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 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:
Disadvantages to batch processing:
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.
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:
The disadvantages of real-time systems are as follows:
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.