Transaction Processing System Every organization whether business or non-business, being a collectivity of people to achieve certain specified objective

while interacting with environment, is engaged in conducting different types of transactions to achieve its objectives. A transaction maybe defined as an activity, such as making a purchase or a sale, manufacturing a product, promoting an employee and so on. Thus the concept of transaction as used in information system is wider as compared to its usage in accounting systems where a transaction involves transfer of money or moneys worth from one entity to another. For a transaction to occur, the following points are required :1. Direct a transaction to take place. 2. Report, conform, or explain its performance, & 3. Communicate the transaction to those needed

Concept of Transaction Processing System Transaction Processing System (TPS) are the basic business systems that process day to day transactions of an organization to carry on its business operations. The TPS can be handled manually or computerized.

Features of Transaction Processing System 1. Organisations are required to process transactions in a way that is required by its external stakeholders. Eg, a large business organization is required to maintain its financial transaction as prescribed by Income Tax Act or joint stock company is required to maintain financial and other records as per the provision of the Companies Act and so on. 2. TPS are major producers of information for other types of systems, Eg, Purchase processing systems supply data to the organizations general ledger system which are responsible for maintaining records of the organization, for producing reports such as trial balance, profit and loss account, and balance sheet. 3. TPS handles details of data & these data show the results of various activities usually on historical basis. 4. Many TPS span the boundary of the organization to connect the elements of its environment. For example, TPS can connect the organization with its customers & suppliers. Such a connectivity ensures faster transaction processing which in result increases the operational efficiency.

5. TPS serves the need of operational level of the organization. At the operational level, objectives, tasks, and resources are predefined & are highly structured. Therefore the decisions are made on the basis of predefined criteria. 6. TPS are relevant to all the four functional areas of a business organization production, marketing, finance & human resource, because each functional area needs some kind of transaction processing.

Accounting Transaction Processing It is the maintenance and analysis of book-keeping records. It includes not only maintenance of records but also the preparation of financial statements which measure the impact of financial transactions & other events pertaining to the business. In accounting, only business transactions are recorded. A business transaction is an event which can be expressed in terms of money & brings change in financial position of an organization. An event is a happening that may or may not bring any change in the financial position of an organization. Therefore, all transactions are events but all events are not transactions. For example, promotion of an employee is an event and maybe transaction from human resource managements point view but it is not a transaction from accounting point of view as it does not involve movement of value from one source to another.

Types of Business Transactions :1. Transaction with outside entities 2. Adjustment transactions

Transaction with outside entities Transactions with outside entities involves direct movement of values, Eg purchase of raw material from suppliers, or sale of finished goods & customers.

Adjustment transactions Adjustment transactions do not involve outside entities, but reflects the true financial position Eg, providing depreciation on fixed assets, Provision for bad debts etc.

Components of Transaction Processing System :Computer based TPS has the following components :1. Input 2. Processing 3. Storage 4. Output

1. Input : Input for a TPS can be in many forms of source documents, such as customer orders, purchase orders, invoice, employee time cards etc. The purpose of these documents are to serve the following :(a) Capturing of data (b) Facilitating operations by communicating data and authorizing another operation in the process. (c) Standardizing operations by indicating what data are required for recording & what actions need to be taken. (d) Providing a permanent file.

2. Processing : Processing involves the use of journals (books of primary entry) and registers to provide a chronological (the arrangement of events or dates in the order of their occurence) records of inputs. Journals are used to record financial accounting transactions, & registers are used to record other types of data not directly related to accounting.

Journals 1. 2. 3. 4. Sales - to keep the record of sales. Purchase to keep the record of purchase. Cashbook to keep the record of cash received & disbursed. Account Receivable & Account Payable Book.

3.

Storage : The computer stores various records on files. There are various files which are classified as transaction file and master file. Transaction file : Is a collection of transaction input data. This file contains a data generally temporary in nature. Master file : contains data that are of a more permanent nature or of continuing interest.

4. Output : Variety of outputs can be generated from a TPS which can be used for various purposes. These outputs are in the form of documents. Some of these outputs can be used as inputs for further processing. Eg, a customer invoice is an output of the order entry application, but the same invoice can be used as input for processing customer accounts.

Transaction Processing Cycle : A transaction processing cycle organizes transactions by an organizations business processes. Therefore, there is a likelihood that transaction processing cycles differ from different organizations. Most of the business organizations have some transactions in common which maybe grouped according to four common cycles of business activities :1. Revenue Cycle events related to distribution of goods & services to other entities & collection of related payments. 2. Expenditure Cycle events related to the acquisition of goods & services from other entities & making payment for that. 3. Production Cycle events related to conversion of various inputs into finished goods & services. 4. Finance Cycle events related to the acquisition & management of capital funds. The basic objective of grouping business activities is to simplify the transaction processing. The transaction can be recorded in two ways :1. Manually 2. Computerized by the use of online terminal. Where the transaction recorded manually, they are sent to computer for processing.

TRANSACTION PROCESSING CYCLE

Transaction Document

Transaction Input

Input Validation

Valid Input

Process Transaction

Update Master File

Master File

Correct

Invalid Input

Transactional Control Log

Control Log

Transaction Input Transaction input entry, either by manual system based on transaction document or by entry in the form of source data automation like scanner, is necessary first step proceeding other activities in processing transaction. For Example

Transaction 1. A sales order taken during sales visit 2. Withdrawal from a bank account.

Entry Method Manual Recording Manual recording or terminal entry.

3. Railway reservation

Terminal entry

Pre entry activity A sales order form is prepared by the sales person. Customer presents cheque requiring manual recording or he uses ATM to withdraw the amount, terminal entry is made. Customer presents reservation requirements slip.

Data Validation : Data validation is the testing of input data records to determine if they are correct & complete. Validation tests are applied against each data item or set of items.

Validation tests Missing data : Testing for existence of data items completely. Valid size for item : Testing whether there are too few or too many characters. Class or composition error : Testing whether numeric data has alphabetic or special characters. Range or reasonableness test : Test for value that falls in the acceptable range or is reasonable for the type of transaction. Comparison with stored data : Eg, comparison of input data with stored data (eg, comparing the payment being made with amount due for payment)

Processing Transaction : When input data items are validated, the valued records are processed. Mainly two activities occur during this transaction processing updating of stored data (master file) related to or affected by transaction, & preparation of outputs. In both, these activities, control information is also produced. Master file is updated to show the current status of all the transaction proceeds. Transaction outputs are used for a variety of purposes :1. Informational to report, conform or explain proposed or completed action. 2. Investigational for background information or reference by recipient. 3. Action to direct a transaction to take place.