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 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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 Data Processing Cycle

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 • An important function of the AIS is to efficiently
and effectively process the data about a company’s
transactions.
▫ In manual systems, data is entered into paper
journals and ledgers.
▫ In computer-based systems, the series of
operations performed on data is referred to as the
data processing cycle.

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 • Manual System, data is entered into
1. paper journals and
2. ledgers

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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 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.

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 Source Documents
• Captures data at the source when the transaction
takes place
▫ Paper source documents
▫ Turnaround documents:
• EXAMPLE: The stub on your telephone bill that you tear off and return
with your check when you pay the bill.

▫ Source data automation (captured data from

machines, e.g., Point of Sale scanners at grocery
store)
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 Data Storage
• Important to understand how data is organized
▫ Chart of accounts
 Coding schemas that are well thought out to
anticipate management needs are most efficient and
effective.
▫ Transaction journals (e.g., Sales)
▫ Subsidiary ledgers (e.g., Accounts receivable)
▫ General ledger
Note: With the above, one can trace the path of the
transaction (audit trail).
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 DATA STORAGE
Let’s start with some vocabulary terms with
respect to data storage.
• Ledger
A ledger is a file used to store cumulative
information about resources and agents.
• General ledger
The general ledger is the summary level
information for all accounts. Detail information
is not kept in this account.
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 • Subsidiary ledger
contain the detail accounts associated with the
related general ledger account.

• CODING TECHNIQUE

Coding: is a method of systematically assigning

numbers or letters to data items to help classify
and organize them. There are many types of
codes, including sequence codes, block codes,
and group codes

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 There are many types of codes
including:
• sequence codes: items such as checks or
invoices are numbered consecutively to ensure
no gaps in the sequence
1. block codes: are used, blocks of numbers
within a numerical sequence are reserved for a
particular category.
2. group codes: are used, two or more
subgroups of digits are used to code an item.

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 In manual systems and some accounting packages,
the first place that transactions are entered is the
journal.
• When transaction data is captured on a source
document, the next step is to record the data in a
journal. A journal entry is made for each
transaction showing the accounts and amounts to
be debited and credited.
• When routine transactions occur, they are
initially recorded in special journals (e.g., cash
receipts, cash disbursements, credit sales, credit
purchases).
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 • When non-routine transactions occur, they
are recorded in the general journal.
• An audit trail exists when there is sufficient
documentation to allow the tracing of a
transaction from beginning to end or from the
end back to the beginning.

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 Audit trail for
Invoice #156 for
$1,876.50 sold to
KDR Builders

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 Computer-Based Storage

Data is stored in master files or transaction files.

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• Following are some computer-based storage
concepts that should be understood:
– Entity—something about which information is
stored. Example: Students are an entity in the
university.
– Attribute—characteristics of interest with
respect to the entity. A student’s GPA is an
attribute of a student.
– Field—the physical space where an attribute is
stored. 
– Record—the set of attributes stored for a
particular instance of an entity, e.g., all the
information stored about student John Doe is
John Doe’s record.
– Data Value—the intersection of the row and
column, i.e., a particular field for a particular
record.
– File—a group of related records.
– Master File—a file that stores cumulative
information about an organization’s entities.
– Conceptually similar to a ledger in that (1) the file
is permanent; (2) it exists across fiscal periods;
and (3) changes are made to the file to reflect
effects of new transactions.
– Transaction File—a file that contains records
of individual transactions (events) during a fiscal
period. Similar to a journal in that the files are
temporary and maintained for one period.
• Database—a set of inter-related, centrally
coordinated files.

Student Class
File File

Instructor
File
 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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 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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 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
• Complex
• User resistance (learning new things is
sometimes hard for employees)

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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
• Batch processing
• Group code
• Online, real-time processing
• Mnemonic code
• Document
• Chart of accounts
• Report
• General ledger
• Query
• Specialized journal
• Enterprise resource planning
• 2015
Copyright © Audit trail
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