ACCT20072

Accounting Systems and Information Assurance

Transaction Processing and ERP Systems

Learning Objectives
• Describe the parts of the transaction processing
cycle and the major activities in each of them
• Describe documents and procedures used to collect
and process transaction data
• Describe the ways information is stored in computer-
based information systems
• Discuss the types of information that an AIS can
provide
• Discuss how organisations use ERP systems to
process transactions and provide information.

3
Activity: Discussion

Describe how an ERP can connect and integrate:

• revenue,
• expenditure,
• human resources,
• payroll,
• financing and general ledger
cycles of a business.

4
Transaction Processing Concepts
Data Processing Cycle

Activity: List some examples of each

of the elements of the processing cycle?
6
 Data Processing Cycle Determines
• What data should be entered and stored by an organisation?
• Who should have access to them?
• How should data be organised, updated, stored, accessed
and retrieved?
• How can scheduled and unanticipated information needs be
met?

Discussion
For a sales transaction, for example, you buy a flat screen TV from
Harvey Norman, identify what data should be collected by Harvey
Norman for this transaction.

7
Data Input—Capture

Data must be collected about three facets of each

business activity as it occurs.

1. Each activity of interest.

2. Resource(s) affected by each activity.
3. People who participate in each activity.

From the previous discussion, list some examples for

each of the 3 facets above?

8
Paper-Based Source Documents
Data are collected on source documents
• Examples
- Sales-order form
- Purchase requisition
• Data from paper-based documents will eventually need to be
transferred to the AIS (digitised)

• Turnaround documents
• Usually paper-based
• Are sent from organisation to customer
• Same document is
Org. Cust.

returned by customer to organisation

Turnaround Document

9
Paper Forms -examples

10
Source Data Automaton

Source data is captured

– In machine-readable form
– At the time of the business activity
- e.g. ATMs; point-of-sale (POS)

Discussion
What are the benefits of source data automation?

11
Data Input—Accuracy and Control

Well-designed source documents can ensure that data

captured is:
– Accurate
- Provide instructions and prompts
- Check boxes
- Drop-down boxes

– Complete
- Internal control support
- Pre-numbered documents

12
Data Storage

Types of AIS storage

– Paper-based
- Ledgers
- Journals

– Computer-based
– Files
– Databases

13
Ledgers
General Ledger
– Summary level data for each: A/R • Joe Smith
$250
• Asset, liability, equity, revenue,
and expense $100 • Patti Jones
$750
Subsidiary Ledger 0
– Detailed data for a General
Ledger (Control) Account that
has individual sub-accounts
• ACME Ltd.
• Accounts Receivable
• Accounts Payable
A/P $250
• Jones Ltd
Reconciliation account (ERP System)
- You must specify a reconciliation account in the GL
$600 $350
master record so that all postings made to a subsidiary
ledger are also posted to the general ledge (more on
this in a later lesson).

15
Journals

General
• Infrequent or specialised transactions
• Debit one or more accounts, Credit one or more accounts with
same amount
• Total debits = total credits

Specialised
• Repetitive transactions
• e.g. sales transactions
- sales journal – keep track of customer purchases
- Debit accounts receivable, Credit revenue

16
Activity: Discussion

1. What is a chart of accounts (CoA)?

2. Provide some examples of CoAs that you

may have encountered in your own experience
(perhaps at work or in other studies).

17
Coding Techniques
Sequence Digit Position Meaning
• Items numbered consecutively 1–3 Product Line, size,
Block and so on
• Specific range of numbers are associated 4 Color
with a category 5-6 Year of Manufacture
• E.g. 10000–199999 = Electric Range
Group
7-8 Optional Features
• Positioning of digits in code provide
Example-group: 120 = Dishwasher
meaning
12041000 4 = White
Mnemonic 10 = 2010
• Letters and numbers 00 = No Options
• Easy to memorise
Example-mnemonics Dry = Dryer
• Code derived from description of item Dry300W05 300 = Low end
Chart of accounts W = White
05 = Whirlpool
• Type of block coding
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ERP System Chart of Accounts (SAP)

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Computer Based Storage
Entity
– Person, place, or thing
(noun)
– Something an organisation
wishes to store data about
Attributes
– Facts about the entity
Fields
– Where attributes are stored
Records
– Group of related attributes
about an entity
File
– Group of related Records

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 Activity: Identify the different components of storage

Entity

Attributes

Record

Fields
File

Use These
Entity
Attributes
Fields
Records
File

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 File Types
Transaction
– Contains records of a business
from a specific period of time
– Give an example?
Transaction
File

Master Updated
– Permanent records
– Updated by transaction with the
Master
transaction file File
– Give an example? Master
before
Update

Database
– Set of interrelated files
– Give an example?
22
Data Processing

Four Main Activities

1. Create new data records.
2. Read retrieve or view existing data records.
3. Update existing stored data records.
4. Delete data or records.

Activity: Discussion
Select a business that you are familiar with (e.g. library, video
rental store, etc.)
Describe the data processing activities under taken within this
business. Use the framework described above.

23
Information Output Types

Soft copy
• Displayed on a screen
• Give an example?

Hard copy
• Printed on paper e.g. documents and reports
• Give an example?

24
Activity: Discussion
What Businesses Need an Online Real-Time System

The business environment is increasingly

demanding the use of OLRT systems for more
up-to-date information. Identify one business
process and the environment in which it would
be used, as an example of why immediate mode
processing is so critical. Why is this the case? 

Business Process & Why Environment

   
Recording borrowing from Library University
Why?
 
   
 
 

Could these business processes operate without an automated

information system?

25
ERP Systems
What is an ERP system?

An ERP system is a set of computer program modules

that attempts to integrate the different functional areas
of the organisation.
ERP Systems
ERP Systems

Activity: Discussion

Discuss how organisations use ERP

systems to process transactions and
provide information. Use examples from
your experience, if applicable?

29
Example: Customer Service Process
Enterprise Resource Planning (ERP) Systems
Integrates an organisation’s information into one overall AIS
ERP modules
• Financial
• Human resources and payroll
• Order to cash
• Purchase to pay
• Manufacturing
• Project management
• Customer relationship management
• System tools

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ERP System Advantages

• Integration of an organisation’s data

and financial information
• Data is captured once
• Greater management visibility, increased monitoring
• Better access controls
• Standardises business operating procedures
• Improved customer service
• More efficient manufacturing

32
ERP Disadvantages
• Cost
• Time-consuming to implement
• Changes to an organization's existing business processes can
be disruptive
• Complex
• Resistance to change

33
Enterprise Systems and ERPs
Enterprise systems
• Integrate business processes and information from all of an
organisation’s functional areas.
• Help coordinate the operation of business functions and
provide a central information resource for the organisation.

Enterprise Resource Planning (ERP) Systems

• Software packages that can be used for the core systems
necessary to support enterprise systems.
SAP ERP System has the following characteristics
• Enterprise-wide: regardless of the size, industry, or complexity, all
information needs are handled – everywhere in the enterprise.

• Real-time: transactions are posted individually, immediately.

• Integrated: data generated in any part of SAP can be used wherever it is

needed as is in the other modules.

• Relational database: data tables can be related to one another and

combined or separated to produce desired information.
SAP ERP System Modules

SD FI
Sales & Financial
Distribution Accounting
CO
MM Controlling
PP Materials AM
ProductionMgmt
Planning
SAP Fixed Assets
Mgmt

QM Client / Server PS
Quality Project
System
Mgmt PM WF
Plant Main-
Workflow
tenance HR
IS
Human Industry
Resources Solutions
SAP can be ‘customized’
• System must be tailored to the specific needs of the organization.
• SAP uses table-driven customization.
• Instead of changing programs, all configuration is stored in tables.
• The programs dynamically perform business processes with reference to
these tables.
• Programs have been designed based on ‘best practice’ to suit most
organizations.
• Allows rapid implementation and confidence in programs.
• Many organizations adopt recommended customization.
 Blockchain in
Accounting and Auditing
What is Blockchain?

• Blockchain is a distributed ledger technology that enables transaction

records to be stored in blocks linked together resembling a chain
• Copies of the distributed ledger are maintained across all computers
(nodes) participating in an internet-based peer-to-peer network.
• Software running on each node verifies and validates transactions.
• Consensus protocols ensure that no one node or user can unilaterally
modify a record as it is stored in multiple locations in the
decentralised network.
• This ensures distributed control as no individual peer controls the
ledger, unlike non-distributed ledger approaches where only a single
copy of the records exists which may be manipulated for legitimate or
malicious purposes
Blockchains, ERP Systems & Relational Databases

• A blockchain is a write-only data structure. New entries get appended to

the end of the ledger. Every new block gets appended to the blockchain
by linking to the previous block's fingerprint or hash (a hash function is a
type of mathematical function which turns data into a fingerprint or hash)
(Lewis 2016). There are no permissions within a blockchain that allow
editing or deleting of data. 
• ERP systems are pre-packaged business applications built upon
Relational Database Management Systems (RDBMS). They are used to
process and distribute business information across the organisation in a
timely manner to provide support for management decision making.
• In a relational database, data can be easily modified or deleted.
Database administrators have permissions to make changes to the data
and/or its structure. Relational databases are generally designed for
centralized applications, where a single entity controls the data.
Additional Concepts

• Smart contracts are computer programs that execute predefined

actions when certain conditions within the system are met. They
facilitate the exchange and transfer of something of value (for example,
monetary transactions, shares or property) and allow the ledger state to
be modified
• Consensus in the network refers to the process of achieving agreement
among the network participants as to the correct state of data on the
system. This results in all nodes sharing exactly the same data.
• Immutability of data residing on the blockchain is a key driver to deploy
blockchain-based solutions. This unchanging over time feature makes
the blockchain useful for accounting and financial transactions. Once a
transaction is written onto the blockchain it cannot be changed easily
 Triple-Entry Bookkeeping

• Companies record transactions in their

accounting information systems in the
standard double-entry format, and smart
contracts would replicate these transactions
in a public distributed ledger or blockchain.
• Smart contracts adds an additional level of
automation within the blockchain, enabling
the ledger to self-execute instructions to
perform verifications, detect potential
fraudulent transactions and enforce
agreements between the transacting
organizations.
• Given blockchains immutable nature the
third entry will become the trusted source of
truth.
 Triple-Entry Bookkeeping Explanation
• Assume Company 1 (vendor) sells products or provides or services to Company 2 (customer).
• Both Company 1 and Company 2 predetermine the rules of the transaction on a self-executing smart
contract.
• Company 1 creates an invoice in its AIS. A timestamped version of this transaction together with
terms and details of payment are recorded in the blockchain.
• To ensure privacy of the transaction it will be encrypted with Company 2’s public key. Once Company
2 verifies and approves the transaction, the blockchain is updated.
• A smart contract will confirm the transaction with the bank. The bank transfers the payment and the
smart contract updates the public ledger to reflect that payment has been made.
• Auditors can access the public ledger and verify authenticity through the transaction hash. Digitally
signing and timestamping the transactions prevent them from being altered and will provide reliable
audit trail evidence leading to trustworthy financial information.
• Public transactions will be visible to all participants. Private transactions will be restricted to those
participants whose public keys are specified in the transaction. In this way, although transactions are
executing in a public blockchain, participants that are not party to the transactions will not have
access.
• Participants with appropriate access would have the ability to aggregate the firm’s transactions to
produce income statements or balance sheets on an ad hoc basis, thus removing the need to rely on
quarterly financial statements prepared by the firm.
Discussion Questions
Discussion Questions

1. Some individuals argue that accountants should focus on

producing financial statements and leave the design and
production of managerial reports to information systems
specialists. What are the advantages and disadvantages of
following this advice? To what extent should accountants be
involved in producing reports that include more than just
financial measures of performance? Why?
2. Describe how an ERP can connect and integrate the
revenue, expenditure, human resources/payroll, and
financing cycles of a business.
3. Give three examples each of the advantages and the
disadvantages of an ERP system with a centralized
database.
References

1. Romney, M.B. and Steinbart, P.J., 2020. Accounting Information

Systems, Global Edition, 15th Ed. Pearson Australia Pty Limited.
2. Alison Parkes,  Brett Considine,  Yvette Blount,  Karin Olesen,
2016. Accounting Information Systems, 5th Edition.
3. Dull, R.B., Gelinas, U.J. and Wheeler, P.R., 2012. Accounting
Information Systems: Foundations in Enterprise Risk Management.
South-Western.
4. Singh, K, Haque, A, Kap[hle, S, Ban, J., (2021). Distrubuted Ledger
Technology – Addressing the challenges of assurance in
accounting systems. A research note. Journal of Accounting and
Management Information Systems (4) pp.646-669.