Transaction Processing, ERP

Systems and REA Models

Chapter 2 part 1

2-1
 Learning Objectives
1.  Describe the four parts of the data processing cycle and
the major activities in each.

2.  Describe documents and procedures used to collect and

process transaction data.

3.  Describe the ways information is stored in computer-

based information systems.

4.  Discuss the types of information that an AIS can

provide.

5.  Discuss how organizations use enterprise resource

planning (ERP) systems to process transactions and
provide information. 2-2
1. Data Processing Cycle

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2. 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.

2-5
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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Paper-Based Source Documents
•  Data are collected on source
Org. Cust.
documents
▫  E.g., a sales-order form
▫  The data from paper-based will
Turnaround Document
eventually need to be transferred
to the AIS
•  Turnaround
▫  Usually paper-based and
machine-readable
▫  Are sent from organization to
customer
▫  Same document is returned by
customer to organization 2-7
Source Data Automation

• Source data is captured

▫  In machine-readable form
▫  At the time of the business activity
– E.g., ATM’s; POS

2-8
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

2-9
3. Data Storage

• Types of AIS storage:

▫  Paper-based
– Ledgers
– Journals
▫  Computer-based

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DATA STORAGE

•  General ledger
The general ledger is the summary level
information for all accounts (asset, liability,
equity, revenue, and expense). Detail
information is not kept in this account.

A/P A/R
$1000 $600
DATA STORAGE

•  General ledger

Example: Suppose XYZ Co. has three

customers. Anthony Adams owes XYZ $100. Bill
Brown owes $200. And Cory Campbell owes XYZ
$300. The balance in accounts receivable in the
general ledger will be $600, but you will not be
able to tell how much individual customers owe
by looking at that account. The detail isn’t there.
DATA STORAGE
•  General ledger
•  Subsidiary ledger
The subsidiary ledgers contain the detail
accounts associated with the related general
ledger account. The accounts receivable
subsidiary ledger will contain three separate
t-accounts—one for Anthony Adams, one for Bill
Brown, and one for Cory Campbell.
DATA STORAGE
•  General ledger
•  Subsidiary ledger

The related general ledger account is often

called a “control” account.

The sum of the subsidiary account balances

should equal the balance in the control
account.
 DATA STORAGE
• General ledger
•  Joe Smith
• Subsidiary ledger A/P $250
▫  Detailed data for a •  Patti Jones
General Ledger $1000 $750
(Control) Account
that has individual
sub-accounts e.g.: •  ACME Inc.
–  Accounts Payable A/R $150
•  Jones, Inc
–  Accounts Receivable $600 $450
DATA STORAGE
•  General ledger
•  Subsidiary ledger
•  Coding techniques

•  Coding is a method of systematically

assigning numbers or letters to data items to
help classify and organize them.
Coding Techniques
•  Sequence
▫  Items numbered consecutively Digit Position Meaning
•  Block
1–2 Product Line, size,
▫  Specific range of numbers are
associated with a category and so on
–  100000–199999 = Electric 3 Color
Range
•  Group 4–5 Year of
▫  Positioning of digits in code Manufacture
provide meaning
•  Mnemonic 6–7 Optional Features
▫  Letters and numbers 1241000 12 = Dishwasher
▫  Easy to memorize 4 = White
▫  Code derived from description of 10 = 2010
item 00 = No Options
•  Chart of accounts
▫  Type of block coding
Designing a coding system
The following guidelines should be observed:
▫  The code should be consistent with its intended
use, so make sure you know what users need.
▫  Future expansion needs: Provide enough digits to
allow room for growth.
▫  Keep it simple in order to:
–  Minimize costs
–  Facilitate memorization
–  Ensure employee acceptance
▫  Standardization: make sure it’s consistent with:
–  The company’s organization structure
–  Other divisions of the organization
Chart of Account
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.
Journals

• General
▫  Infrequent or specialized transactions
▫  Used to record:
– Non-routine transactions, such as loan
payments
– Summaries of routine transactions
– Adjusting entries
– Closing entries
Journals
• Specialized
▫  Repetitive transactions
–  E.g., sales transactions
▫  Used to record routine transactions.
▫  The most common special journals are:
–  Cash receipts
–  Cash disbursements
–  Credit sales
–  Credit purchases
DATA STORAGE
•  An audit trail exists when there is sufficient
documentation to allow the tracing of a
transaction from beginning to end or from the
•  Ledger end back to the beginning.
•  The inclusion of posting references and
•  General ledger
document numbers enable the tracing of
•  Subsidiary ledger through the journals and ledgers
transactions
•  Coding techniques
and therefore facilitate the audit trail.
•  Journals
•  Audit trail
Audit trail for
Invoice #156 for
$1,876.50 sold to
KDR Builders

2-23
COMPUTER-BASED STORAGE CONCEPTS

• A master file is a file that stores

cumulative information about an
organization’s entities.
• It is conceptually similar to a ledger in a
manual AIS in that:
▫  The file is permanent.
▫  The file exists across fiscal periods.
▫  Changes are made to the file to reflect the
effects of new transactions.
COMPUTER-BASED STORAGE CONCEPTS

• A transaction file is a file that contains

records of individual transactions (events)
that occur during a fiscal period.
• It is conceptually similar to a journal in a
manual AIS in that:
▫  The files are temporary.
▫  The files are usually maintained for one fiscal
period.
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

2-26
COMPUTER-BASED STORAGE CONCEPTS

•  Transaction
▫  Contains records of a
business from a specific Transaction
File
period of time
•  Master Updated
▫  Permanent records Master
▫  Updated by transaction
with the transaction file
File
Master
•  Database before
Update
▫  Set of interrelated files
COMPUTER-BASED STORAGE CONCEPTS
 Data Processing
Once data about a business activity has been
collected and entered into a system, it must be
processed.
Four types of processing (CRUD):
•  Creating new records (e.g., adding a customer)
•  Reading existing data
•  Updating previous record or data
•  Deleting data

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DATA PROCESSING

• Updating can be done through several

approaches:
▫  Batch processing
▫  Online, batch processing
▫  Online, real-time processing
DATA PROCESSING
DATA PROCESSING
DATA PROCESSING
4. 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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5. 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 2-35
ERP Systems

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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
2-37
ERP Disadvantages

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

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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
(ERP) system 2-39