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Table of Contents Chapter 1 THE INFORMATION SYSTEM: AN ACCOUNTANT’S PERSPECTIVE...............1 Chapter 2 INTRODUCTION TO TRANSACTION PROCESSING .......................................19 Chapter 3 ETHICS, FRAUD, AND INTERNAL CONTROL..................................................47 Chapter 4 THE REVENUE CYCLE......................................................................................73 Chapter 5 THE EXPENDITURE CYCLE PART I: PURCHASES AND CASH DISBURSEMENTS PROCEDURES......................131 Chapter 6 THE EXPENDITURE CYCLE PART I: PAYROLL PROCESSING AND FIXED ASSETS PROCEDURES...................191 Chapter 7 THE CONVERSION CYCLE.............................................................................223 Chapter 8 FINANCIAL REPORTING AND MANAGEMENT REPORTING SYSTEMS .....269 Chapter 9 DATABASE MANAGEMENT SYSTEMS ..........................................................293 Chapter 10 THE REA APPROACH TO DATABASE MODELING .......................................329 Chapter 11 ENTERPRISE RESOURCE PLANNING SYSTEMS ........................................343 Chapter 12 ELECTRONIC COMMERCE SYSTEMS ..........................................................365 Chapter 13 MANAGING THE SYSTEMS DEVELOPMENT LIFE CYCLE ..........................385 Chapter 14 CONSTRUCT, DELIVER, AND MAINTAIN SYSTEMS PROJECTS ................397 Chapter 15 IT CONTROLS PART I: SARBANES-OXLEY AND IT GOVERNANCE ...........421 Chapter 16 IT CONTROLS PART II: SECURITY AND ACCESS........................................441 Chapter 17 IT CONTROLS PART III: SYSTEMS DEVELOPMENT, PROGRAM CHANGES, AND APPLICATION CONTROLS .............................457 iii CHAPTER 1 THE INFORMATION SYSTEM: AN ACCOUNTANT’S PERSPECTIVE REVIEW QUESTIONS 1. Operational, operations management, middle management, and top management. Horizontal flows support operation-level tasks. The information is highly detailed about the day-to-day operations. Vertical flows distribute summarized information to managers at all levels, and this information flows upward. Instructions, quotas, and budgets also flow downward. 2. Natural systems stem from the atom, while artificial systems are put together by humans. 3. Multiple components, relatedness, subsystems, purpose, and interdependency. 4. System decomposition is the process of dividing the system into smaller subsystem parts, while interdependency is the interaction between the subsystems. They are related by the degree and nature of the interaction between the subsystems. If a vital subsystem fails, the entire system will most likely fail. 5. Data are facts that are collected in a “raw” form and made meaningful through processes such as sorting, aggregating, classifying, mathematically manipulating, and summarizing. The meaningful data is considered to be information. 6. AISs process financial transactions and certain nonfinancial transactions that directly affect the processing financial transactions. The external financial reporting documents of AIS are subject to legal and professional standards. Consequently, management and accountants have greater legal responsibility for AIS applications than for MIS applications. The MIS processes nonfinancial transactions that are outside the scope of the AIS. MIS applications expand the information set provided to such areas as production, sales, marketing, and inventory management. MIS often draws from and builds on data from the AIS. 7. Revenue cycle, expenditure cycle, and conversion cycle. 8. Reports used by management, which the company is not obligated by law, regulation, or contract to provide. These are often used for internal problemsolving issues rather than by external constituents. 9. Relevance, accuracy, completeness, summarization, and timeliness. 10. Relevance and efficiency. 11. Data attribute (field), record, file, and database. 12. Storage, retrieval, and deletion. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 2 13. Feedback is output that is sent back to the system as a source of data. Feedback is useful because it can be used to initiate or adjust the system processes. 14. a. to support the stewardship function of management, b. to support the decision-making processes of managers, and c. to support the day-to-day operations of the firm. 15. Stewardship is the responsibility of management to properly utilize the resources of the firm entrusted to them. Information systems provide management with reports to better manage the resources and also provide responsibility reports by which management may be evaluated. 16. Budgets and standards are set by upper-management levels. The responsibility for meeting these goals is passed to the managers at the closest operational level. In order for these managers to have the power to make a difference as to whether these goals and/or standards are met, they must be entrusted with the appropriate level of authority to make decisions. Responsibility of goals and standards, along with corresponding authoritative powers, flow downward. The results of the operations must flow upward to upper-level management. These upward flows represent reports, which hold managers accountable for their decisions and management actions. 17. Turnkey systems are ready to implement systems that may be purchased. Backbone systems are partially developed systems with an underlying basic structure that is built on to suit the client’s unique needs. Vendor-supported systems are custom systems provided, maintained, and supported by a commercial vendor. 18. a. Materials Management 1. purchasing 2. receiving 3. stores b. Production 1. production planning 2. quality control 3. maintenance c. Marketing 1. advertising 2. market research 3. sales order processing © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 3 d. Distribution 1. warehousing 2. shipping e. Personnel 1. recruiting 2. training 3. benefits 4. counseling f. Finance 1. portfolio management 2. treasury 3. credit 4. cash disbursement 5. cash receipt g. Accounting 1. inventory control 2. cost accounting 3. payroll 4. accounts payable 5. accounts receivable 6. billing 7. fixed-asset accounting 8. general ledger h. Computer Service 1. data processing 2. systems development and maintenance 3. database administration 19. Internal auditors are responsible for in-house appraisal of the financial reporting system. Internal auditors are concerned with deterring and detecting fraud and for conducting EDP audits. External auditors are independent CPAs engaged by the firm to attest to the completeness and accuracy of the financial statements. External auditors work together with the internal auditors. 20. The database administrator is responsible for the security and integrity of data stored in a central database. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 4 21. Geographic location, product lines, and function. 22. The role of the accounting function is to manage the financial information resources of the firm. First, the accountants must capture and record business events of a firm and their financial impact. Secondly, the accounting function distributes transaction information to decision makers and operations personnel to help them coordinate their many tasks. The accountants must also assign accountability for each of these tasks. 23. In a centralized data processing approach, the computer services function is centrally located. The databases are housed in one place where all of the data processing occurs by one or more main computers. All systems development and maintenance work for the entire organization is performed by systems professionals. End users wishing to have new systems or features must submit a formal request to this group and are usually prioritized and placed in a queue. In a distributed data-processing approach, the CPUs are spread out and control over data and processing is at the information processing unit (IPU) level. Thus, end users have more influence over the systems development projects, which are typically handled by systems professionals at the IPU level. 24. The data control group is a liaison between the end user and data-processing personnel. It receives the user input and distributes the output to the users. Data control members scan the input for accuracy and completeness before passing the input to the data-entry personnel. 25. Data processing is organized around several information processing units, which are distributed throughout the organization and placed under the control of end users. The central computer services are eliminated or minimized. 26. The advantages of DDP are: a. cost reductions b. improved cost control responsibility c. improved user satisfaction d. ability to back up computer facilities The disadvantages of DDP are: a. potential mismanagement of organization-wide resources b. hardware and software incompatibility c. redundant tasks d. consolidating incompatible activities e. acquiring qualified professionals f. lack of standards © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 5 27. Identical applications or applications that are very similar may be created by multiple user areas, which are unaware of what other areas are doing. Further, data redundancy may occur if the same data are being collected and stored by different user areas. The duplicated data may result in data consistency problems if not properly managed. 28. A flat-file system is one in which individual data files are not related to other files. End users in this environment own their data files rather than share them with other users. Data processing is thus performed by standalone applications rather than integrated systems. 29. a. increased data storage since the same data is stored in multiple files b. increased data updating since changes must be made to multiple files c. possibility of noncurrent data caused by failure to update. 30. The key elements of the REA model are summarized below. Resources. Economic resources are the assets of the organization. They are defined as objects that are both scarce and under the control of the enterprise. This definition departs from the traditional model since it does not include accounts receivable. An account receivable is an artifact record used simply to store and transmit data. Since it is not an essential element of the system, it need not be included the database. Instead accounts receivable are derived as the difference between sales to customers and the cash received in payment of sales. Events. Economic events are phenomena that affect changes in resources. They can result from activities such as production, exchange, consumption, and distribution. Economic events are the critical information elements of the accounting system and should be captured in a highly detailed form to provide a rich database. Agents. Economic agents are individuals and departments that participate in an economic event. They are parties both inside and outside the organization with discretionary power to use or dispose of economic resources. Examples of agents include sales clerks, production workers, shipping clerks, customers, and vendors. 31. Enterprise Resource Planning (ERP) is an information system model that enables an organization to automate and integrate its key business processes. ERP breaks down traditional functional barriers by facilitating data sharing, information flows, and the introduction of common business practices among all organizational users. 32. Users, system designers, and system auditors. 33. The attest function is performed by an independent certified public accountant who expresses an opinion about the fairness of a client-firm’s financial statements. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 6 34. Assurance pertains to professional services, including the attest function, that are designed to improve the quality of information, both financial and non-financial, used by decision makers. The domain of assurance services is intentionally unbounded so that it does not inhibit the growth of future services that are currently unforeseen. For example, assurance services may be contracted to provide information about the quality or marketability of a product. Assurance services are intended to help people make better decisions by improving information. This information may come as a by-product of the attest function, or it may ensue from an independently motivated review. 35. IT auditing is part of a broader financial audit in which the auditor attests to the integrity of elements of the organization’s information system that have become complicated by computer technology. 36. The conceptual system must first be determined. It specifies the nature of the information required, how and when it is to be collected, and who is the user. For each conceptual system, many different physical configurations may be possible. The physical system is the medium and method used to collect the data, process it, and disseminate the resulting information. DISCUSSION QUESTIONS 1. The reporting requirements of external users such as lending institutions, the IRS, the SEC, and stockholders are subject to stringent reporting standards. Thus, firms have historically placed a very high emphasis on the accuracy of the AISs and the reports they produce for external agencies since failure to provide accurate and timely information carries heavy penalties. Internal users, such as managers, also need vital information to make good decisions. Firms are beginning to realize that the needs of these internal users are also very important to efficiently and effectively operate and plan for the future. 2. The level of detail necessary for the stockholders is highly aggregated and typically follows the format prescribed by the SEC and GAAP. Much more detailed information is necessary for middle management to plan and control operations. Highly detailed information is needed at the operations management level in order to run the day-to-day business processes and operations. 3. Financial transactions affect the accounts in the balance sheet in some manner. Three examples are 1) use of equipment-depreciation, 2) payment of a bond payable, and 3) receipt of cash from a customer for a sale previously made on account. Nonfinancial transactions include business events that do not impact the financial statements. Three examples are 1) a book checked out by a student in a school library, 2) the recording of a customer complaint via a toll-free hotline, and 3) status reports of research and development projects. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 7 4. Managers of all areas typically need data from both the AIS and the MIS. If the data needed by managers for decision-making processes are located in two or more datasets, the preparation of reports is both inefficient and expensive. Further, a lack of coordination between the two datasets can result in data that is not consistent and is unreliable. 5. The transaction processing systems only differ in the types of data elements collected. Both service and manufacturing industries need to collect data regarding business processes. While a manufacturing firm may collect data regarding the amount of scrap generated at a particular workstation, a service firm, such as a public accounting firm, needs to collect data regarding the number of hours spent by staff to verify cash balances. Transaction processing systems are equally important to both types of industries. 6. The General Ledger System (GLS) summarizes all of the transaction cycle activity and general journal entries. The GLS provides most of the input in the Financial Reporting System (FRS). The FRS communicates information from the GLS to the external users. The FRS often collects additional pieces of information other than that which is found in the GLS. An example of this is when a pending lawsuit is likely to be settled in the next year. The GLS would not have this information. 7. If the collected data are not accurate and/or not correctly entered, then the resulting information will not be accurate. Also, if the data processing system is not correctly processing the information, then the resulting information will also be incorrect. If the database is not accurately maintained over time, again the resulting information will be incorrect. 8. Efficiency is crucial to an AIS. The cost of collecting and producing information should not outweigh its benefits. Further, the applications should be run in a manner that places the least strain on the overall system. For example, the printing of checks to vendors should not be done during the day if it slows down the online sales order processing system in a multitasking environment. In order for a system to be effective, the appropriate data should be processed, and the resulting information disseminated to the appropriate users. For example, an accounts receivable delinquent report should be sent to the collection department in a timely fashion, so that measures can be taken to collect the funds. The ability to react to a change is very important, especially in an FRS where reporting requirements and standards change frequently. 9. This statement means that the accounting system is a representation of the operations of a firm. As machines operate, workers perform their duties, raw materials are transferred into finished goods and cash flows are exchanged between suppliers and customers, the accounting system must be continuously updated to accurately reflect these actions. This conceptual flow is crucial because it allows management to view in summary and in detail the financial effects of these operations on the firm. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 8 10. Accounting independence is important because the separation between the record-keeping functions and the physical resources is crucial. This concept is extremely important for cash receipts operations. The person in charge of deposits of currency and check receipts should not be allowed to reconcile the sales records to the cash deposits and/or the bank account. If these duties are not separated, then the cash receipts clerk can steal money and cover it up during the reconciliation process. 11. The internal auditors are responsible for detecting and pursuing fraud within the firm. If management-level employees are involved, the internal auditors may fear losing their jobs if they blow the whistle on such activities. Thus, the internal auditors should report to the board of directors so that they do not fear any repercussions of their actions from top management. 12. In a centralized data-processing environment, the computer services personnel are all housed in one department where all of the systems development and maintenance takes place. End users must formally request any additions or enhancements to the current system. In a distributed data processing (DDP) system, the systems professionals may still be housed together or they may be located throughout the various segments of the organization. End users gain more control over their data and applications. DDP is becoming more and more popular as networking computers is becoming easier and more commonplace. 13. The conceptual system represents the logic and decision rules to be applied, while the physical system represents the means of accomplishing the tasks. Many different possibilities (physical systems) may be available to accomplish the conceptual system. The accountant is important in the design of the conceptual system; however, system designers may dominate in the tasks of physical design because of the technical nature of the solution. The accountant should still be involved in the process, although he/she may only participate in an advisory role. 14. Accountants, although providers of financial information to both internal and external users, are still the primary “users” of the AIS. The accountants oversee the data collection, processing, and output of the AIS. Thus, as new AISs are developed by system professionals, accountants’ needs as seen from the viewpoint of a user are very important. Thus, the accountants guide the systems developers by conveying their needs and constraints. 15. Yes and No. Virtually all publicly traded firms have computerized AISs as well as most small- and medium-sized firms. Audits of non-computerized systems are becoming rare. Thus, one may say that virtually all auditors must deal with electronic processing of data. However, certain auditing personnel, known as IT auditors, have special skills, which allow them to focus on the computer “processing.” Thus, distinguishing these auditors from auditors who do not have such skills may still be appropriate. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 9 16. Organizations are segmented in order to promote internal efficiencies. These internal efficiencies occur as a result of localized control over resources and also by specialization of labor. Localized control over resources allows the managers of those resources to have increased responsibility and authority. Hopefully, these management teams understand the segment’s operating environment better than anyone else in the organization. If this is true, they should be able to make the best allocation of resources. Geographic location is also important, especially in a global economy where firms operate in many different cultures. The local management team should be in the best position to make cost-effective resource allocations. 17. The accounting function provides record-keeping services for all of the operations and day-to-day activities of other departments, which affect the financial position of the organization. Record-keeping tasks must be kept separate from any area that has custody over assets. Thus, the accounting function must remain independent so that the protection of the firm’s assets is carried out in an environment with minimum possibilities for theft. 18. Turnkey. These are completely finished and tested systems that are ready for implementation. Typically, they are general-purpose systems or systems customized to a specific industry. Typically the end user will have standard business practices that permit the use of “canned” or “off-the-shelf” systems that can be employed with little or no modification. In-house. Larger organizations with unique and frequently changing needs engage in in-house development. The formal process by which this is accomplished is called the system development life cycle. Backbone. Backbone systems consist of a basic system structure on which to build. The primary processing logic is preprogrammed, and the vendor then designs the user interfaces to suit the client’s unique needs. A backbone system is a compromise between a custom system and a turnkey system. 19. The REA model requires that accounting phenomena be characterized in a manner consistent with the development of multiple user views not simply those of the accounting function. As such, REA procedures and databases are structured around events rather than accounting artifacts such as journals, ledgers, charts-ofaccounts, and double-entry accounting. Under the REA model, business organizations prepare financial statements directly from the event database. 20. Advantages of ERP • Enterprise Resource Planning (ERP) systems enable organizations to automate and integrate key business processes. • ERPs break down traditional functional barriers by facilitating data sharing. • ERP software embodies and supports the best business practices of a given industry, thus encouraging positive changes in the way firms do business. • Organizations experience internal efficiencies by employing standard business practices among all organizational units. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 10 Disadvantages of ERP • The implementation of an ERP system can be a massive undertaking that can span several years. • Because of their complexity and size, few organizations are willing or able to commit the necessary financial resources and incur the risk of developing an ERP system in-house. Hence, virtually all ERPs are commercial products designed to solve standardized business problems. Many organizations have unique needs that require customized systems. • Organizations that implement an ERP often need to modify their business processes to suit the ERP. Often, additional software applications need to be connected to the ERP to handle unique business functions, particularly industry-specific tasks. These applications, often called bolt-ons, are not always designed to communicate with ERP packages. • ERP packages are enormously expensive. Organization management should exercise great care in deciding which, if any, ERP is best for them. MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. C B A D D C C D D D E A B C PROBLEMS 1. a. b. c. d. e. f. g. h. i. j. S I S T S S S I T S © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 11 See the following diagram. Each subsystem is interdependent upon each other. The human body must have all subsystems working properly in order to survive. Problem 1-2 2. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 12 3. The missing element is feedback. Feedback is crucial to determine when it is necessary to adjust data collection procedures or data-processing elements to satisfy the needs of internal and external end users. 4. AIS data would include historical sales data by customer and product line, gross margin and profit by product line, and sales return data by customer and product line. MIS data would include customer complaints, average delivery time from order placement to receipt of goods, and reasons for return of merchandise. Benefits of integrating the information would include more efficient reporting and enhanced understanding of causal effects of the non-financial (MIS) performance metrics on the firm’s financial results (AIS). 5. a. b. c. d. e. f. g. h. i. j. k. 6. The problem associated with the flat file model are: MRS TPS FRS MRS TPS FRS MRS TPS FRS TPS MRS Data Storage An efficient information system captures and stores data only once and makes this single source available to all users who need it. In the flat-file environment, this is not possible. To meet the private data needs of users, organizations must incur the costs of both multiple collection and multiple storage procedures. Some commonly used data may be duplicated dozens, hundreds, or even thousands of times. Data Updating Organizations have a great deal of data stored in files that require periodic updating to reflect changes. When users keep separate flat files, all changes must be made separately for each user. This adds significantly to the task and the cost of data management. Currency of Information In contrast to the problem of performing multiple updates is the problem of failing to update all the user files affected by a change in status. If update information is not properly disseminated, the change will not be reflected in some users’ data, resulting in decisions based on outdated information. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 13 Task-Data Dependency The flat-file user’s ability to function is constrained by the data that he or she possesses and controls. New tasks require the procurement of new information which takes time, inhibits performance, adds to data redundancy, and drives data management costs even higher. 7. President Marketing International Land & Legal Accounting Tulsa Exploration Tulsa Production Tulsa Distribution Tulsa Personnel Corporate Finance Treasury Promotion Advertising Inventory Control Geological Extracting Warehousing Recruiting Credit Market Research Cost Accounting Geophysical Refining Shipping Training Tulsa Sales Payroll New Orleans New Orleans New Orleans Benefits Cash Receipts Cash Disbursements Accounts Payable Geological Extracting Warehousing Promotion Advertising Accounts Receivable Geophysical Refining Shipping Market Research Billing Training Cash Receipts Sales Fixed Assets Benefits Cash Disbursements National General Ledger New Orleans Tulsa Recruiting New Orleans New Orleans Recruiting Inventory Control Training Cost Accounting Benefits Payroll Accounts Payable Accounts Receivable Billing Fixed Assets General Ledger © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 14 8. Business Organization Product Design Lawn & Garden Furniture Plastic Packaging Paper Products Production Distribution Marketing Finance Human Resources Accounting Materials Management Portfolio Mgt Recruiting Promotion Treasury Training Inventory Purchasing Plastic Packaging Advertising Credit Benefits Cost Accounting Receiving Paper Products Research Cash Disbursement Counseling Payroll Stores Sales Cash Receipt Manufacturing Lawn & Garden Furniture Support Warehousing Shipping Lawn & Garden Furniture Lawn & Garden Furniture Accounts Payable Lawn & Garden Furniture Plastic Packaging Accounts Receivable Purchasing Promotion Billing Receiving Advertising Fixed Assets Stores Research General Ledger Paper Products Plastic Packaging Sales Paper Products Plastic Packaging Purchasing Inventory Receiving Promotion Cost Accounting Stores Advertising Payroll Research Accounts Payable Sales Accounts Receivable Billing Fixed Assets General Ledger Paper Products Inventory Cost Accounting Payroll Accounts Payable Accounts Receivable Billing Fixed Assets General Ledger © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 15 9. a. The production department’s vice president or manager should not supervise the inventory management tasks. The production department uses the raw materials and therefore should not have any custodial tasks over the storage of the inventory items. A separate materials management department should handle the purchasing of inventory items and the warehousing of raw materials. The production department may not take the time (and should not be wasting its time trying) to investigate the best possible prices for a given quality and quantity of goods. Further, the production department may be able to pilfer goods from the production line if a separate department is not controlling the release of raw materials for specific job lots. The production department should not be in charge of cost accounting. The cost accounting department should be separate since this department tracks the costs of the production process. If the cost accountants report to the production manager, they may be influenced to overlook some cost items or alter the amounts to make the cost center look better. Also, the production manager should not be in charge of payroll, he or she may have paychecks written for fictitious employees. The sales department should not be in charge of credit approvals. Salespeople’s compensation is typically tied to their sales figures, and thus salespeople have an incentive to write as many sales as possible without regard to the financial stability of the customer. Poor credit decisions may be made if the credit department reports to the sales manager. Further, the billing department should not report to the sales manager either because the salespeople may be tempted to issue unwarranted and unauthorized discounts to their most valuable customers. The finance department collects and distributes cash; therefore, it should not have custody over the accounts receivable and accounts payable. A separate accounting function should provide a check and balance on the cash collections and disbursements. b. A reorganization is presented in the following diagram. Two new positions have been created: VP-Materials Management and VP-Accounting (or Controller). The VP-Finance is a “promotion” given to the financial manager. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 16 10. Because businesspeople were not able to adequately express their needs and much of what they did express was not fully understood by the systems analysts, many new systems projects produced ineffective systems. Most business students now study the development process of information systems so they will be better able to communicate their information needs to system personnel and have an appreciation that clear expression of the problem by the user and better understanding of the business situation/problem environment by the system developer will enhance a projects deployment. Either avoiding jargon or fully explaining the terms will also help to close the communication gap. 11. Record Type Primary Key Accounts Receivable Accounts Payable Inventory Customer Sales Order Purchase Orders to vendors Cash Receipts from customers Cash Disbursements to vendors Employee Payroll Earnings records Customer Number Vendor Number Part Number Sales Order Number Purchase Order Number Receipt Number Check Number Employee Number 12. This response is NOT in normalized form. Accounts Payable Record: Primary key-vendor number invoice number amount date due date paid discounts Inventory: Primary key-part number Description amount on hand unit price economic order quantity reorder level Customer Sales Orders Record: Primary key-sales order number customer number item number unit price quantity discount date billed date due ship date total (not really necessary since it is a calculated amount) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 17 Purchase Orders to Vendors: Primary key-purchase order number vendor number vendor’s part number part number (our’s) quantity date ordered date required expected dollar amount Cash Receipts from Customers: Primary Key-cash receipt number (sequentially assigned) customer number invoice number customer’s check number amount received date Employee Payroll Earnings records Primary Key-employee identification number Hours worked-regular time Hours worked-overtime Current Gross Pay Current federal income tax withheld Current state income tax withheld Current FICA tax withheld Year to date hours-regular Year to date hours-overtime Year to date gross pay Year to date federal income tax withheld Year to date state income tax withheld Year to date FICA tax withheld 13. Advantages of DDP. The most commonly cited advantages of DDP are related to cost savings, increased user satisfaction, and improved operational efficiency. Specific issues are: Cost reductions. In the past, achieving economies of scale was the principal justification for the centralized approach. The economics of data processing favored large, expensive, powerful computers. The wide variety of needs that such centralized systems had to satisfy called for computers that were highly generalized and employed complex operating systems. Powerful yet inexpensive small scale, which can cost effectively perform specialized functions, have changed the economics of data processing dramatically. DDP can reduce costs in two other areas: (1) data can be entered and edited at the IPU, thus eliminating the centralized tasks of data conversion and data control; and (2) application complexity can be reduced, which in turn reduces development and maintenance costs. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Page 18 Improved cost control responsibility. Managers assume the responsibility for the financial success of their operations. This requires that they be properly empowered with the authority to make decisions about resources that influence their overall success. Improved user satisfaction. Perhaps the most often cited benefit of DDP is improved user satisfaction in three areas: (1) users desire to control the resources that influence their profitability; (2) users want systems professionals (analysts, programmers, and computer operators) who are responsive to their specific situation; and (3) users want to become more actively involved in developing and implementing their own systems. Backup. The final argument in favor of DDP is the ability to back up computing facilities to protect against potential disasters such as fires, floods, sabotage, and earthquakes. One solution is to build excess capacity into each IPU. If a disaster destroys a single site, its transactions can be processed by the other IPUs. This requires close coordination between decision makers to ensure that they do not implement incompatible hardware and software at their sites. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 2 INTRODUCTION TO TRANSACTION PROCESSING REVIEW QUESTIONS 1. The expenditure cycle, conversion cycle, and revenue cycle. 2. Purchases/accounts payable system, cash disbursements system, and payroll system. 3. The physical component includes the acquisition of goods, while the financial component includes the recognition of a liability owed to the supplier and the transfer of the payment to the supplier. 4. Production system and cost accounting system. 5. Sales order processing system and cash receipts system. 6. Source documents, product documents, and turnaround documents. 7. Special journals and the general journal. 8. A general journal is used to record nonrecurring and infrequent transactions. Oftentimes, general journals are replaced with a journal voucher system. The journal voucher is used to record a single nonrecurring and infrequent transaction, and it is used as a special source document for the transaction. The total of journal vouchers processed is equivalent to the general journal. 9. General ledger and subsidiary ledger. 10. A trail that allows the auditor to begin with a summary total found on the financial statements and track it back to the individual transactions that make up this total. Conversely, an auditor should be able to track transactions to their final impact on the financial statements. 11. The confirmation process entails selecting customers and contacting them to determine whether the transactions recorded in the financial statements actually took place and are valid. 12. Master files, transaction files, reference files, and archive files. 13. Master files correspond to general ledger accounts and subsidiary ledgers. Examples include accounts receivable and customer subsidiary accounts, accounts payable and vendor subsidiary accounts, inventory, etc. Transaction files correspond to general and special journals. Examples include the general journal, sales journals, cash receipts journals, payroll journals, etc. Reference files include lists of vendors, delinquent customers, tax tables, sales tax rates, discount rates, © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 20 lists of customers granted specific discounts, etc. Archive files are typically composed of records that have been processed but are retained for their history. Examples include payroll transactions, sales transactions, etc. 14. The digital audit trail, like the paper trail, allows us to trace transactions from the financial statement balance back to the actual transaction so we may: (1) compare balances, (2) perform reconciliations, (3) select and trace samples of entries, and (4) identify, pull, and verify specific transactions. 15. Cardinality reflects normal business rules as well as organizational policy. For instance, the 1:1 cardinality in the first example in Figure 2-12 suggests that each salesperson in the organization is assigned one automobile. If instead the organization’s policy were to assign a single automobile to one or more salespeople that share it, this policy would be reflected by a 1:M relationship. 16. Entity relationship diagrams represent the relationship between entities (resources, events, and agents) in a system. Dataflow diagrams represent the logical elements (i.e. what is being done) of a system by illustrating processes, data sources, data flows, and entities. System flowcharts represent the physical elements being used (i.e., how the tasks are being conducted) by illustrating the relationship between input sources, program, and output products. System flowcharts can also represent both the logical and physical elements of manual systems and also illustrate the preparation and handling of documents. 17. Cardinality refers to the numerical mapping between entity instances, and it is a matter of organization policy. The relationship can be one-to-one, one-to-many, or many-to-many. 18. An entity relationship (ER) diagram is a documentation technique used to represent the relationship between entities. One common use for ER diagrams is to model an organization’s database, which we examine in detail in Chapter 9. 19. Entities are physical resources (automobiles, cash, or inventory), events (ordering inventory, receiving cash, shipping goods), and agents (salesperson, customer, or vendor) about which the organization wishes to capture data. 20. Batch processing occurs when similar transactions are accumulated over time and processed together. Real-time processing captures each event or transaction and processes it before engaging in another transaction. If transactions are independent of one another, such as the processing of daily cash receipts, then batch processing is appropriate. If transactions are dependent on one another, such as credit sales, ticket sales, etc., then real-time processing is more appropriate. 21. During the file update process, sequential master files are completely reproduced in the form of a physically new file, thus creating a backup copy automatically. Databases use destructive update procedures and require separate backup procedures. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 21 22. No. A DFD shows which tasks are being performed, but not who performs them. It depicts the logical system. 23. A flowchart depicts the physical system and illustrates what type of and where a task is performed and who is performing it. 24. A single transaction may affect several different accounts. Some of these accounts, however, may not need to be updated in real time. In fact, the task of doing so takes time which, when multiplied by hundreds or thousands of transactions, can cause significant processing delays. Batch processing of noncritical accounts, however, improves operational efficiency by eliminating unnecessary activities at critical points in the process. 25. When testing an application program, the auditor needs details about its internal logic provided by the program flowchart to design the audit tests. 26. The system flowchart shows the relationship between two computer programs, the files that they use, and the outputs that they produce. However, this level of documentation does not provide the operational details that are sometimes needed. An auditor wishing to assess the correctness of a program’s logic cannot do so from the system flowchart. A program flowchart provides this detail. Every program represented in a system flowchart should have a supporting program flowchart that describes its logic. 27. Legacy systems tend to have the following distinguishing features: they are mainframe-based applications, they tend to be batch-oriented, and early legacy systems use flat files for data storage. However, hierarchical and network databases are often associated with later-era legacy systems. These highly structured and inflexible storage systems promote a single-user environment that discourages information integration within business organizations. 28. Batch processing and real-time processing. 29. Prior to each batch update or periodically (every few minutes), the master file being updated is copied to create a backup version of the original file. Should the current master be destroyed after the update process, reconstruction is possible in two stages. First, a special recovery program uses the backup file to create a preupdate version of the master file. Second, the file update process is repeated using the previous batch of transactions to restore the master to its current condition. 30. Record layout diagrams are used to reveal the internal structure of the records that constitute a file or database table. The layout diagram usually shows the name, data type, and length of each attribute (or field) in the record. 31. Updating a master file record involves changing the value of one or more of its variable fields to reflect the effects of a transaction. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 22 32. A flat-file structure is a single-view model that characterizes legacy systems in which data files are structured, formatted, and arranged to suit the specific needs of the owner or primary user of the system. Such structuring, however, may omit or corrupt data attributes that are essential to other users, thus preventing successful integration of systems across the organization. 33. Destructive update involves replacing an old data value with a new value and thus destroying the original. 34. Transaction volume is the key factor. Large-scale systems that process high volumes of transactions often use real-time data collection and batch updating. Master file records that are unique to a transaction such as customer accounts and individual inventory records can be updated in real time without causing operational delays. Common accounts should be updated in batch mode. Realtime processing is better suited to systems that process lower transaction volumes and those that do not share common records. 35. In a real-time processing environment, the master files are updated as soon as the transaction is submitted and accepted into the system. Thus, reports are more accurate in the sense that the information is as current as possible. Faster operational response time to customer requests such as the shipping of an order is another, and very important, benefit. Finally, the reduction of paper and storage space of physical source documents is another benefit. 36. By collecting data in real time, certain transaction errors can be prevented or detected and corrected at their source. 37. Block codes for the general ledger accounts, sequential codes for documents, and group codes for coding transactions. 38. Sequential codes are appropriate for items in either an ascending or descending sequence, such as the numbering of checks or source documents. An advantage is that during batch processing, any gaps detected in the sequence is a signal that a transaction may be missing. A disadvantage is that the codes carry little, if any, information other than the sequence order. Another disadvantage is that sequential codes are difficult to manage when items need to be added; the sequence needs either to be reordered or the items must be added to the end of the list. Block codes provide some remedies to sequential codes by restricting each class to a prespecified range. The first digit typically represents a class, whereas the following digits are sequential items which may be spaced in intervals in case of future additions. An example of block coding is a chart of accounts. A disadvantage of block coding is that the information content does not provide much meaning, i.e. an account number only means something if the chart of accounts is known. Group codes may be used to represent complex items or events involving two or more pieces of related data. The code is comprised of fields which possess specific meaning. The advantages of group codes over sequential and block codes are 1. they facilitate the representation of large © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 23 amounts of diverse data, 2. they allow complex data structures to be represented in a hierarchical form that is logical and thus more easily remembered by humans, and 3. they permit detailed analysis and reporting both within an item class and across different classes of items. A disadvantage is that the codes may be overused to link classes which do not need to be linked, and thus create a more complex coding system than is necessary. Alphabetic codes may be used sequentially or in block or group codes. An advantage is that a system which uses alphabetic codes can represent far more situations than a system with numeric codes given a specific field size. Some disadvantages are that sequentially assigned codes mostly have little meaning. Also, humans typically find alphabetic codes more difficult to sort than numeric data. Lastly, mnemonic codes are alphabetic characters in the form of acronyms, abbreviations or other combinations that convey meaning. The meaning aspect is its advantage. A disadvantage of mnemonic codes is that they are limited in their ability to represents items within a class (i.e. names of all of American Express’s customers). DISCUSSION QUESTIONS 1. Cash flows into the firm from sales made to customers. The sales order processing subsystem of the revenue cycle captures the intent of customers to exchange cash for services or goods manufactured. Typically sales are made on credit. The cash receipts subsystem of the revenue cycle captures the actual receipt of cash. Depending on the credit terms and promptness of payment by the customer, the lag between the sales order processing subsystem and the cash receipts subsystem may be days, weeks, or months. The cash inflow allows the organization to purchase raw materials, pay workers, and buy capital assets necessary to manufacture the product (or to provide services). The raw materials requirements are determined by the production planning subsystem of the conversion cycle. These requirements trigger orders being placed through the purchases/accounts payable subsystem of the expenditure cycle. For credit sales, the cash is ultimately released once the goods are received (or services are performed) and an invoice has been received. The lag between receiving goods and disbursement of cash may be days or weeks. Cash is also disbursed to employees, typically after services are rendered by the employees. The lag is usually no more than one-half a month for salaried employees and as short as one-half a week for hourly wage earners. The payroll subsystem of the expenditure system captures these disbursements to employees. 2. Initially, the cost accounting system was used for the valuation of inventory and cost of goods sold reported to external users; however, the valuable use of cost accounting data for budgeting, cost control, performance reporting, and management decision making have proved to be crucial internal support. 3. The conversion cycle activities for service and retailing entities include planning the items to purchase or the services to produce, planning the workforce to accomplish the necessary tasks (extremely crucial in service entities), and directing the workforce in performing the service or selling the good. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 24 4. Yes. For example, the remittance advice of a bill that is returned with the payment serves as a source document for the cash receipts transaction processing system. Thus, the product document becomes a source document. 5. This type of transaction is recorded in the general journal since it is nonrecurring, infrequent, and not similar to other types of transactions. 6. Sometimes the terms are used interchangeably, such as the sales journal is sometimes called the sales register. The term journal is appropriate when the information needs to be ultimately posted to the general ledger. Registers may be used to keep logs of information that may support, but do not specifically get posted to the general ledger, such as a raw materials receipts register or a shipping log. 7. The balance in the general ledger is considered a control account. This amount is an aggregated number representing the total amount owed to creditors listed in the accounts payable journal. The accounts payable subsidiary ledger details the exact amount owed to each creditor. The sum of the amounts owed to each creditor listed in the accounts payable journal should equal the corresponding control total in the general ledger. Thus, the accounts payable subsidiary ledger is a detailed breakdown of the summary control total of accounts payable in the general ledger. 8. Confirmation is most typically used for confirming the accounts receivable account as reported on the balance sheet. The audit trail is used to trace from the general ledger accounts receivable control account to the subsidiary account, and then to specific customer accounts. A sample of the customer accounts is then selected for confirmation. 9. In theory, the magnetic audit trail functions the same as a manual audit trail. In practice, the steps are slightly different. The archive file that consists solely of valid transactions is the file to which the accounts receivable subsidiary account balances and transactions are traced. The customers still need to be contacted for confirmation. 10. Small batches have the advantage of fewer transactions to sort through for error detection, but they are not processed as efficiently. Further, computing facilities and constraints might dictate whether multiple small batches may be processed throughout the day or whether a single large batch is processed at night when the computing facilities have excess capacity. (Multiple small batches may still be processed in the evening.) 11. Not all modern organizations use entirely modern information systems. Some firms employ legacy systems for certain aspects of their data processing. When legacy systems are used to process financially significant transactions, auditors need to know how to evaluate and test them. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 25 12. Large-scale systems that process high volumes of transactions often use real-time data collection and batch updating. Master file records that are unique to a transaction, such as customer accounts and individual inventory records, can be updated in real time without causing operational delays. Common accounts should be updated in batch mode. Real-time processing is better suited to systems that process lower transaction volumes and those that do not share common records. 13. Real-time processing is better suited to systems that process lower transaction volumes and those that do not share common records. 14. A hashing structure typically works by taking a key value and using it to divide a prime number. The result is a unique number almost all of the time if enough decimal places are used. The resulting numbers are used to find the unique location of the record. Calculating a record’s address is faster than searching for it through an index. It is not used exclusively because it does not use the storage disk efficiently. Some disk locations will never be selected because they do not correspond to legitimate key values. Also, different record keys may sometimes translate to the same address and data collision could occur. A way around this is using pointers, but the additional pointers slow down the system. 15. The virtual storage access method (VSAM) structure is used for very large files that require routine batch processing and a moderate degree of individual record processing. For instance, the customer file of a public utility company will be processed in batch mode for billing purposes and directly accessed in response to individual customer queries. Because of its sequential organization, the VSAM structure can be searched sequentially for efficient batch processing. 16. A physical address pointer contains the actual disk storage location (cylinder, surface, and record number) needed by the disk controller. This approach allows the system to access the record directly without obtaining further information. A relative address pointer contains the relative position of a record in the file. This address (i,e., the 200th record on the file) must be further manipulated to convert it to the actual physical address. The conversion software determines this by using the physical address of the beginning of the file, the length of each record in the file, and the relative address of the record being sought. A logical key pointer contains the primary key of the related record. This key value is then converted into the record’s physical address by a hashing algorithm. 17. The auditor should examine the system flowchart since it clearly depicts the separation of functions and illustrates who is responsible for performing specific processing steps. The dataflow diagram illustrates the logical system and is too general since many different physical designs may be applicable. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 26 18. Uncoded data takes a great deal of recording space, is time-consuming to record and is prone to many types of errors. Consider a firm that manufactures bicycles and carries in its inventory reflector lights. The lights come in six sizes, 2 colors, and 4 different grades of material. Thus, 48 different varieties of reflector light are held (6x2x4). Every time lights are purchased, the description would need to be included rather than a code. For example if 100 units of one type of reflector light were purchased, and 200 units of another were purchased from Collins Manufacturer in Roanoke, Virginia, the journal entry would be: Inventory-2”, yellow, metal reflector light Inventory-3”, orange, plastic reflector light A/P-Collins Mnf-Roanoke, VA 75 120 195 Some problems this approach may produce are 1. the sales staff will have a more tedious job in writing up orders, and more errors may occur (i.e. what if they forget to write the color or material type?), 2. the warehouse personnel will have a more difficult time locating and picking the goods for shipment, and again more errors may occur, and 3. the accounting personnel will also have a more tedious job posting to the subsidiary ledgers and errors may occur. 19. a. state codes—alphabetic code, i.e. PA, this method is appropriate because it corresponds with the postal services abbreviation and is meaningful to humans. b. check number—numeric, sequential. This method allows the checks to be examined to determine if any are missing. c. chart of accounts—block coding since this method allows a whole class of items to be restricted to a specific range. i.e. assets 100-199, liabilities 200299, equity accounts, 300-399. d. inventory item number—alpha-numeric. The numeric portion allows the items to be easily sorted and found. The alphabetic portion allows more combinations to be made with fewer digits or characters. i.e. 2000A, 2000B, 2000C could represent virtually the same inventory item but in three different sizes. e. bin number (inv warehouse location)—group codes since certain digits may be used to represent which warehouse, certain digits may be used to represent floor, certain digits may be used to represent rows, certain digits may be used to represent bins. i.e. 211225 could represent warehouse 2, floor 1, row 12, and bin #25. f. sales order number—numeric, sequential. This method allows the sales orders to be examined to determine if any are missing. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 27 g. vendor code—alpha-numeric. The alphabetic portion allows more meaningful codes to be used and found. The numeric portion allows different firms with similar names to be distinguished. i.e. ALPH01, ALPH02 where ALPH01 is the vendor code for Alphahydraulics and ALPH02 is the vendor code for Alpha Trucking Services. Once the name of the company is known, finding the vendor code is much easier than if only numbers are used. h. invoice number—numeric, sequential. This method allows the invoices to be examined sequentially. Gaps in the sequence may signify missing invoices. i. customer number—same as for vendor code. MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. C A E B A C D D C C A C A C A C B B C B D PROBLEMS 1. a. b. c. d. e. f. Expenditure cycle-payroll subsystem. Conversion cycle-production system subsystem. Revenue cycle-cash receipts subsystem. Revenue cycle-sales order processing subsystem. Expenditure cycle-purchases subsystem. Conversion cycle-production subsystem. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 28 2. a. b. c. d. e. f. g. h. master file transaction file reference file archive file master file transaction file reference file archive file 3. 4. The receiving department is a department that prepares many purchase requisitions, which are sent to the purchasing department. The purchasing department prepares many purchase orders, which are sent to suppliers. The many different suppliers each may ship many different inventory items to the receiving department of the customer, although each purchase order will be for only one inventory item. The receiving clerk receives the many different inventory items and prepares a receiving report for each shipment that will relate to one purchase order. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 29 5. 6. Business Rules: An inventory item may be ordered many times from many suppliers. A purchase order may list many items and a supplier may supply many items. A purchase order may be sent to only one vendor. A vendor may receive more than one purchase order. An invoice comes from only one vendor, but a vendor may send more than one invoice. 7. a. Symbol 1 is a terminal showing the source or destination of a document or report; symbol 2 is source document or report. b. Symbols 3 and 4 depict the entry of data in real time into a system from a computer terminal. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 30 c. Symbols 4 and 5 depict the storage/retrieval of data to/from a computer disk. d. Symbols 6, 8, and 9 depict the processing of a source document and its placement into a file. 8. Time sheets are collected in a batch, and the information is manually keyed into the system. This data is now stored on a magnetic disk. An editing program is run, which verifies whether the employee number is valid by checking it against an employee master file. The validity of the cost center assigned is also verified against a master file. Logical and clerical errors should also be tested, such as an employee working an unreasonable number of hours in a day/week. Records that are found to be in error are sent to an error file. These errors need to be investigated and corrected. The good records are stored in a data file. The next program takes the edited transaction records, one at a time, and updates any corresponding fields in the master files. Finally, a report program generates paychecks and management reports. 9. Any of the following types of errors may cause a payroll record to be placed in the error file: a. invalid employee number b. invalid cost center c. incorrect batch/control total that does not equal the totals computed by the program A program flowchart is presented below. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 31 10. A rectangle is used to represent an entity. An entity might be the source of a document or activity, or the destination of a document. A rectangle with rounded corners represents and a process. A rectangle without the right most line represents a data store, or the place from which data for obtained or stored. Arrows represent the flow and direction of information within the diagram. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 32 11. 12. See the drawings on the following two pages. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 33 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 34 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 35 13. Receiving report file (PK) Receiving Report Number (SK) Purchase Order Number (SK) Inventory Number (SK) Vendor Number Quantity Received Condition Purchase order File Purchase Order Number Inventory Number Vendor Number Quantity Ordered Vendor Master File Vendor Number Name Address Balance Terms Inventory Master File Inventory Number 14. Description Quantity On Hand Reorder Point EOQ Unit Cost See drawings on the following pages. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 36 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 37 15. See the data flow diagram, ER diagram, and flowchart on the following pages. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 38 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 39 16. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 40 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 41 17. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 42 18. 101.0 102.0 103.0 104.0 105.0 121.0 131.0 131.5 132.0 132.5 133.0 133.5 134.0 134.5 135.0 201.0 202.0 203.0 221.0 222.0 301.0 302.0 311.0 390.0 401.0 Cash Accounts Receivable Office Supplies Inventory Prepaid Insurance Inventory Investments in Marketable Securities Delivery Truck Accumulated Depreciation—Delivery Truck Equipment Accumulated Depreciation—Equipment Furniture and Fixtures Accumulated Depreciation—Furniture and Fixtures Building Accumulated Depreciation—Building Land Accounts Payable Wages Payable Taxes Payable Notes Payable (Long-term) Bonds Payable Common Stock Paid in Capital in Excess of Par Treasury Stock Retained Earnings Sales © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 43 401.5 420.0 501.0 501.0 521.0 522.0 531.0 541.0 551.0 561.0 571.0 19. Sales Returns and Allowances Dividend Income Cost of Goods Sold Wages Expense Utility Expense Office Supplies Expense Insurance Expense Depreciation Expense Advertising Expense Fuel Expense Interest Expense The following scheme uses group codes with alphabetic and numeric data since they can be used to categorize information in a hierarchical form. Warehouse 1 Aisle C Left or right Side of Aisle L Shelf 5 Bin 08 Thus, code 1CL08 represents the above. 2AR415 represents inventory in warehouse #2, aisle A, right side of aisle, shelf 4, bin #15. 20. a. b. c. d. e. f. g. indexed sequential or indexed random; least optimal: sequential indexed random or hashing; least optimal: sequential sequential; least optimal: indexed random sequential or pointer; least optimal; indexed random indexed random or hashing; least optimal: sequential indexed random or hashing; least optimal: sequential indexed random; least optimal: hashing 21. a. A sequential file could be used, but with only eight updates per month, roughly 1/8 of the files will be updated each run. That means for each run the other 7/8 of the file must be read and rewritten. Random access will aid the customer inquiry response time. A hierarchical database would be appropriate since this is a one-to-one relationship—each address has one resident in charge of utilities. b. Random access for customer balances and payment information is crucial. A network or relational database is necessary since this is a many-to-many relationship: many purchases per customer, many merchants per customer, many customers per merchants. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 44 c. Random access will be necessary for flight inquiries and updates throughout the day. A navigational database would be appropriate. Only one direction needs to be investigated. Most customers start with a departure city and then flights to the destination city can be investigated. Many different destinations will exist for a given departure city. Rarely will a customer wish to book a flight based on a destination where they do not know from which city they will depart. d. A random access storage device is necessary to access the students’ records quickly when they check out books. A network or relational database will be necessary since the data should be bidirectional. An investigation may need to be conducted to determine what books a student has checked out or an investigation may need to be conducted regarding who has a certain book checked out that has been recalled. 22. a. Only the backup files can be presumed to be uncorrupted. b. The clerk will have to reenter the data for the previous day’s sales. c. The company will first have to restore the backed up data to the computer. Once the clerk has reentered the sales data, this new transaction file will have to go through the edit process. Finally, an updated master file(s) may be generated and then a new backup file created. 23. 9997/3=3332.33333333333 9997/2307=4.33333333333 9997/39=256.33333333333 These numbers are identical with respect to location. The record with key=3 will be stored in cylinder 33, surface 33, record number 3333. The record with key=2307 will be randomly stored elsewhere and a pointer will be attached from the record with key=3 to the location of the record with key=2307. The record with key=39 will be stored at yet another random location and another pointer will be attached to the record with key=3 giving the location of the record with key=39. 24. The following list illustrates, step by step, the update procedures for a sequential file update process. t=1 m=1 t=m update m=1 t=6 m=2 t>m skip m=2 t=6 m=3 t>m skip m=3 t=6 m=4 t>m skip m=4 t=6 m=5 t>m skip m=5 t=6 m=6 t=m update m=6 t=8 m=7 t>m skip m=7 t=8 m=8 t=m update m=8 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Page 45 t=9 m=9 t>m update m=9 t=10 m=10 t=m update m=10 t=13 m=11 t>m skip m=11 t=13 m=12 t>m skip m=12 t=13 m=13 t=m update m=13 t=11 m=14 t<m ERROR! write to error file t=15 m=15 t=m update m=15 t=17 m=16 t>m skip m=16 t=17 m=17 t=m update m=17 eof m=18 stop The error in the order of the file causes record 11 in the master file to be incorrect since it is not updated. This record should be written to an error file. If a direct access method is used, no errors would occur because of the out-ofsequence condition of transaction file records. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.