Normalization • Normalization is accomplished in stages • Apply rules regarding functional dependencies (the relationships between attributes) • First Normal Form: • No multi-valued attributes (No rows containing two or more values for a SINGLE attribute)
Second Normal Form • 1NF and no partial functional dependencies. Every non-key attribute depends FULLY on the entire primary key only • Example—no entries such as: • First Last Stud# Course Grade • Bill Jones 100 math101 A • Bill Jones 100 math201 A • Note that here the primary key is Student# + Course and Last depends only on the Student# —not the Course (only part of the primary key).
Third Normal Form • 2NF and no transitive dependencies (functional dependency between non-key attributes.)
Convert to First Normal Form • First step is to identify the repeating groups(multi-valued attributes) in the relation. • Eliminate these and the relations are said to be in the 1NF. • What do you have to do to eliminate multi-valued attributes?
To convert to the Second Normal Form, ensure that all the non-key attributes in the relation are dependant on the key attributes of that relation. Foreign Key SECOND NORMAL FORM
To convert the relations into the Third Normal Form, we have to eliminate the transitive dependencies – no attribute should be dependent on the primary key of any relation except the one that houses it. JOURNAL TRANSACTION HEADING JOURNAL TRANSACTION DETAIL LINES ACCOUNT TABLE RELATIONS IN THIRD NORMAL FORM (3NF)
Transaction Flows in a Manufacturing Firm 1 7 Sales Order Warehouse 2 8 3 Customer Billing Production 4 9 5 Accounts Receivable Production Schedule 6
Transaction Flows in a Manufacturing Firm Shipping Warehouse 14 11 Customer 12 13 10 Production Billing 15 16 Production Schedule
Transaction Flows in a Manufacturing Firm 20 Purchasing Receiving 19 17 Production Vendor 22 21 24 23 18 Payroll Accounts Payable 25
Transaction Flows in a Manufacturing Firm Payroll Accounts Payable 27 Customer Employee 29 28 26 Accounts Receivable Accounting 30
Transaction Flows in a Manufacturing Firm Receiving 31 Warehouse
Transaction Flows in a Manufacturing Firm • Even though no two organizations process transactional data in exactly the same manner, most organizations experience and process similar transaction flows • Operational transaction flows can be grouped according to common business processes. • Most organizations have a sales order process, a billing process, an accounts receivable process, and all other business processes.
Transaction Flows in a Manufacturing Firm Classification of the Transaction Flows by Major Business Process Process Sales Procurement Operations Firm Infrastructure 1-7 17 8-9 25 10-11 19-24 12-13 29-30 14 26-28 15-16 31 18
Components of the Transaction Processing System • What are the principal components of a transaction processing system? • inputs • processing • storage • outputs
Components of the Transaction Processing System • What are some examples of inputs? • customer orders • sales slips • invoices • purchase orders • employee time cards
Components of the Transaction Processing System • Processing involves the use of journals and registers to provide a permanent and chronological record of inputs. • Journals are used to record financial accounting transactions. Special journals are are used to record similar and recurring transactions. • Registers are used to record other types of data not directly related to accounting.
Components of the Transaction Processing System Source Documents Cash Receipts Journal Cash Disbursements Journal General Journal Purchases Journal Sales Journal
Components of the Transaction Processing System • What is an output? • It is any document generated in the system. • What are some examples of outputs? • trial balance • financial reports • operational reports • paychecks
Designing Accounting Systems • An accounting system must “fit” a particular organization. • What must be taken into account in designing an accounting system? • the nature and purpose of the organization • its structural and functional characteristics • its physical layout, products, and services • the personnel who operate the system
Designing Accounting Systems Hierarchical Model of an Accounting System Financial Statements Chart of Accounts Cycles Revenue Expenditure Production Sales Purchasing Inventory Application Systems Payroll Property Accounts Receivable Standard Journal Entries Identify accounts affected by each application system
Designing Accounting Systems Hierarchical Model of an Accounting System Financial Statements Chart of Accounts Cycles Finance Financial Reporting Cash General Ledger Application Systems Consolidation Standard Journal Entries Identify accounts affected by each application system
Designing Accounting Systems • What are the four stages involved in the design of an accounting system? • Design a rough classification of accounts, or chart of accounts, and related financial statements and reports. • Review this with management and operating personnel. • 3 Finalize statements, chart of accounts, and other reports. • Prepare a plan of journalizing and design the necessary business papers and procedures to implement and operate the system.
Designing Accounting Systems • A plan for journalizing and posting transactions involves several steps. • Step 1: Analyze the natures of activities within the four basic transaction cycles. • Revenue cycle • Expenditure cycle • Payroll cycle • Production cycle
Designing Accounting Systems • It is common to identify a fifth major transaction cycle to group accounts that are not directly affected by transactional activity. • Step 2: Group activities within each major transaction cycle into application systems. • An application system processes a logically related set of transactions. • Step 3:Develop a complete set of standard or recurring journal entries.
Understanding the activities in a firm allows us to understand the different transaction cycles. Different business processes may be linked to same transaction cycle. The first step to start modeling a business process is to understand the activities involved and the information needs of the business process. Summary