PROCESSING ACCOUNTING DATA (STUDY OBJECTIVE 7)

After accounting information has been input into the accounting system, it must be processed. Processing accounting data involves calculations, classification, summarization, and consolidation. In manual accounting systems, this processing occurs through the established manual methods and the recording, posting, and closing steps in the journals and ledgers. Automated processing can be accomplished by batch processing or online and real-time processing. These methods are described next.

BATCH PROCESSING

Batch processing requires that all similar transactions are grouped together for a specified time, and then this group of transactions is processed together as a batch. Batch processing is best suited to applications having large volumes of similar transactions that can be processed at regular intervals. Payroll processing is a good example of a system that is well suited to batch processing. All time cards can be grouped together for a two-week period, for example, and all payroll processing then takes place on the entire set, or batch, of time cards.

Many legacy systems use batch processing to handle large volumes of routine transactions. As described in Chapter 1, batch processing is best suited for business processes where the transactions are stored in sequential access files. The business processes that are often batch-oriented in legacy systems are payroll, accounts payable, and accounts receivable. These processes and legacy systems have master files and transaction files. An example of a master file for accounts receivable is a file that maintains detailed customer information such as name, address, credit limit, and current balance. The transaction file would contain the set of customer transactions for a certain period such as a week. For high-volume, routine transaction processes, batch processing offers many advantages; but there are also disadvantages to this method.

Advantages to batch processing:

1. It is very efficient for large volumes of like transactions where most items in a master file are used during each processing run.
2. The basic accounting audit trail is maintained, because there are well-defined beginning and ending periods and a set of documents to reconcile to the batch being processed.
3. Such systems generally use less costly hardware and software than other methods.
4. The hardware and software systems are not as complicated as online systems and are therefore easier to understand.
5. It is generally easier to control than other types of computerized systems. Batch totals can be used to ensure the batch was processed correctly.
6. When personnel are dedicated to batch processing, they become specialized and efficient in processing those routine transactions.

Disadvantages to batch processing:

1. Processing can take longer than normal if the master files are large and not all records in the master file are used. For example, if only a few customer payments are to be processed from a large master file of customer records, it may take a legacy system with older hardware (that reads all master file records in sequence) as long to deliver the output as it would take if all the customer records were demanded.
2. In legacy systems with older hardware, adding or deleting records takes much computer maintenance time due to the sequential structure of the files.
3. In legacy systems with older hardware, some data duplication is likely, because each batch process often uses its own separate master file. Accounts payable and purchasing may be separate batch processes with separate master files, but in both master files vendor information, for example, would be duplicated.
4. Integration across business processes is difficult in legacy systems that are batch-oriented. The isolated master files and separate batch processing systems make integration very difficult.
5. By necessity, batch systems have a time lag while all transactions in a batch are collected. This means that available information in files will not always be current, as it would in real-time systems.
6. Legacy systems with older hardware may require that both the transaction files and master files be sorted in the same sequential order. This leads to less flexibility in record storage and retrieval.

Even when the hardware and software systems are new, some business processes may still be best suited to batch processing. Because of the periodic nature of payroll, it is probably best processed in a batch even if the hardware and software allow real-time processing.

ONLINE AND REAL-TIME PROCESSING

Most modern, integrated systems frequently use online and real-time processing. With online processing, transactions are not grouped into batches; rather, each transaction is entered and processed individually. Some online processing systems are also real-time processing systems. Real-time processing means that the transaction is processed immediately, and in real time, so that the output is available immediately. Online processing is best suited to applications in which there is a large volume of records, but only a few records are needed to process any individual transaction. Thus, online processing requires that data from the related business processes be stored in random access files, as described in Chapter 1. Real-time processing usually requires a database and database management software systems.

The advantages to real-time processing are as follows:

1. As data are entered in real time, the system checks for input errors. Therefore, errors can be corrected immediately.
2. Information is provided to users on a timely basis, without the time lag inherent in batch systems.
3. Since all data are in a database system and are updated in real time, all files are constantly up to date.
4. The business processes are integrated into a single database so that a single system is achieved.

The disadvantages of real-time systems are as follows:

1. The hardware and software are more expensive than those used for batch systems.
2. A single database that is shared is more susceptible to unauthorized access of data, unless extensive controls are implemented to prevent unauthorized access.
3. Real-time systems can be difficult to audit because of the complexity of the system.

As computer hardware has become more powerful and less expensive, real-time systems have become more prevalent. The advantages of these real-time systems usually far outweigh their extra cost and complexity.