processing
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Procedures for the control of data transmitted
between users departments and data processing prevent unauthorized/fraudulent transactions. Submission of input data should be accompanied by an Input document control form.
Document counts are a simple form of batch control; totals the number of documents to be processed. Batch totals may be taken for all or several numeric fields in the data file.
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Data processing should not accept data
unless an input document control form is present to evidence and reference the transfer of data.
A data transfer log (register) provides a
control over the disposition and use of data. Batch control totals are fundamental to this process.
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Data entry: after source documents are
received by data processing, they are manually keyed (typed).

Key verification is a control procedure that
detects errors in the keying operation. Visual verification compares the source documents with a printout or screen image.
Data is thoroughly edited after entry to
ensure valid content.

Program data editing screens data for errors.
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Program Data Editing Techniques

Data editing routines ensure that all data
fields contain only valid characters and may be applied to each of the basic data structures:

Characters Fields Records Files

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Program Data Editing Techniques

Data should next be checked for reasonableness
which can be done using a variety of methods.
Table lookup: compares actual values with acceptable values in a table. Limit test: verifies that numeric data is within acceptable ranges. Continuous operations auditing: the use of programmed edit tests to discriminate among acceptable data. Check digit: an extra, redundant digit added to a code number similar to a parity bit. Valid code: particular table lookup consisting of valid codes (validity check; existence check).
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Electronic Input Systems

In electronic input systems, sometimes
called online input systems, transactions are input directly into the computer system; need for keying in is eliminated.
One problem is the possible loss of
segregation of duties and audit trail.

Transaction logs or transaction registers log all
inputs into a special file that contains tags to identify transactions. Tagging: additional audit-oriented information is included with original transaction data.
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Learning Objectives 2 & 3
Characterize the various types of electronic systems used for transaction processing. Describe the basic functions and operation of a computerized accounting application.
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The Processing System

Processing involves the manipulation of files. Files provide storage of data. A file is a collection of records that are related by some attributes. A record is an organized collection of fields (data attributes) that are grouped for processing.
Fields contain data such as numbers, amounts, or characters.
A file is a collection of records, and records are
a collection of fields.
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The Processing System

Types of files: Transaction file: a collection of transaction input data usually containing temporary data (e.g., sales journal). Master file: contains data that are permanent or of continuing interest (e.g., accounts receivable master file). Reference file: contains data that are necessary to support data processing (e.g., payroll tax files); also known as a table file.
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Generic File Processing Operations

Sorting arranges items in a predetermined
order. Merging combines two or more files already arranged in the same order into a single file containing all the records. Extraction copies selected records in a file into a new file for further processing. Updating applies changes pertaining to the records in a file, producing a new file that reflects all of the changes.
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Batch Processing Systems

Batch processing systems: transactions are
processed periodically in batches.

Weekly time reports to produce paychecks. Groups of checks to update accounts payable
master file. Groups of invoices to update an accounts receivable master file.

Batch processing can be performed with
either sequential- or random-access file updating.

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Batch Processing with Sequential File Updating

Batch processing in a sequential file processing
involves the following steps:

Preparing the transaction file: additional editing
and validation; sort in same sequence as master file. Updating the master file: read records in both files one by one, match, and write to new master file. Updating the general ledger: to reflect changes in the master file. Preparing general ledger reports: trial balances and other reports produced.
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Updating the General Ledger

Two major aspects to the operation of a
computerized general ledger accounting system:

1. The direct processing of the general ledger
programs, most of which takes place on a monthly basis. 2. The processing in other computer application systems to prepare the inputs to the general ledger system.
All entries into the general ledger should be documented with journal vouchers.
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Journal Voucher Format
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General Ledger File Update

As they are released by the general ledger
department, journal vouchers are used to build a journal voucher file (the transaction file). This file is program data edited to check for the proper journal and account numbers and to determine whether the accounts are correctly associated with their related journals.
Invalid data are reported as exceptions and
returned to their originating sources for correction and reentry.

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The current journal voucher transactions are
processed against the previous months general ledger master file. The master file is updated and the current periods general ledger register is produced. Computer processing of accounting data typically involves a two-step procedure:
1. Produce preliminary reports. 2. A run that produces the final listings and
financial schedules.
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Preparing reports requires a link
between the general ledger accounts and the report(s) in which they appear.
This process is called line coding, a
procedural step typically accomplished by a table lookup (matching) process between the updated general ledger file and a line-coding table file.
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Example of a Line Code
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Batch Processing with Random-Access File Updating

In many systems, indexes are
maintained for both the subsidiary and general ledger files. Maintaining these indexes allows users to quickly access a particular account. Random-access file updating is simpler than sequential-access updating.
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Steps in random-access file updating: 1. A record is read from the transaction file. 2. The key value of the transaction record is used to randomly access the related record in the master file. 3. The record in the master file is updated in memory and then rewritten back to the data file.
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Real-time Processing Systems

Real-time processing: transactions are
processed immediately. Online, real-time systems (OLRS): process transactions immediately after they are input and can provide immediate output to users.
Transactions are not accumulated into batches;
on input are applied immediately to update master file using random-access updating. Immediate processing; direct processing
Master files are always up to date. Responses to user inquiries are immediate.
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Real-time Processing Systems

Types of real-time processing: Inquiry/response systems: users do not input data; only request information. Data entry systems: users interactively input data. File processing systems: immediately process the data against relevant master files. Full processing systems or transaction processing systems: users interactively input transactions and complete the entire transaction when it is input.
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The Economics of Real-time Processing

Relative advantages of OLRS: Immediate processing of transactions Quick response to inquiries Relative disadvantages of OLRS: Increased cost and complexity of system operations More sensitive to hardware and software errors More susceptible to processing errors that arise from erroneous or fraudulent input Control of transaction processing is more involved Printed output is usually not produced meaning no human-verifiable evidence
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Real-time Sales Systems

Real-time sales systems use information
technology to maximize system performance and extend the traditional supply chain.
Purchase orders for inventory items are made
on a demand-pull basis rather than a fixed interval push basis.

Extended supply chain systems are central to
the competitive strategy of mass retailers (Sears, Wal-Mart, etc.) and mass vendors (Levi, Haggar, etc.).
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Real-time Sales Systems
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Components of Extended Supply Chain Systems

Three technologies make extended supply
chain systems feasible:

POS (point-of-sale) systems: input sales data into
the computer system for immediate processing. Bar coding technology: UPC bar code systems allow all participants in the real-time system chain to share and process the same basic data. EDI (electronic data interchange) ordering system: direct computer-to-computer exchange of business documents via a communications network.
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Transaction Processing in EDI-Based Sales Systems
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Special Internal Control Considerations

Customer orders may be processed without
human intervention or approval; Traditional separation of duties in transactions is obliterated; the computer handles transactions from beginning to end. Many traditional documents may be eliminated in EDI-based systems Careful program data editing checks and transactions logs, and good computer security are necessary compensating controls.
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The Output System

The output system can be manual,
electronic, or something in between. Most manual batch-oriented systems with sequential file processing produce very large volumes of output. Online, real-time electronic systems tend to produce very little reference-type output.
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The Output System

Output controls are designed to check
that processing results in valid output and that outputs are distributed properly. A separate EDP control group is often established to monitor EDP operations. Typically, an output distribution register is maintained to control the disposition of reports.
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End of Chapter 7
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Electronic Data Processing Systems

Manual Input Systems

Preparation and Completion of Source Documents

Source documents should be standardized

Transfer of Source Documents to Data Processing

Transfer of Source Documents to Data Processing

Transfer of Source Documents to Data Processing

Transfer of Source Documents to Data Processing

received by data processing, they are manually keyed (typed).

ensure valid content.

Program Data Editing Techniques

Characters Fields Records Files

Program Data Editing Techniques

which can be done using a variety of methods.

Electronic Input Systems

segregation of duties and audit trail.

Learning Objectives 2 & 3

The Processing System

Fields contain data such as numbers, amounts, or characters.

A file is a collection of records, and records are

The Processing System

Generic File Processing Operations

Batch Processing Systems

processed periodically in batches.

master file. Groups of invoices to update an accounts receivable master file.

either sequential- or random-access file updating.

Batch Processing with Sequential File Updating

involves the following steps:

Batch Processing with Sequential File Updating

Batch Processing with Sequential File Updating

Updating the General Ledger

computerized general ledger accounting system:

Journal Voucher Format

General Ledger File Update

returned to their originating sources for correction and reentry.

General Ledger File Update

General Ledger File Update

Example of a Line Code

Batch Processing with Random-Access File Updating

Batch Processing with Random-Access File Updating

Batch Processing with Random-Access File Updating

Real-time Processing Systems

Real-time Processing Systems

The Economics of Real-time Processing

Real-time Sales Systems

on a demand-pull basis rather than a fixed interval push basis.

Real-time Sales Systems

Components of Extended Supply Chain Systems

chain systems feasible:

Transaction Processing in EDI-Based Sales Systems

Special Internal Control Considerations

The Output System

The Output System

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