TRANSACTION PROCESSING SYSTEMS

What is a Transaction Processing System? Transaction Processing Systems are computerised

systems that perform and record the daily routine transactions necessary to conduct the business.

A Transaction Processing System consists of TP monitor, databases, and transactions

Transaction execution is controlled by a TP monitor. It Creates the abstraction of a transaction, analogous to the way an operating system creates the abstraction of a process

It’s an information system designed to process routine business transactions.

Seeks time- and cost-efficiency by automating repetitive operations in large volumes.

What is a Transaction Processing System?• Interfaces with an organization’s other information

systems, such as IRS, DSS, EIS.• Centers around accounting and finance transactions.• Example: Airline Reservation Systems, order

entry/processing systems, bank’s account processing systems

Transaction Processing System

TP Monitor

DBMS databasetrans

actio

ns

DBMS database

TPS, MIS/DSS, and Special-Purpose Information Systems

Transaction Processing Activities Data collection: Capturing data necessary for the

transaction Data editing: Check validity and completeness

Ex: 400 hours/week instead of 40 hours/week Data correction: Correct the wrong data Data manipulation: Calculate, summarize Data storage: Update transactions Document production and reports: Create end

results (paychecks)

Transaction Processing Activities

Objectives of TPSProcess data generated by and about transactionsMaintain a high degree of accuracyEnsure data and information integrity and accuracyProduce timely documents and reports Increase labour efficiencyHelp provide increased and enhanced serviceHelp build and maintain customer loyaltyAchieve competitive advantage

ACID test Atomicity: all steps involved in transaction completed

successfully as a group

Consistency: transaction successfully transforms the system and database from one valid state to another

Isolation: transaction is processed concurrently with other transactions. As if only transaction executing the system

Durability: all changes transaction makes to database become permanent

The Major Characteristics of TPS TPS handles data which shows the results of various

activities on historical basis ie, activities which have already happened.

It is relevant to all the four functional areas ie, production, marketing, finance and human resources because each area has some kind of transaction.

TPS helps to assess the organizational performance. Large amounts of data are processed. The sources of data are mostly internal, and the output

is intended mainly for an internal audience. The TPS processes information on a regular basis: daily,

weekly, monthly, etc.

The Major Characteristics of TPS• It provides high processing speed to handle the high

volume of data.• Input and output data are structured (i.e.,

standardized).• A high level of accuracy, data integrity, and security is

needed which is provided by TPS.

Accounting TPSCustomer

Accountsreceivable

Assetmanagement

Accountspayable

Payroll

BudgetCustomer

Generalledger

Paycheques

Labour costs

Expense transactions

Asset depreciation

Amounts owed by companyAmounts paid by company

Cost of assetsPayments

Amounts owed by customersAmounts paid by customers

Components Of TPS• There are four components of a Transaction

Processing System• Input- These are source documents such as

customer orders, purchase orders etc. They help in,1. Capturing data.2. Indicates what data is required for recording and

what actions need to be taken.• Processing- It involves the use of journals and

registers for chronological recording of data. Journals are used for financial accounting transactions and registers for other type of data.

Components Of TPS• Storage- The computer stores various records in

files.files are of two types, transaction file and master file.

• Output- The outputs generated are in the form of documents such as trial balance, profit and loss account, balance sheet etc.

Components Of TPS

Data Input Data Processing Output Generation

Data Storage

Transaction Processing Methods On-line transaction processing (OLTP) - method of

computerized processing in which each transaction is processed immediately and the affected records are updated

On-line Schematic

Output

Terminal

Terminal

TerminalTerminal

Terminal

Terminal

Immediateprocessingof eachtransaction

Transaction Processing Methods Batch processing – method of computerized processing

in which business transactions are accumulated over a period of time and prepared for processing as a single unit.

Batch Schematic

Data entryof accumulated

transactions

Input(batched) Output

Transaction Processing Methods On-line analytic processing (OLAP) – method of

computerized processing in which data is entered on-line and validated but, their processing is done on periodic batch basis. It is basically used for making management decisions by analysis of the data.

Control for TPS• Control in the system is required to ensure that the

system is achieving the objectives.• Audit Trails- It’s the chronology of activities that

can be traced from beginning to the end or vice versa. This is important as it tells us what went wrong in the transaction.

• Ensuring Processing of All Transactions- Control in TPS also ensures that all transactions have been processed. Problems such as interruptions in computer operation, carelessness of personnel etc results into non processing of some transactions.

TPS Applications Order Processing Purchasing Accounts Receivables & Accounts Payables Receiving & Shipping Inventory on Hand Payroll General Ledgers

Accounting Transaction Processing• The transactions can be internal or external.• When a department orders office supplies from the

purchasing department, an internal transaction occurs, when a customer places an order for a product, an external transaction occurs.

Internal Transactions: Those transactions, which are internal to the company and are related with the internal working of any organization. For example Recruitment Policy, Promotion Policy, Production policy etc

External Transactions: Those transactions, which are external to the organization and are related with the external sources, are regarded as External Transaction. For example sales, purchase etc.

Accounting Transaction Processing• Every transaction involves two accounts, one is debited

and another is credited in the primary books.• From the book of primary accounts, a trial balance is

prepared to show the balance of different account.• From the balance of different account, a trial balance is

prepared to check the arithmetical accuracy of the records.

• After preparing the trial balance, adjustment entries are passed to record the internal transactions, such as depriciation etc.

• An adjusted trial balance is prepared incorporating the adjusting entries.

• From the adjusted trial balance, profit and loss account and balance sheet are prepared to show the impact of all transactions

Transaction Processing CycleTransaction Document

CorrectionInvalid Input

Transaction and Control Log

Process Transaction

Update Master File

Control Log

Master File

Input Validation

Transaction Input