Transaction

Processing
and ERP
System

Source: Romney & Steinbart (2008), Accounting Systems 11 ed.

Question
• What does it mean with transaction
processing?
• What are the four steps in data
processing cycle and the major activities
in each?
• How organizations use Enterprise
Resource Planning System?
Information Needs and Business Processes
Businesses engage in a variety of processes, including:
• Acquiring capital
Each activity
• Buying buildings and equipment
requires different
• Hiring and training employees types of
• Purchasing inventory decisions.
• Doing advertising and marketing
• Selling goods or services Each decision
• Collecting payment from customers requires different
• Paying employees types of
• Paying taxes information.

• Paying vendors
Information Needs and Business Processes
Types of information needed for decisions:
• Some is financial An effective AIS needs to be
• Some is nonfinancial able to integrate information
• Some comes from internal sources of different types and from
different sources.
• Some comes from external sources

Internal External
Parties AIS Parties

Interaction between parties (two way) - AIS sends information to and receives
information from other parties.
The business activities can be grouped into:
Five major business process or transaction cycles
• Revenue cycle
• Expenditure cycle (or Purchase or Procurement cycle)
• Production cycle
• Human Resources cycle (or Payroll cycle)
• Financing cycle
What is transaction?
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

GIVE GET
Revenue cycle

• Involves interactions with your customers.

• You sell goods or services and get cash.

Give Get
Goods Cash
Expenditure Cycle

• Involves interactions with your suppliers.

• You buy goods or services and pay cash.

Give Get
Cash Goods
Production Cycle

• In this cycle, raw materials and labor are

transformed into finished goods.

Give Raw Get

Materials & Finished
Labor Goods
Human Resources/ Payroll Cycle
• Involves interactions with your employees.
• Employees are hired, trained, paid, evaluated,
promoted, and terminated.

Give Get
Cash Labor
Financing Cycle
• Involves interactions with investors and creditors.
• You raise capital (stock or debt), repay the capital,
and pay a return on it (interest or dividends).

Give Get
Cash cash
Transaction Processing
A process that:
• Begins with capturing data  transaction.
• Ends with an information output  financial
statements.
Data Processing Cycle

DATA STORAGE

DATA INFORMATION
DATA INPUT
PROCESSING OUTPUT

Data processing involves – CREATING, READING, UPDATING, DELETING

Business Documents
Sales Invoice Record cash/credit sales
Delivery Ticket Record delivery to customer
Monthly Statement Inform customer of outstanding balance
Credit Memo Adj. sales returns & allowance; write off
Purchase Order Order goods/services from vendor
Receiving Report Record receipt of goods from vendors
Time Card/ Sheet Record time worked by employees
Purchase Invoice Record cash/credit purchase
Journal
Specialized Journal
Sales Record all credit sales
Cash Receipts Record cash sales, payments from customers,
and other cash receipts
Purchases Record all purchases from vendor
Cash Disbursements Record all cash disbursement

General Journal Record non-routine transactions, adjusting

and closing entries
 Ledger
General Ledger Maintain details about all major assets, liabilities,
equity, revenue and expense accounts.
Subsidiary Ledger
Accounts Receivable Maintain details about amount due from customers
Accounts Payable Maintain details about amount due to vendors
Inventory Maintain details about each inventory item
Fixed Assets Maintain details about each piece of equipment and
other fixed assets
Reports
Financial Statements
Income Statement
Statement of Owner’s Equity/ Retained Earnings Statement
Statement of Financial Position
Statement of Cash Flow

Financial Analysis
Sales Analysis, Accounts Receivable Turnover, Inventory Turnover, etc.
Enterprise Resources Planning (ERP) System

Uses a centralized
database to share
information across
business processes and
coordinate activities