Electronic Data
Processing
Systems
Chapter 10
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Learning Objective 1
Describe how application
controls are used in data
processing systems to ensure
accuracy and integrity.
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
10 - 2
Paper-Based Input System



The source document, such as sales orders, are
prepared manually.
Batch control totals and data transfer registers are
fundamental controls over data transfer between
user departments and data processing.
Submission of input data should be accompanied
by the completion of an input document control
form.
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Paper-Based Input System
After the source documents are received
by data processing, they are manually
key-transcribed using a data terminal or
personal computer, and then stored on disk.
 What is key verification?
 What is program data editing?

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Paper-Based Input System
Data editing routines may be applied to
each of the basic data structures.
– character
– Fields
– records
– files
 What is a table lookup?

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Paper-Based Input System
What is a limit test?
 What is continuous operations auditing?
 What is a check digit?

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Paperless Input Systems
In paperless systems, source document
preparation and data entry are performed
by the same person.
 Sometimes no person is directly involved.
 The loss of paper-based internal controls
can be compensated for by using
transaction logs.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
10 - 7
Paperless Input Systems
Transaction logs or transaction registers are
created by logging all inputs to a special file
that automatically contains tags to identify
transactions.
 What is tagging?

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Paperless Input Systems
There are many types of paperless input
systems in which users enter transactions
directly into the computer.
 What are some examples?
– on-line manual data entry systems
– automatic identification systems

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Paperless Input Systems
Transactions in paperless input systems
involving human intervention typically
proceed through two phases.
 What are these phases?
1 Data entry and data editing
2 Transfer to the host application system

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
10 - 10
Paperless Input Systems
In some systems, transactions are processed
from beginning to end without any human
intervention: completely automated
transaction processing.
 What are some examples of this technology?
– networked vending machine (NVM)
– electronic data interchange (EDI)

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
10 - 11
Learning Objectives 2 & 3
Characterize the various
types of electronic systems
used for processing.
Describe the basic functions
of a computerized accounting
application.
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Paper-Based Processing Systems
In batch-oriented processing systems,
transactions are entered into the computer
in batches.
 These batches are then processed periodically.
 What are some examples of batch processing?

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Paper-Based Processing Systems
processing weekly time reports to produce
paychecks
– processing groups of checks to update
accounts payable master files
– processing invoices to update an accounts
receivable master file
 Batch processing can be performed with
sequential or random-access file updating.
–
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Batch Processing with
Sequential File Updating

–
–
–
–
Processing in a sequential file updating
system usually involves the following steps:
preparing the transaction file
updating the master file
updating the general ledger
preparing general ledger reports
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
10 - 15
Sequential File Processing
Invoices
Data
Terminal
Process
Input
Transaction
File
Batch
Balance
A
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Sequential File Processing
A
Transaction
File
Edit
Program
Good Data
File
Sort to
Master File
Sequence
Control
Report
Rejected
Data
Control
Report
Reconcile
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
Control
Procedure
10 - 17
Sequential File Processing
Sorted
Transaction
File
Control
Data
Old Master
File
Master File
Update
Old
Master
New
Master
Transaction
File
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
Retain for
Backup
10 - 18
Son–Father–Grandfather
Master Files
Father
Old
Master
File
File
Update
Grandfather
Backup
Master
File
New
Master
File
Son
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
Next
File
Update
10 - 19
Updating the General Ledger
A general ledger system is the cornerstone
of an accounting system.
 There are two major aspects to the operation
of a computerized general ledger system.
 What are these two aspects?
1 The direct processing of the general ledger
programs, most of which takes place on a
monthly basis

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Updating the General Ledger
The processing in other computer
application systems to prepare the
inputs to the general ledger system
 One of the tasks to be undertaken in
designing a general ledger system is
the creation of a pro forma set of journal
entries.
2
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
10 - 21
Journal Voucher Format
Number
Accounts
Journal Voucher
Month
Year
Debit
ID
Credit
Received from:
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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General Ledger File Update
Computer processing of accounting data is
typically a two-step procedure.
 What are these steps?
 The first step produces preliminary reports.
 The second step is a run that produces the
final listings and financial schedules.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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General Ledger File Update
Preparing reports requires a link between
the general ledger accounts and the report(s)
in which they appear.
 This process is called line coding.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Example of a Line Code
100601
0
100
Type of
Report
(e.g., financial)
Account
Number
(e.g., marketable
securities)
Report
Number
(e.g., balance
sheet)
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
03
2
Line
Location
on Report
Column
Location
on
Report
10 - 25
Batch Processing with
Random-Access File Updating
In many systems, indexes are maintained
for both the subsidiary and general ledger
files.
 Maintaining these indexes serves the
primary need of allowing users to quickly
access a particular account.
 Random-access file updating is simpler
than sequential-access updating.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Batch Processing with
Random-Access File Updating
With random-access updating, it is not
necessary to sort the transaction file into
the same order as the master file.
 There is no need to generate a new master file.
 Individual records are read one by one from
the transaction file and used to update the
related records in the master file in place.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
10 - 27
Batch Processing with
Random-Access File Updating

1
2
3
The following steps are used:
A record is read from the transaction file.
The key value of the transaction record is
used to randomly access the related record
in the master file.
The record in the master file is updated in
memory and then rewritten back to the data
file.
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
10 - 28
Cash Receipts Application
New Invoice Application (Daily)
A
Open
Item
Accounts
Receivable
Control
File
Billing
Data
File Control
Summary
File
Update
Review and
Approve
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
10 - 29
Cash Receipts Application
Cash Remittance Processing (Daily)
Post Office
A
Check
Remittances
Cash Receipts
Total
D
Open Item
Accounts
Receivable
Check
Endorsement
Data Entry
Deposit
Slip
Activity
File
C
B
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
10 - 30
Cash Receipts Application
Cash Remittance Processing (Daily)
D
D
D
Deposit
Register
Bank
Summary
File
Review
and
Sign
Data Entry
Reconcile
Cash Summary
Report
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
Cash Summary
Report
10 - 31
Cash Receipts Application
System Balancing (Daily)
Control
File
C
D
Deposit
Report
Activity
File
Bank
Summary
File
Reconcile
(Monthly)
B
System
Balancing
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
Bank
Statement
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Paperless Processing Systems
In paperless processing systems, either
batch or real-time processing is possible.
 With real-time processing, sometimes called
on-line real-time processing, transactions
are processed as they are input into the
system.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Paperless Processing Systems
Batch processing in paperless systems is
similar to batch processing in paper-based
systems.
 The main difference is that journal vouchers
are replaced by their electronic equivalents,
and the general ledger is updated
automatically in period batch runs.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Paperless Processing Systems
A primary advantage of paperless systems is
that they make possible real-time
processing.
 The processing of individual transactions as
opposed to groups of transactions is called
immediate, direct, or real-time processing.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Paperless Processing Systems
On-line, real-time systems (OLRS) process
transactions immediately after they are
input.
 What are some types of real-time
processing in OLRS?

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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Paperless Processing Systems
–
–
–
–
inquiry/response systems
data entry systems
file processing systems
full processing systems or
transaction processing systems
 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
10 - 37
Paperless Processing Systems
The relative disadvantages of OLRS stem
from the increased costs and complexity
of systems operations.
 OLRS are more sensitive to hardware and
software errors.
 They are more susceptible to processing
errors that arise from erroneous or
fraudulent inputs.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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The Output System
The output system can be paper-based,
paperless, or something in between.
 Most paper-based, batch-oriented systems
with sequential file processing produce very
large volumes of output.
 On-line, real-time paperless systems tend to
produce very little output.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
10 - 39
The Output System
Output controls are designed to check
that processing results in valid output
and that outputs are properly distributed.
 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.

 2001 Prentice Hall Business Publishing, Accounting Information Systems, 8/E, Bodnar/Hopwood
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