Overview of Transaction Processing

and Enterprise Resource Planning

Systems
Chapter 2

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 Learning Objectives
• Describe the four parts of the data processing cycle and the major
activities in each.

• Describe documents and procedures used to collect and process

transaction 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 enterprise resource planning (ERP)

systems to process transactions and provide information.

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 Case Study is still ongoing !!!
• The grand opening of S&S is two weeks away. Scott Parry and
Susan Gonzalez are working long hours to make the final
arrangements for the store opening. Most of the employees
have already been hired; training is scheduled for next week.
• Susan has ordered inventory for the first month. The store is
being remodeled and will have a bright, cheery decor. All
seems to be in order—all, that is, except the accounting
records.
• Recognizing they need qualified accounting help, they hired a
full-time accountant, Ashton Fleming. Scott and Susan think
Ashton is perfect for the job because of his three years of
experience with a national CPA (Certified Public Accountants)
firm.
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 • During Ashton’s first day on the job, Susan gives him the invoices for
the inventory she purchased and a folder with their bank loan
documentation, with the first payment due after the grand opening.
She also hands him a folder containing information on rental
payments, utilities, and other expenses.
• Susan tells Ashton that she and Scott know little about accounting
and he will run the accounting end of S&S. She adds that the only
thing they have done so far is to open a checking account for S&S and
that they have kept the check register updated to monitor their cash
flow.
• After Scott leaves, Ashton feels both excited and a little nervous about
his responsibility for creating an accounting information system
(AIS) for S&S. Although Ashton has audited many companies, he has
never organized a company’s books and is unsure how to go about it.
A million questions run through his head. Here are just a few of
them:

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 Continued …
1. How should I organize the accounting records so that
financial statements can be easily produced?
2. How am I going to collect and process data about all of
S&S’s transactions?
3. How do I organize all the data that will be collected?
4. How should I design the AIS so that the information
provided is reliable and
5. accurate?
6. How can I design procedures to ensure that they meet
all government obligations, such as remitting sales,
income, and payroll taxes?

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 Basic Concept
• The first section discusses the data processing cycle and its role
in organizing business activities and providing information to
users. It explains how organizations capture and enter data about
business activities into their accounting information system (AIS)
1st and how companies process data and transform it into useful
information.

• The second section discusses the role of the information system

in modern organizations and introduces the concept of an
enterprise resource planning (ERP) system. An ERP can help

2nd integrate all aspects of a company’s operations with its traditional

AIS.

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 Data Processing Cycle

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 Data Input

Steps in Processing Input are:

• Capture transaction data triggered by a business
activity (event).
• Make sure captured data are accurate and
complete.
• Ensure company policies are followed (e.g.,
approval of transaction).

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 Data Capture

• Information collected for an activity includes:

▫ Activity of interest (e.g., sale)
▫ Resources affected (e.g., inventory and cash)
▫ People who participated (e.g., customer and
employee)
• Information comes from source documents.

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 S&S may find it useful to collect the
following 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(s) 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

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 Source Documents
• Captures data at the source when the transaction
takes place
▫ Paper source documents
▫ Turnaround documents
▫ Source data automation (captured data from
machines, e.g., Point of Sale scanners at grocery
store)

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 Data Input—Accuracy and Control
Well-designed source documents can
ensure that data captured is
•  Accurate
•  Provide instructions and prompts
•  Check boxes
•  Drop-down boxes
•  Complete
•  Internal control support
•  Prenumbered documents

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 Common Business Activities and
Source Documents
Revenue Cycle Expenditure Cycle Human Resources Cycle

Take customer order Request items Collect employee

(Sales order) (Purchase requisition) withholding data
(W-4 form)
Deliver or ship order Order items Record time worked by
(Delivery ticket or bill of (Purchase order) employees
lading) (Time cards)
Receive cash Receive items Record time spent on
(Remittance advice or (Receiving report) specific jobs
remittance list) (Job time tickets or time
sheet)
Deposit cash receipts Pay for items
(Deposit slip) Check or electronic funds
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 Data Storage
• Important to understand how data is organized
▫ Chart of accounts
 Coding schemas that are well thought out to
anticipate management needs are most efficient and
effective.
▫ Transaction journals (e.g., Sales)
▫ Subsidiary ledgers (e.g., Accounts receivable)
▫ General ledger
Note: With the above, one can trace the path of the
transaction (audit trail).
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C
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Ledgers
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a  General • Joe Smith
r
s  Summary level data for each: $250
• Patti Jones
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 Asset, liability, equity,
d
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revenue, and expense $750
c
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t  Subsidiary
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Ledger (Control) Account
that has individual sub- • ACME Inc.
accounts $150
 Accounts Receivable • Jones, Inc
 Accounts Payable $350

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Coding Techniques
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 Sequence Digit Position Meaning
e  Items numbered consecutively
a 1–2 Product Line, size,
r
s  Block and so on
o  Specific range of numbers are
n 3 Color
E associated with a category
d  10000–199999 = Electric Range
u 4–5 Year of
c
a  Group Manufacture
t
i  Positioning of digits in code provide 6–7 Optional Features
o meaning
n
1241000 12 = Dishwasher
 Mnemonic 4 = White
 Letters and numbers
10 = 2010
 Easy to memorize
00 = No Options
 Code derived from description of item

 Chart of accounts
 Type of block coding

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 Audit trail for
Invoice #156 for
$1,876.50 sold to
KDR Builders

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 Computer-Based Storage

Data is stored in master files or transaction files.

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 Data Processing
Four types of processing (CRUD):
• Creating new records (e.g., adding a customer)
• Reading existing data
• Updating previous record or data
• Deleting data

Data processing can be batch processed (e.g., post

records at the end of the business day) or in real-
time (process as it occurs).
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 Update process example

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 Information Output
The data stored in the database files can be viewed
• Online (soft copy)
• Printed out (hard copy)
▫ Document (e.g., sales invoice)
▫ Report (e.g., monthly sales report)
▫ Query (question for specific information in a
database, e.g., What division had the most sales
for the month?)

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 Cont’d
• Reports are used by employees to control operational
activities and by managers to make decisions and to formulate
business strategies. External users need reports to evaluate
company profitability, judge creditworthiness, or comply with
regulatory requirements. Some reports, such as financial
statements and sales analyses, are produced on a regular
basis.
• S&S could have its system produce a report to indicate when
product returns exceed a certain percentage of sales. Reports
can also be produced on demand. For example, Susan could
produce a report to identify the salesperson who sold the most
items during a specific promotional period.

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 Enterprise Resource Planning (ERP)
Systems
• Integrates activities from the entire organization
▫ Production
▫ Payroll
▫ Sales
▫ Purchasing
▫ Financial Reporting

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ERP Systems
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 Advantages of ERP System
• Integrated enterprise-wide allowing for better flow
of the information as it’s stored in a centralized
database and can be accessed by various
departments which also improves customer service.
• Data captured once (i.e., no longer need sales to
enter data about a customer and then accounting to
enter same customer data for invoicing)
• Improve access of control of the data through
security settings
• Standardization of procedures and reports
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 Disadvantages of ERP System
• Costly
• Significant amount of time to implement
• Complex
• User resistance (learning new things is
sometimes hard for employees)

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 Summary and Case Conclusion
Ashton is aware that Scott and Susan plan to open additional
stores in the near future and want to develop a website to conduct
business over the Internet. Based on this information, Ashton will
select an accounting package that will satisfy S&S’s current and
anticipated future needs.
The software should be able to take care of all data processing
and data storage tasks. Ashton will also make sure that the software
can interface with the source data automation devices he wants to use
to capture most data input.
The software must be capable of producing a full set of
financial reports and be flexible enough to produce other useful
information the company will need to be successful. Finally, Ashton
realized his next step would be to select the software and produce
some documentation of how the system worked.

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 Key Terms
• Data processing cycle • Entity
• Source documents • Attributes
• Turnaround documents • Field
• Source data automation • Record
• General ledger • Data value
• Control account • File
• Coding • Master file
• Sequence code • Transaction file
• Block code • Database
• Group code • Batch processing
• Mnemonic code • Online, real-time processing
• Chart of accounts • Document
• General ledger • Report
• Specialized journal • Query
• Audit trail • Enterprise resource planning
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