Components of Transaction Processing System

Transaction Processing System (TPS) refers to a computerized system that records, processes, validates, and stores routine transactions that occur in various functional areas of a business on daily basis. This system facilitates decision-making in a business organization through the following processes. Following are the Components of the Transaction Processing System

Components of Transaction Processing System

The following are the three main components of a Transaction Processing System (TPS).

Input: A computerized accounting system accepts the complete transaction data as input through the process of data collection, data editing, data validation, and data manipulation.

Storage: The system stores the inputted data in computer storage media such as a hard disk.

Output: The stored data, through the process of report generation and query support can be retrieved and processed as and when required for generating an accounting report as output.

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Interest on Capital

Any interest paid on capital is considered as an expense and is shown in the Profit and Loss Account. Treatment of interest on capital in the final accounts is as follows.

Interest on Drawings

Treatment of interest on drawings in the final accounts is as follows. Firstly, interest in drawings is shown on the credit side of the Profit and Loss Account.

What is Operating Profit?

Operating Profit can be defined as the profit earned by carrying the normal business activities. It is computed by subtracting the operating expenses from the gross profit.

Balance Sheet

The balance sheet is the last financial statement that is prepared by any organization. This statement helps to ascertain the true financial position of an enterprise at the end of an accounting period

Profit and Loss Account

A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.

What are Adjusting Entries?

In order to incorporate adjustments in the financial statements, we pass the required Journal entries, which are termed as adjusting entries.