Overview of Transaction Processing

and Enterprise Resource Planning

Systems
Chapter 2

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2-1
 Learning Objectives
• 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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2-2
 Data Processing Cycle

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2-3
 DATA INPUT
• Source Documents
▫ Data are collected on source documents
– E.g., a sales-order form
– The data from paper-based source documents will
eventually need to be transferred to the AIS

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 DATA INPUT
• Turnaround Documents
▫ Usually paper-based and machine-readable
▫ Are sent from organization to customer
▫ Same document is returned by customer to
organization

Org. Cust.

Turnaround Document

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 DATA INPUT
• Source Data Automation
▫ 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
• 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 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
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 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.

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

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 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.

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 Coding Techniques
• Sequence Digit Position Meaning
▫ Items numbered consecutively
• Block 1–2 Product Line, size,
▫ Specific range of numbers are and so on
associated with a category 3 Color
– 100000–199999 = Electric
Range 4–5 Year of
• Group Manufacture
▫ Positioning of digits in code 6–7 Optional Features
provide meaning
• Mnemonic 1241000 12 = Dishwasher
▫ Letters and numbers 4 = White
▫ Easy to memorize 10 = 2010
▫ Code derived from description of 00 = No Options
item
• Chart of accounts
▫ Type of block coding

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 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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 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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 • An audit trail exists when there is sufficient
documentation to allow the tracing of a transaction
DATA
• STORAGE
from beginning to end or from the end back to the
Ledger
beginning.
• General ledger of posting references and document
• The inclusion
• Subsidiary
numbersledger
enable the tracing of transactions through
• the journals
Coding and ledgers and therefore facilitate the
techniques
audit trail.
• Journals
• Audit trail

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 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.

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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
period of time Transaction
File

• Master
▫ Permanent records Updated
▫ Updated by transaction Master
with the transaction file File
• Database Master
before
▫ Set of interrelated files Update

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 DATA PROCESSING
• Once data about a business activity has been
collected and entered into a system, it must be
processed.

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 Data Processing
Four types of processing (CRUD):
• Creating new records (e.g., adding a customer)
• Reading existing data
• Updating previous record or data
• Deleting data

Data processing can be batch processed (e.g., post

records at the end of the business day) or in real-
time (process as it occurs).
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 DATA PROCESSING
• Updating can be done through several
approaches:
▫ Batch processing
▫ Online, batch processing
▫ Online, real-time processing

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 DATA PROCESSING
• 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

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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

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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

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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 disruptive
• Complex
• Resistance to change

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