Overview of Transaction Processing and Enterprise Resource Planning Systems

1. Overview of Transaction Processing and Enterprise Resource Planning Systems Chapter 2

2. 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.

3. Data Processing Cycle

4. 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).

5. 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.

6. 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)

7. 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. • General ledger • Subsidiary ledgers (e.g., Accounts receivable) • General journal • Transaction/specialized journals (e.g., Sales) Note: With the above, one can trace the path of the transaction (audit trail).

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

9. A/P $1000 DATA STORAGE 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/R $600 General ledger

10. DATA STORAGE 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. General ledger

11. DATA STORAGE 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. General ledger Subsidiary ledger

12. DATA STORAGE 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. General ledger Subsidiary ledger

13. DATA STORAGE • General ledger • Subsidiary ledger • Detailed data for a General Ledger (Control) Account that has individual sub-accounts e.g.: • Accounts Payable • Accounts Receivable

14. 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

15. 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

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

17. COMPUTER-BASED STORAGE CONCEPTS • A transactionfile 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.

18. COMPUTER-BASED STORAGE CONCEPTS • 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

19. 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).

20. 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.

21. 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.

22. 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.

23. 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?)

24. Enterprise Resource Planning (ERP) Systems • Integrates activities from the entire organization • Production • Payroll • Sales • Purchasing • Financial Reporting

25. 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

26. 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)