Chapter 2 Notes: Transaction Processing and ERP Systems

Chapter 2: Overview of Transaction Processing and ERP Systems

Learning Objectives

  • Describe the four major steps in the data processing cycle.
  • Describe the major activities in each cycle.
  • Describe documents and procedures used to collect and process data.
  • Describe the ways information is stored in computer-based information systems.
  • Discuss the types of information that an AIS can provide.
  • Discuss how organizations use ERP systems to process transactions and provide information.

Data Processing Cycle

  • The data processing cycle consists of four main stages:
    • Input
    • Process
    • Storage
    • Output

Key Questions Addressed by the Data Processing Cycle

  • What data is stored?
  • Who has access to the data?
  • How is the data organized?
  • How can unanticipated information needs be met?

Data Input—Capture

  • As a business activity occurs, data is collected about:
    • Each activity of interest.
    • The resources affected.
    • The people who are participating.

Paper-Based Source Documents

  • Data are collected on source documents (e.g., a sales-order form).
  • The data from paper-based documents will eventually need to be transferred to the AIS.
  • Turnaround Documents:
    • Usually paper-based.
    • Are sent from organization to customer.
    • The same document is returned by the customer to the organization.

Source Data Automation

  • Source data is captured:
    • In machine-readable form.
    • At the time of the business activity (e.g., ATMs, POS systems).

Data Input—Accuracy and Control

  • Well-designed source documents can ensure that data captured is accurate by:
    • Providing instructions and prompts.
    • Using check boxes.
    • Using drop-down boxes.
  • Complete Internal Control Support:
    • Prenumbered documents.

Data Storage

  • Types of AIS storage:
    • Paper-based:
      • Ledgers
      • Journals
    • Computer-based

Ledgers

  • General Ledger:
    • Summary-level data for each:
      • Asset
      • Liability
      • Equity
      • Revenue
      • Expense
  • Subsidiary Ledger:
    • Detailed data for a General Ledger (Control) Account that has individual sub-accounts
      • Accounts Receivable
      • Accounts Payable

Journals

  • General Journal:
    • Infrequent or specialized transactions.
  • Specialized Journal:
    • Repetitive transactions (e.g., sales transactions).

Coding Techniques

  • Sequence Codes: Items numbered consecutively.
  • Block Codes: Specific ranges of numbers are associated with a category. For example:
    • 10000–19999910000–199999 = Electric Range
  • Group Codes: Positioning of digits in code provide meaning.
  • Mnemonic Codes: Letters and numbers that are easy to memorize. Code derived from description of item.
  • Chart of accounts: Type of block coding
    • Digit Position Meaning
    • 1–2 Product Line, size, and so on
    • 3 Color
    • 4–5 Year of Manufacture
    • 6–7 Optional Features
    • 1241000
    • 12 = Dishwasher
    • 4 = White
    • 10 = 2010
    • 00 = No Options

Computer Based Storage

  • Entity: Person, place, or thing (Noun). Something an organization wishes to store data about.
  • Attributes: Facts about the entity.
  • Fields: Where attributes are stored.
  • Records: Group of related attributes about an entity.
  • File: Group of related records.

File Types

  • Transaction File: Contains records of a business from a specific period of time.
  • Master File: Permanent records. Updated by transaction with the transaction file.
  • Database: Set of interrelated files.

Data Processing

  • Four Main Activities:
    • Create new records.
    • Read existing records.
    • Update existing records.
    • Delete records or data from records.

Data Output Types

  • Soft copy: Displayed on a screen.
  • Hard copy: Printed on paper.

ERP Systems

  • Integrated ERP Database supports various cycles:
    • Revenue Cycle: Sell Goods and Services, Receive Payment.
    • Expenditure Cycle: Buy Goods and Services, Make Payment.
    • Production Cycle: Issue Raw Materials, Use Employee Time, Use Machines, Make Finished Product.
    • HR/Payroll Cycle: Get Employee Time, Pay Employees.
    • General Ledger and Reporting System: Produce Reports and Financial Statements.

Enterprise Resource Planning (ERP)

  • Integrate an organization’s information into one overall AIS.
  • ERP modules:
    • Financial
    • Human resources and payroll
    • Order to cash
    • Purchase to pay
    • Manufacturing
    • Project management
    • Customer relationship management
    • System tools

ERP Advantages

  • Integration of an organization’s data and financial information.
  • Data is captured once.
  • Greater management visibility, increased monitoring.
  • Better access controls.
  • Standardizes business operating procedures.
  • Improved customer service.
  • More efficient manufacturing.

ERP Disadvantages

  • Costly.
  • Time-consuming to implement.
  • Changes to an organization’s existing business processes can be disruptive.
  • Complex.
  • Resistance to change.