Chapter 2 – Overview of

Transaction Processing and

Enterprise Resource Planning (ERP)
System
Dennis T. Fajarito, MBA
Learning Objectives
After studying this chapter, you should be able to:

➢ 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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“ Information technology is at the
core of how you do your business.

Satya Nadella
CEO - Microsoft

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Data Processing Cycle - The four operations (data
input, data storage, data processing, and information
output) performed on data to generate meaningful
and relevant information.

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Data Input

The first step in processing

input is to capture
transaction data and enter
them into the system.

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Data must be collected about
three facets of each business
activity:

1. Each activity of interest

2. The resource(s) affected by
each activity
3. The people who participate
in each activity
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Source Documents –
Documents used to capture
transaction data at its source –
when the transaction takes
place. Examples include sales
orders, purchase orders, and
employee time cards.

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Common Business Activities and Source
Documents

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Turnaround documents
are company output sent
to an external party, who
often adds data to the
document, and then are
returned to the company
as an input document.

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Source Data Automation –
The collection of
transaction data in
machine-readable form at
the time and place of
origin.

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Data Processing
The second step in processing input is to make sure
captured data are accurate and complete.

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Information Output

The third step in processing input is to make sure

company policies are followed, such as approving or
verifying a transaction.

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Ledgers Cumulative accounting information is stored in general and
subsidiary ledgers.

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.

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Control Account - A title given to a general ledger account
that summarizes the total amounts recorded in a subsidiary
ledger.

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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 include prenumbered checks, invoices, and purchase orders.

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●Block Code - Blocks of numbers that are reserved for specific
categories of data, thereby helping to organize the data. An example is
a chart of accounts.

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●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.

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●Mnemonic codes, letters and numbers are interspersed to identify an
item.

Dry300W05 could represent a low end (300), white (W)

dryer (Dry) made by Sears (05).

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The following guidelines result 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. For example, don’t use a three-digit
employee code for a fast-growing company with 950
employees.

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Chart of Accounts is a list of the numbers assigned to each
general ledger account.

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

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Recording and Posting a Credit Sale

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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.

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Computer-Based Storage Concepts

An entity is something about which information is stored,

such as employees, inventory items, and customers. Each
entity has attributes, or characteristics of interest, that are
stored, such as a pay rate and address.

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Computer-Based Storage Concepts

The on the next slide shows that computers store data in a

field. The fields containing data about entity attributes
constitute a record. Each row represents a different record,
and each column represents an attribute. Each intersecting
row and column is a field within a record, the contents of
which are called a data value.

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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.

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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.

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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.

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Data Processing

Once business activity data have been entered into the

system, they must be processed to keep the databases
current. The four different types of data processing activities,
referred to as CRUD, are as follows:

1. Creating new data records, such as adding a newly hired

employee to the payroll database.
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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.

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Accounts Receivable File Update Process

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Batch Processing – When updating is done at a certain
period.

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Documents are records of
transaction or other company data.

Reports are used by employees to

control operational activities and
by managers to make decisions and
to formulate business strategies.

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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/or analyzed as requested.

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Enterprise Resource Planning (ERP) system - A system that integrates all aspects
of an organization’s activities—such as accounting, finance, marketing, human
resources, manufacturing, inventory management—into one system.

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This modular design allows businesses to add or delete modules as
needed. Typical ERP modules include:

• Financial (general ledger and reporting system)—general ledger,

accounts receivable, accounts payable, fixed assets, budgeting, cash
management, and preparation of managerial reports and financial
statements
• Human resources and payroll—human resources, payroll, employee
benefits, training, time and attendance, benefits, and government
reporting
• Order to cash (revenue cycle)—sales order entry, shipping, inventory,
cash receipts, commission calculation
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• Purchase to pay (disbursement cycle)—purchasing, receipt and
inspection of inventory, inventory and warehouse management, and
cash disbursements
• Manufacturing (production cycle)— engineering, production scheduling,
bill of materials, work-in-process, workflow management, quality
control, cost management, and manufacturing processes and projects
• Project management—costing, billing, time and expense, performance
units, activity management
• Customer relationship management—sales and marketing,
commissions, service, customer contact, and call center support
• System tools—tools for establishing master file data, specifying flow of
information, access controls, and so on
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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.
• Data input is captured or keyed once, rather than multiple times, as it is
entered into different systems.
• Management gains greater visibility into every area of the enterprise
and greater monitoring capabilities.

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• The organization gains better access control.
• Procedures and reports are standardized across business units.
• 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.

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ERP systems also have significant disadvantages:

• Cost.
• Amount of time required.
• Changes to business processes.
• Complexity.
• Resistance.

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 “
For the blue-collar worker, the driving force
behind change was factory automation using
programmable machine tools. For the office
worker, it’s office automation using
computer technology:
Enterprise resource planning systems,
groupware, intranets, extranets, expert
systems, the Web, and e-commerce.

Tom Peters
Author, In Search of Excellence

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Thanks!

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

Field - The portion of a data record where the data value for a
particular attribute is stored. For 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.

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Record - A set of fields whose data values describe specific
attributes of an entity, such as all payroll data relating to a
single employee. An example is a row in a spreadsheet.

Data Value - The actual value stored in a field. It describes a

particular attribute of an entity. For example, the customer
name field would contain “ZYX Company” if that company
was a customer.

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