The presentation is an overview of the Transaction Processing System (TPS) as a component of the Accounting Information System (AIS). It is part of a lecture series on Management Information Systems from an accountant's perspective. DOI: http://dx.doi.org/10.13140/RG.2.2.24719.87206

1. Transaction
Processing
System (TPS)
Erhomosele Osareme
(B.Sc., M.Sc., ACA)
Department of Accounting
University of Jos, Nigeria
June, 2022

2. Table of Contents
1. Scope of Transactions
2. Transaction Cycles
3. About TPS
4. The ACID Test
5. Features of TPS
6. Components of TPS
7. Types of TPS
8. Database Management
9. Backup and Recovery
10. Audit Trail
11. International Issues
12. Summary
13. Discussion
14. References

3. Scope of Transactions_1
• A transaction is any event that affects or is of interest to
the organization and is processed by its information
system as a unit of work (Hall, 2011).
• From an accounting perspective, transactions within the
organization could either be financial or non-financial.

4. Scope of Transactions_2
• According to Hall (2011) a financial transaction is any
event that:
1. Affects the assets and equity of the organization,
2. Is reported in its accounts, and
3. Is measured in monetary terms.
• Non-financial transactions do not meet this definition.

5. Transaction cycles
When the Transaction Processing System (TPS) is analyzed
as a subset of the Accounting Information System (AIS),
then transactions can be grouped into three (3) transaction
cycles.
1. Revenue cycle (E.g. sales order processing)
2. Expenditure cycle (E.g. Payroll)
3. Conversion cycle (E.g. Cost accounting system)

6. About TPS_1
• A system describes a group of components and
procedures that work together to achieve a prescribed
goal.

7. About TPS_2
• A Transaction Processing System (TPS) is therefore a
system that collects, stores, modifies and retrieves
transaction data of an enterprise.
• Examples of TPS include airline reservation systems,
electronic fund transfer systems, Etc.

8. About TPS_3
• TPS is designed to process routine transactions at high
speed and convert them to data which can be stored in a
database.
• The goal is usually to achieve time and cost efficiency by
automating repetitive operations in large volumes.

9. About TPS_4
• Even though the Accounting System focuses on financial
data, the accompanying non-financial data are also
important to the Accountant.
• TPS is usually built to accommodate both financial and
non-financial data.

10. About TPS_5
Source Documents
Day books/Registers
Journals/ledgers
Trial balance
Financial statements/reports
The traditional accounting
system flow chart is
fundamental to
understanding the role and
methodology of TPS with
respect to the AIS.

11. About TPS_6
• It is at the Source document stage that the TPS is most
prominent, significant and critical.
• Source documents are the books of the first entry. It is at
this stage that economic events are captured,
summarized, classified and stored in the required format
for further use.

12. About TPS_7
• While it is insightful to note that a TPS can be manual,
digital or hybrid by design, It is also important to
remember that the world has gone largely digital.
• The accounting practice and systems have not been left
out of the digital transformation. Thus, our discussion
will be biased towards digital system design.

13. The ACID Test_1
A Atomicity
C Consistency
I Isolation
D Durability

14. The ACID Test_2
The Acid test is a general-purpose evaluation
test conducted on a TPS to ascertain its
capacity to process transactions in a
methodical, standardized, and reliable
manner.

15. The ACID Test_3
Atomicity  A TPS must complete all steps or hierarchies
of a single transaction or it must complete none of them.
Data changes must be processed from beginning to end
or else it should be rolled back.
Example: When one account Is credited, at least one or
more corresponding accounts must be debited, or else,
no changes should be recognized at all.

16. The ACID Test_4
Consistency  A TPS must apply the same
procedures to all transactions of the same type.
Only data which meet the validity rules of the TPS
are allowed to modify the database.
Example: When attempting to enter letters instead
of numbers in the amount field of your bank mobile
app during a transfer of funds, the system rejects
the entry because it is not valid data.

17. The ACID Test_5
Isolation  Every single transaction must be processed
separately and independently of other transactions,
regardless of whether those transactions are similar or not.
Concurrent processing of transactions should produce the
same result as when those transactions are processed
sequentially.
Example: 100 people paying for various Tv subscription
bouquets at the same time - Each subscriber should be
credited with the specific bouquet they paid for without any
mix-up.

18. The ACID Test_6
Durability  Once the processing of a transaction has
been completed by a TPS, it cannot be reversed in the
event of a system failure, shutdown or restart.
Completed transactions must be saved in a non-
volatile memory.
Example: While waiting for an ATM to make payment
after you press the proceed button – you cannot
reverse the transaction because processing has been
completed already.

19. Features of TPS
• Rapid response (performance)
• Continuous availability
• Data integrity
• Ease of use (user friendly)
• Modularity

20. Components of TPS
User
Input
Processing
Storage
Output
Data
Information
Data base
Customer, employee, Etc.
Hardware& software.

21. Types of TPS_1
• TPS are usually classified on the basis of their processing
architecture.
• Processing architecture could either be:
1. On-line transaction processing/ real-time/ stream
2. Batch transaction processing

22. Types of TPS_2
Real-time processing  A real-time TPS is a system that
processes data as soon as it is received as input. There is
little or no lag between the stages of data input and data
processing.
Examples of real-time systems include: Point of Sale
terminals (POS), reservation systems, Etc.

23. Types of TPS_3
Batch processing  A batch processing TPS is a system that
processes data either periodically or at certain
predetermined levels of data accumulation.
Examples of batch systems include billing systems, financial
reporting systems, Etc.

24. Database management_1
A database is an organized collection of structured data,
usually stored electronically.
To interact with a database, you need to use Database
Management Systems (DBMS). These are software required
to access, modify, retrieve and query the contents of a
database. Examples of DBMS include: Oracle, MySQL, Etc.

25. Database management_2
Data
+
DBMS
+
Applications
=
DATABASE SYSTEM
Mishra (2019)

26. Database management_3
Structured Query Language (SQL)  This is a standardized
programming language used to communicate with a database.
• A vast majority of DBMS are based on this programming
language.
• It enables the user to add, modify and retrieve data from a
database.

27. Database management_4
The structure of a database defines its architecture, data
format, as well as, the relationship and constraints that
determine how data can be stored and accessed.
Common database models include:
1. Hierarchical structure
2. Network structure
3. Rational structure

28. Database management_5
• Database is fundamental to the discussion and design of TPS.
This is because the quality of the database will determine to a
large extent the quality of data to be used for decision
making.
• Recall that the end product of the accounting process is
informed decision making.

29. Database management_6
Also, the sheer quantity
and variety of data being
produced and requiring
processing buttresses the
significant role of
databases in dealing with
big data.

30. Database management_7
• Big data is larger, more complex data sets, especially
from new data sources (Oracle).
• Big data is defined by 5 V’s
Gutta (2020)

31. Database management_8
The Five V’s of Big Data at a Glance
1. Volume  Amount of data
2. Variety  Different type of data from different sources
3. Velocity  Speed at which data is generated
4. Veracity  Degree to which data can be trusted
5. Value  Significance of data to decision making or problem-
solving

32. Database management_9
• The size of a database, the cost of set-up and maintenance, and
in some cases, the speed at which data is processed depends
on the volume/amount of data to be stored in the database.
• An easy way to think about this is to consider the storage space
in your mobile phone. You buy a phone with a large memory
when you intend to store a lot of data in it. The larger the
memory of the phone, the more expensive it is likely to be.

33. Database management_10
Unit Abbreviation Conversion
Bit b 1 bit
Nibble - 4 bits
Byte B 8 bits
Kilobyte KB 1024 B
Megabyte MB 1024 KB
Gigabyte GB 1024 MB
Terabyte TB 1024 GB
Petabyte PB 1024 TB
• The table is a summary of
the volume metrics for
digital data.
• The expected volume of
data to be collected and
stored should be an
important consideration
when designing a database

34. Database management_11
1. Purchase & sale orders
2. Payroll data
3. Tax records
4. Vendor & customer records
5. inventory records
Examples of financial/accounting data that may be stored in
the database of a firm include:
6. Fixed Asset registers
7. Financial statements of
previous years.
8. Shareholder records
Etc.

35. Database management_12
• An additional area of knowledge and skill that may
benefit the modern day finance professional is database
management.
• This will significantly improve his/her ability to synthesize
new information for decision making.

36. Backup and recovery_1
• Data stored in a database are susceptible to loss and
damage. Thus, it is important that those charged with
managing the database take steps to safeguard the data.
• Backup is the most fundamental safeguard against data
loss and/or damage.

37. Backup and recovery_2
Data loss may occur through some of the following
• Electronic failure
• Mechanical fault of the hardware
• Software errors
• Corruption of data by viruses, trojans, Etc.
• Operator/user-generated error
• Disaster occurrence (natural and man-made)

38. Backup and recovery_3
Backup is the process of making a copy of data to a
separate media to prevent loss of data, should the original
copy be damaged or lost. The media should be an external
device or a networked location.

39. Backup and recovery_4
• Recovery is the process whereby a backup copy of data is
restored or copied back into the operational system.
• Recovery is usually implemented when data has been lost
or damaged or even just for routine checks.

40. Backup and recovery_5
Fundamentally, data backup may be carried out in two
ways:
1. Full backup
2. Partial backup

41. Backup and recovery_6
Full backup  This involves copying all available data at a
specific point in time to a storage device or location.
• Full backups are usually done periodically because they
take up a large amount of space.
• A popular scheme used to perform a full backup is the
grandfather-father-son (GFS) scheme.

42. Backup and recovery_7
Partial backup  This describes any backup procedure
that involves copying only a portion of available data to
a storage device or location.
Partial backup could be either:
a. Differential
b. Incremental

43. Backup and recovery_8
Differential backup
Copies only the changes to data
since the previous full backup.
Incremental backup
Copies only the changes to
data since the last backup
operation (whether it was a
full backup or a differential
backup).

44. Backup and recovery_9
Backup No. Full backup
Partial backup
Differential backup Incremental backup
1 All data - -
2 All data Changes after backup 1 Changes after backup 1
3 All data Changes after backup 1 Changes after backup 2
4 All data Changes after backup 1 Changes after backup 3

45. Backup and recovery_10
Comparing the different types of Backup
Criterion Full backup
Partial backup
Differential backup Incremental backup
Storage space Large Moderate Small
Backup speed Slowest Fast Fastest
Restore speed Fastest Fast Slowest
Duplication High Medium Nil
Wallen (2020)

46. Backup and recovery_11
Common mistakes to avoid concerning data backup:
1. Failure to create a backup
2. Storage of backup on the same device as the original data
3. Non-labelling of copies of data backup
4. Infrequent backup
5. Failure to test backup

47. Audit trail_1
• An important feature of TPS is that the
system keeps records of changes made to
data, as well as, the authorization with
which such changes were made, over a
period of time.
• TPS also has the capacity to produce
reports and respond to queries.

48. Audit trail_2
• Accountants and finance professionals use
these features of TPS to carry out various
tasks.
• One of those crucial tasks is the financial
audit; which involves ascertaining the
integrity of the data and processes used to
prepare financial reports.

49. Audit trail_3
• Audit trail is the step-by-step record by
which accounting and other financial data
can be traced to its source.
• This should be a fundamental consideration
when designing TPS that will be used to
process financial-related data.

50. International Issues_1
• There has been global attention on the issues of data security
and data privacy. This situation has been heightened by the
fact that many businesses transact across borders.
• Data security deals with protecting data from compromise by
external attackers and malicious insiders.
• Data privacy governs how data is collected, shared and used.

51. International Issues_2
• Many laws and regulations have come into force to streamline
the collection, storage, sharing, and use of data.
• Some examples of these laws include:
1. GDPR – General Data Protection Regulation
2. HIPAA – Health Insurance Portability and Accountability Act
3. GLBA – Gramm Leach Bliley Act
4. CCPA – California Consumer Privacy Act

52. International Issues_3
• The TPS of various business units collects lots of data
(both financial and non-financial).
• Therefore, the laws regulating data privacy should be key
considerations in the design and deployment of any TPS.

53. International Issues_4
• Other considerations for designing TPS include but are
not limited to:
1. Differences in language and culture
2. Differences in information system infrastructure
3. Currency variations…Etc.

54. Summary_1
• The digital revolution has swept through every industry.
• The number and scope of transactions are larger than
ever before (big data).
• TPS must evolve to meet the data and information needs
of the 21st-century organization.

55. Summary_2
• Finance professionals must upgrade their knowledge and
skills to synthesize big data for decision making.

56. Discussion_1
1. How does an organization decide between real-time
processing and batch processing for its TPS?
2. What are examples of big data in the finance industry?
3. What are the likely consequences of failing to backup
financial data in an organization?

57. Discussion_2
4. Are there laws in your country with respect to data
protection and data privacy? What are the salient
provisions of those laws?

58. References_1
Gutta, S. (2020, May 4). Data science: The 5 V’s of big data.
https://medium.com/analytics-vidhya/the-5-vs-of-big-data-
2758bfcc51d
Hall, A. J. (2011). Accounting Information Systems (7th ed.). Cengage
Learning.
Mishra, K. (2019, December 13). What is database?.
https://digitalmarketingdeal.com/blog/what-is-database/

59. References_2
Wallen, D. (2020, March 18). Types of backup: Understanding full, differential,
and incremental backup. https://spanning.com/blog/types-of-
backup-understanding-full-differential-incremental-backup/

60. Transaction Processing System (TPS)
Erhomosele, O.
© 2022