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.
Data Collection: The TPS collects all the required data to complete one or more transactions. The data can be collected either manually or through other devices such as scanners and point of sale types of equipment.
Data Editing: The system checks the data for its accuracy, correctness, and completeness.
Data Validation: It refers to a process, where TPS verifies the data for its correctness and rectifies the errors if detected.
Data Manipulation: TPS performs the process of calculation, then processes and analyses the inputted data on a pre-set design.
Data Storage: It places or stores the data in one or more databases.
Output Generation: TPS helps in creating and generating reports and also presents the reports generated in a pre-designed format either as hardcopy or softcopy.
Query Support: TPS provides a mechanism enabling its users to raise a query upon the stored data and extract the required information in the prescribed format as and when the need arises.
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.
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.
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.
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.
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
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.
In order to incorporate adjustments in the financial statements, we pass the required Journal entries, which are termed as adjusting entries.