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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 the ways information is stored in computer-

based information systems.

• Discuss how organizations use enterprise resource

planning (ERP) systems to process transactions and
provide information.

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 Business Activity and Business Process

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 Data Processing Cycle

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 1. Data Input
Steps in Processing Input are:
1. Capture transaction data triggered by a
business activity.
▫ Follow REA model (Resource, Event, and Agent)
▫ Information comes from source documents
2. Make sure captured data are accurate and
complete (e.g., turnaround documents, and
source of data automation)
3. Ensure company policies are followed (e.g.,
approval of transaction).
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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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 2. Data Storage
• Important to understand how data is organized
▫ Source documents
▫ Journal (i.e., General and specialized journals)
▫ Ledger (i.e., General and Subsidiary ledgers)
▫ Chart of accounts
 Coding schemas that are well thought out to
anticipate management needs are most efficient and
effective.

Note: With the above, one can trace the path of the
transaction (audit trail).
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 Audit trail for
Invoice #156 for
$1,876.50 sold to
KDR Builders

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 DATA STORAGE
Journals
• General
▫ Infrequent or specialized transactions
▫ Used to record:
 Non-routine transactions, such as loan payments
 Summaries of routine transactions
 Adjusting entries
 Closing entries

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 DATA STORAGE
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
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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
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 DATA STORAGE
• General
Example:ledger
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.

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 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.
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 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.
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 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.:
 Accounts Payable • ACME
 Accounts Receivable
A/R Inc.$150
• Jones, Inc
$600 $450

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 DATA STORAGE
Access to data storage
1. Coding techniques
▫ Sequence Codes
▫ Block Codes
▫ Group Codes
▫ Mnemonic Codes
2. Chart of account
3. Database management fundamental

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 Example of Chart of Account

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 DATA STORAGE
Access to data storage
• Database management fundamental
▫ Bit
▫ Byte
▫ Field
▫ Record
▫ File
▫ Database
▫ Primary key
▫ Foreign key
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 Data Hierarchy

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 Primary Key and Foreign Key

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 COMPUTER-BASED STORAGE CONCEPTS
• Data is stored in master files or transaction files.

• 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.

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 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.

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 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 File
with the transaction file Master
before
Update

• Database
▫ Set of interrelated files

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 3. Data Processing
• Adding data

• Updating data

• Changing data

• Deleting data

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 DATA PROCESSING
• Offline-Batch processing:
▫ Source documents are grouped into batches, and
control totals are calculated.
▫ Periodically, the batches are entered into the
computer system, edited, sorted, and stored in a
temporary file.
▫ The temporary transaction file is run against the
master file to update the master file.
▫ Output is printed or displayed, along with error
reports, transaction reports, and control totals.

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 DATA PROCESSING
• Offline-Batch processing:

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 DATA PROCESSING
• Online-Batch processing:
▫ Transactions are entered into a computer system
as they occur and stored in a temporary file.
▫ Periodically, the temporary transaction file is run
against the master file to update the master file.
▫ The output is printed or displayed.

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 DATA PROCESSING
• Online-Batch processing:

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 DATA PROCESSING
• Online, real-time processing
▫ Transactions are entered into a computer system
as they occur.
▫ The master file is immediately updated with the
data from the transaction.
▫ Output is printed or displayed.

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 DATA PROCESSING
• Online, real-time processing

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 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
 Regular basis (e.g., monthly sales report)
 Exception basis (Ad-hoc) (e.g., obsolete items
report)
 On-demand
▫ Query (question for specific information in a
database)
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 Enterprise Resource Planning (ERP)
Systems

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 Enterprise Resource Planning (ERP)
Systems
• Traditional File Approach

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 Enterprise Resource Planning (ERP)
Systems
• Database Approach

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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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 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
• Changes to an organization’s existing business
processes can be disruptive
• Complex
• User resistance (learning new things is
sometimes hard for employees)

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 Tips for successful ERP implementation

• Roles of Management / Senior Management

levels
• Select appropriate software
• Hire professional vendors / implementers
• Emphasize on configuration/parameter settings
• Implement proper internal controls

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