Chapter 2 Overview of Transaction Processing and Enterprise Resource Planning Systems

data processing cycle

the four operations (data input, data storage, data processing, and information output) performed on data to generate meaningful and relevant information.

Data capture process is usually triggered by a business activity. Data must be collected about three facets of each business activity

1. Each activity of interest

2. The resources affected by each activity

3. The people who participate in each activity

data about a sales transaction

-date and time the sale occurred

-employee who made the sale and the checkout clerk who processed the sale

-checkout register where the sale was processed

-item sold

- quantity of each item sold

-list price and actual price of each item sold

-total amount of the sale

-delivery instructions

-for credit sales: customer name, customer bill-to and ship-to addresses

source documents

documents used to capture transaction data at its source-when the transaction takes place. Examples: sales orders, purchase orders, and employee time cards.

turnaround document

records of company data sent to an external party and then returned to the system as input. turnaround documents are in machine-readable form to facilitate their subsequent processing as input records. Example: utility bill

source data automation

the collection of transaction data in machine-readable form at the time and place of origin. Examples: point-of-sale terminals and ATMs.

general ledger

a ledger that contains summary-level data for every asset, liability, equity, revenue, and expense account of the organization

subsidiary ledger

a ledger used to record detailed data for a general ledger account with many individual subaccounts, such as accounts receivable, inventory, and accounts payable

control account

a title given to a general ledger account that summarizes the total amounts in a subsidiary ledger. Example: the accounts receivable control account in the general ledger represents the total amount owed by all customers. The balances in the accounts receivable subsidiary ledger indicate the amount owed by each specific customer.

coding

the systematic assignment of numbers or letters to items to classify and organize them.

sequence codes

items are numbered consecutively so that gaps in the sequence code indicate missing items that should be investigated. Examples: prenumbered checks, invoices, and purchase orders

block code

blocks of numbers that are reserved for specific categories of data, thereby helping to organize the data. Example: chart of accounts

group code

two or more subgroups of digits that are used to code an item. A group code is often used in conjunction with a block code

mnemonic code

letters and numbers that are interspersed to identify an item.

DIGIT POSITION

1-2

3

4-5

6-7

MEANING

product line, size, style

color

year of manufacture

optional features

Guidelines resulting in a better coding system. The code should

-be consistent with its intended use, which requires that the code designer determine desired system outputs prior to selecting the code

-allow for growth. Example: don't use a three-digit employee code for a fast-growing company with 950 employees

-be as simple as possible to minimize costs, facilitate memorization and interpretation and ensure employee acceptance.

-be consistent with the company's organizational structure and across the company's divisions.

chart of accounts

a listing of all the numbers assigned to balance sheet and income statement accounts. The account numbers allow transaction data to be coded, classified, and entered into the proper accounts. They also facilitate financial statement and report preparation.

general journal

a journal used to record infrequent or nonroutine transactions, such as loan payments and end-of-period adjusting and closing entries.

specialized journals

a journal used to record a large number of repetitive transactions such as credit sales, cash receipts, purchases, and cash disbursements.

audit trail

a path that allows a transaction to be traced through a data processing system from point of origin to output or backwards from output to point of origin. It is used to check the accuracy and validity of ledger postings and to trace changes in general ledger accounts from their beginning balance to their ending balance

entity

the item about which information is stored in a record. Examples: an employee, an inventory item, and a customer

attributes

the properties, identifying numbers, and characteristics of interest of an entity that is stored in a database. Examples: employee number, pay rate, name and address.

field

the portion of a data record where the data value for a particular attribute is stored. Example: in a spreadsheet each row might represent a customer and each column is an attribute of the customer. Each cell in a spreadsheet is a field.

record

a set of fields shoes data values describe specific attributes of an entity, such as all payroll data relating to a single employee. Example: a row in a spreadsheet

data value

the actual value stored in a field. It describes a particular attribute of an entity. Example: The customer name field would contain "AYX Company" if that company was a customer.

file

a set of logically related records, such as the payroll records of all employees.

master file

a permanent file of records that stores cumulative data about an organization. As transactions take place, individual records within a master file are updated to keep them current.

transaction file

a file that contains the individual business transactions that occur during a specific fiscal period. A transaction file is conceptually similar to a journal in a manual AIS.

database

a set of interrelated, centrally controlled data files that are stored with as little data redundancy as possible. A database consolidates records previously stored in separate files into a common pool and serves a variety of users and data processing applications.

The four different types of data processing activities, referred to as CRUD

1. creating new data records such as adding a newly hired employee to the payroll database

2. Reading, retrieving, or viewing existing data

3. updating previously stored data

4. deleting data, such as purging the vendor master file of all vendors the company no longer does business with

batch processing

accumulating transaction records into groups or batches for processing at a regular interval such as daily or weekly. The records are usually sorted into some sequence (such as numerically or alphabetically) before processing.

online, real time processing

the computer system processes data immediately after capture and provides updated information to users on a timely basis.

document

a record of a transaction or other company data. Examples include checks, invoices, receiving reports, and purchase requisitions.

report

system output, organized in a meaningful fashion, that is used by employees to control operational activities, by managers to make decisions and design strategies, and by investors and creditors to understand a company's business activities.

query

a request for the data base to provide the information needed to deal with a problem or answer a question. The information is retrieved, displayed or printed, and/0r analyzed as requested.

enterprise resource planning (ERP) system

a system that integrates all aspects of an organization's actities--such as accounting,m finance, marketing, human resources, manufacturing, inventory management--into one system. An ERP system is modularized; companies can purchase the individual modules that meet their specific needs. An ERP facilitates information flow among the company's various business functions and manages communications with outside stakeholders.

ERP systems are modular, with each module using best business practices to automate a standard business process. This design allows businesses to add or delete modules as needed. Typical ERP modules include:

-financial (general ledger and reporting system)

-human resources and payroll

-order to cash (revenue cycle)

-purchase to pay (disbursement cycle)

-manufacturing (production cycle)

-project management

-customer relationship management

-system tools

Financial modules

general ledger, accounts receivable, accounts payable, fixed assets, budgeting, cash management, and preparation of managerial reports and financial statements

human resources and payroll modules

human resources, payroll, employee benefits, training, time and attendance, benefits, and government reporting

order to cash modules

sales order entry, shipping, inventory, cash receipts, commission calculation

purchase to pay modules

purchasing, receipt and inspection of inventory, inventory and warehouse management, and sash disbursements

manufacturing modules

engineering, production scheduling, bill of materials, work-in-process, workflow management, quality control, cost management, and manufacturing processes and projects

project management modules

costing, billing, time and expense, performance units, activity management

customer relationship management modules

sales and marketing, commissions, service, customer contact, and call center support

system tools modules

tools for establishing master file data, specifying flow of information, access controls, and so on

An ERP system, with its centralized database, provides significant advantages

-an ERP provides an integrated, enterprise-wide, single view of the organization's data and financial situation. Storing all corporate information in a single database breaks down barriers between departments and streamlines the flow of information.

_data input is captured or keyed once, rather than multiple times, as it is entered into different systems. Downloading data from one system to another is no longer needed

_management gains greater visibility into every area of the enterprise and great monitoring capabilities. Employees are more productive and efficient because they can quickly gather data from both inside and outside their own department

_the organization gains better access control. An ERP can consolidate multiple permissions and security models into a single data access structure

-procedures and reports are standardized across business units. This standardization can be especially valuable with mergers and acquisitions because an ERP system can replace the different systems with a single, unified system.

-customer service improves because employees can quickly access orders, available inventory, shipping information, and past customer transaction details.

-manufacturing plants receive new orders in real time, and the automation of manufacturing processes leads to increased productivity.

ERP systems also have significant disadvantages

-Cost

-Amount of time required

-changes to business processes

-resistance