Study unit 7: Overview of transaction processing - page 12
2 Transaction processing system (TPS) - page 12
A TPS is wider than only an account transaction processing system (ATPS) and includes other operational transaction processing systems – for example, a warehouse system that processes the movement of inventory items between different storage locations.
- Define Transaction processing system (TPS) – (Mark 3)
A TPS collects an organisations daily business transactions, processes them into valuable information and stores and retrieves the data and information when required.
3 Accounting transaction processing system (ATPS) - page 13
An AIS collects an organisations day-to-day financial and non-financial transactions, processes them into valuable financial information, and stores and retrieves the data and financial information.
- Financial Transaction
- Non-Financial Transaction
- Define a Financial Transaction
A financial transaction is a business activity that generates or modifies financial data and can usually be expressed in monetary terms.
- Define a Non-Financial Transaction
A nonfinancial transaction is a business activity that generates or modifies nonfinancial data but which is of such a nature that it will directly influence the processing of financial transactions
The accounting transactional processing system can be divided into 5 accounting/auditing cycles.
These categories are as follows:
- revenue and receipts cycle (study unit 8)
- acquisition and payment cycle (study unit 9)
- inventory and production cycle (study unit 10)
- payroll and personnel cycle (study unit 11)
- finance and investment cycle (study unit 12)
4 Accounting transactions: from data to information - page 14
The Manual Process
The Computerised Process
5 An AIS in an organisation - page 16
When we decide to use AIS to process an organisations financial data into information, we first have to create (set up) the organisation on the AIS by providing core organisational information. This information will be used on the documentation and reports as well as in transaction processing. This core setup information includes the following:
(A) organisation parameters (also know as company parameters)
Organisation details -
What is the name and address (postal / physical address)?
What are the vat number and telephone numbers and emails?
What document numbers are you going to use?
Organisation default formats -
What date entry format is preferred?
What is the default email format?
What is the preferred currency format?
Organisation multi-currency -
Does the organisation have international suppliers & customers?
Users and passwords –
Each individual user must be set up on the basis of his and her access. Authorisation rights and passwords must be assigned to each user. This is vital because it enforces segregation of duties
The organisations periods –
What are the start date and end date of the financial year?
How many accounting periods ate there in the year?
Does the month begin on the 1st day of the month?
Financial categories –
These categories are used in financial reporting and allow the software to place a general ledger account in the correct place on a balance sheet or income statement.
Entry types –
Entry type are similar to the subsidiary journals in manual bookkeeping. There will always be a default debit or credit setting for the journal, to help the user enter data more accurately, and speedily.
Bear in mind because different countries have different tax regimes most AIS’s already have built-in customisations for the different tax regimes applicable to that country. For eg. When selecting South Africa as the country the organisation is trading in vat – which is already set up with the applicable vat percentages
(B) we will need to set up common default data such as the following:
- Types of documents to be used by the organisation
- Customised names, messages and numbers
- User defined fields (extra fields)
- Control accounts for customers, suppliers and inventory
- Default terms for customers and suppliers (such as trade discounts)
- Descriptions of the price list to be used.
- Integration of the inventory to the general ledger
(C) initially we will create the individual
- inventory items and
- general ledger accounts needed
We will enter the information such as the following:
- Code and name of the customer/supplier/inventory item/general leger account
- Contact details
- Credit limits
- Data required by the user-defined field (as specified in step b – common details
- Inventory item prices per price list
(D) we will only need to do a take on the balances if the organisation has done business in the past ie.
- Already has assets, liabilities
- Customers that owe it money
- Suppliers who need to be paid
(E) the organisation will perform transactions between itself and its customers, suppliers and employees on a daily basis.
These transactions will then need to be captured (preferably daily)
- either online as they occur
- or as a batch
NOTE - Materiality of an account
Keep in mind that materiality of the general ledger, customer, supplier or inventory account is not based on the rand value balance of the account, but also on the nature of the account.
For Eg. A general ledger suspense account may have a small nonmaterial balance at month-end but may be material owing to the nature of the suspense account.
Suspense accounts pose a high risk because they contain individual entries that are material on their own but because these individual entries are netted off in one account, the balance may not be material
(I) at month-end, certain extra procedures over and above the controls mentioned will be performed
(J) at the end of month-end as well as year-end we will also print various reports.
Management accounts usually include a –
- (balance sheet) - statement of financial position
- (income statement) - statement of profit and loss of other comprehensive income for the reporting cluster the manager is responsible for.
In other words, a divisional CFO/manager will only receive reports containing her/his division results. Depending on management requirements these statements are usually not full IFRS compliant statements.
Accountants must make sure they know what the management accounts will be used for to ensure that correct and usable management reports are created
(K) at year-end in addition to performing the normal month-end controls, procedures, and printing month-end reports for the last accounting period in the financial year we will also perform special procedures
Which will be the following
- updating all open batches
- printing detailed ledger reports for the full financial year
- printing all other reports which are deemed necessary for auditors and regulating bodies such as SARS
- revaluating foreign currencies (if used by the organisation)
- processing the required IFRSS adjustments
- making an extra year-end backup (for off-site if possible)
- running the AIS’s official year-end procedure