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Chapter8 - The chapter begins with a review of data coding...

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Sheet1 Page 1 The chapter begins with a review of data coding techniques used in transaction processing systems and for general ledger design. It explores several coding schemes and their respective advantages and disadvantages. Next, the chapter examines the objectives, operational features, and control issues of two related systems: the general ledger system (GLS) and the financial reporting system (FRS). Finally, the management reporting system (MRS) is examined. The MRS is distinguishable from the FRS in one key respect: financial reporting is mandatory and management reporting is discretionary. Management reporting information is needed for planning and controlling business activities. Organization management implements MRS applications at their discretion, based on internal user needs. Data Coding Schemes In previous chapters we saw how primary and secondary keys link together transaction and master records for file updating. This is one application of data coding. We delve more deeply into this subject here to examine various types of data coding schemes and how they are used in data processing systems. To emphasize the importance of data codes, we first consider a hypothetical system that does not use them. A System without Codes Firms process large volumes of transactions that are similar in their basic attributes. For instance, a firm s accounts receivable (AR) file may contain accounts for several different customers with the same name and similar addresses. To process transactions accurately against the correct accounts, the firm must be able to distinguish one John Smith from another. This task becomes particularly difficult as the number of similar attributes and items in the class increase. Consider the most elemental item a machine shop wholesaler firm might carry in its inventory ¸ a machine nut. Assume that the total inventory of nuts has only three distinguishing attributes: size, material, and thread type. As a result, this entire class of inventory must be distinguished on the basis of these three features, as follows: 1. The size attribute ranges from ¼ inch to 13/4 inches in diameter in increments of 1/64 of an inch, giving 96 sizes of nuts. 2. For each size subclass, four materials are available: brass, copper, mild steel, and case-hardened steel. 3. Each of these size and material subclasses come in three different threads: fine, standard, and coarse. By these assumptions, this class of inventory could contain 1,152 separate items (96 3 4 3 3). The identification of a single item in this class thus requires a description featuring these distinguishing attributes. To illustrate, consider the following journal entry to record the receipt of $1,000 worth of half-inch, case-hardened steel nuts with standard threads supplied by Industrial Parts Manufacturer of Cleveland, Ohio.
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