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
3
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
4

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
5

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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23
 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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