Definition: Online processing is an automated way to enter and process data or reports continuously as use as the source documents are available. A good example of online processing is bar code scanning. When you buy a shirt at Target, the bar code gets scanned at the register. This shirt (source document) is immediately updated in Target’s inventory system as being sold. It is also updated in cost and sales reports. The online processing system continuously updates the entire accounting system.
What Does Online Processing Mean?
Before computers were widespread in business accounting systems, most companies had to process data or reports in batches. Invoices, for instances, had to be gathered, entered, and processed periodically by employees. Batch processing could be done daily or even weekly. As you can see, this is the most efficient manual way to process data, but it also provides outdated information. After computers and mainframe servers became more affordable for smaller business, most business moved from batch processing to online processing.
As you can see, the online processing system has many advantages over the batch processing system. Online processing is faster and gives continuous data for management. Take our Target example of instance. If batch processing was used, inventory reports would only be updated periodically. This means that management would only have useful inventory data on the day a batch process was run. This could be as often as every day or as infrequent as every month. Since online processing updates continuously, managers can run an inventory report any day at any time and have accurate up-to-date information.