Chapter 2
Overview of Business Processes and ERP Systems 2-1
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 collected 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.
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Business Activities, information &
Decision
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Business key decisions Information needs
process
Acquiring How much? Cash flow projections
capital Find investor or borrow funds? Pro-forma financial projections
If borrow best terms? Loan amortization schedule
Buying Size of buildings? Capacity needs
buildings and Amount of equipment? Building & equipment prices
equipment Rent or buy? Market study
Location? Tax table & depreciation
How to depreciate? regulations
Business Activities, information &
Decision cont’d
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Hiring and Experience requirements? Job description
training How to assess integrity and Applicant job history and skill
employees competence of applicants?
How to train employees?
Purchasing What model to carry? Market analysis
inventory How much to purchase? inventory status reports
How to manage inventory? vendor performance
Advertising Which media? Cost analysis
&marketing Content? Market coverage
Selling goods Markup percentage? Pro-forma income statement
or services Offer-in-house credit? Credit card costs
Which credit cards to accept? Customer credit status
Business Activities, information &
Decision cont’d
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Collecting If offer credit what items? Customer account status
payment from How to handle cash receipts? AR aging report
customers AR records
Paying employees Amount to pay? Sales (for commissions)
Deduction and withholdings? Cost of external payroll
service
Paying taxes Payroll tax requirements Government regulations
Sales tax requirements Total wage expense
Total sales
Paying vendors Whom to pay? Vendor invoices
When to pay? AP records
How much to pay? Payment terms
INTERACTION WITH EXTERNAL AND
INTERNAL PARTIES
External
AIS Parties
The AIS interacts with external parties, such as customers,
vendors, creditors, and governmental agencies.
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INTERACTION WITH EXTERNAL AND
INTERNAL PARTIES
Internal External
Parties AIS Parties
The AIS also interacts with internal parties such as
employees and management.
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INTERACTION WITH EXTERNAL AND
INTERNAL PARTIES
Internal External
Parties AIS Parties
The interaction is typically two-way, in that the AIS sends
information to and receives information from these parties.
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BUSINESS CYCLES
A transaction is:
An agreement between two entities to exchange goods
or services; OR
Any other event that can be measured in economic
terms by an organization.
EXAMPLES:
Sell goods to customers
Depreciate equipment
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BUSINESS CYCLES
The transaction cycle is a process:
Begins with capturing data about a
transaction
Ends with an information output, such
as financial statements
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BUSINESS CYCLES
Many business activities are paired in give-get exchanges
The basic exchanges can be grouped into five major
transaction cycles.
Revenue cycle
Expenditure cycle
Production cycle
Human resources/payroll cycle
Financing cycle
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Data Processing Cycle
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The Data Processing Cycle
Determines
What data is stored?
Who has access to the data?
How is the data organized?
How can unanticipated information needs
be met?
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Data Input—Capture
As a business activity occurs data is
collected about:
1. Each activity of interest
2. The resources affected
3. The people who are participating
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Paper-Based Source Documents
Data are collected on source documents
E.g., a sales-order form
The data from paper-based will eventually
need to be transferred to the AIS
Turnaround
Usually paper-based
Are sent from organization to customer
Same document is returned by customer to
organization
Turnaround Document
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Source Data Automaton
Source data is captured
In machine-readable form
At the time of the business activity
E.g., ATM’s; POS
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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
Pre-numbered documents
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Data Storage
Types of AIS storage:
Paper-based
Ledgers
Journals
Computer-based
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Ledgers
General
Summary level data for each:
Asset, liability, equity,
revenue, and expense
Subsidiary
Detailed data for a General
Ledger (Control) Account that
has individual sub-accounts
Accounts Receivable
Accounts Payable
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Journals
General
Infrequent or specialized transactions
Specialized
Repetitive transactions
E.g., sales transactions
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Coding Techniques
Sequence Digit Meaning
Items numbered consecutively Position
Block 1–2 Product Line, size, and so
Specific range of numbers are on
associated with a category
10000–199999 = Electric Range
3 Color
Group
Positioning of digits in code provide 4–5 Year of Manufacture
meaning
6–7 Optional Features
Mnemonic
Letters and numbers
Easy to memorize 1241000 12 = Dishwasher
Code derived from description of 4 = White
item 10 = 2010
00 = No Options
Chart of accounts
Type of block coding
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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
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File Types
Transaction
Contains records of a
business from a specific
period of time
Master
Permanent records
Updated by transaction
with the transaction file
Database
Set of interrelated files
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Data Processing
Four Main Activities
1. Create new records
2. Read existing records
3. Update existing records
4. Delete records or data from records
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Data Processing
Once data about a business activity has been collected, the next
processing (or updating).
Periodic updating of the data stored about resources and agents is
referred to as batch processing.
Immediate updating as each transaction occurs is referred to as on line,
real time processing.
Most companies are shifting to OLRT processing b/c:
Accurate than batch entry because the system can refuse incomplete
or erroneous entries, and
Ensures that stored information is always current, by increasing its
usefulness for making decisions.
Data Output Types
Soft copy
Displayed on a screen
Hard copy
Printed on paper
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ERP Systems
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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
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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
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ERP Disadvantages
Cost
Time-consuming to implement
Changes to an organization’s existing
business processes can be troublemaking
Complex
Resistance to change
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Concluding Questions
Questions to be addressed in this chapter include:
What are the basic business activities in which an
organization engages?
What decisions must be made to undertake these activities?
What information is required to make those decisions?
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Concluding Questions
What role does the data processing cycle play in
organizing business activities and providing
information to users?
What is the role of the information system and
enterprise resource planning in modern
organizations?
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