Accounting Information Systems

Fourteenth Edition, Global Edition

Chapter 2
Overview of Transaction
Processing and Enterprise
Resource Planning Systems

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved

Learning Objectives
• Describe the data processing cycle used to process
transactions, including how data is input, stored, and
processed and how information is outputted.
• 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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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 in the activity (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
– 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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Coding Techniques
• Sequence codes—items numbered consecutively to
account for all items (i.e., prenumbered forms)
• Block code—blocks of numbers reserved for specific
categories of data (i.e., product numbers that start with a 2
are refrigerators)
• Group codes—two or more subgroups of digits used to
code items (i.e., car vin #’s)
• Mnemonic codes—letters and numbers interspersed to
identify an item (i.e. Dry300W05 is low end (300), white
(W) dryer (DRY) made by Sears (05))

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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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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., Which
division had the most sales for the month?)

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Enterprise Resource Planning (ERP)
Systems
• Integrates activities from the entire organization
– Revenue Cycle
– Expenditure Cycle
– Production Cycle
– H/R Payroll Cycle
– General Ledger and Reporting System

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Advantages of ERP System
• Integrated enterprise-wide single view of the organization’s
data which streamlines the flow of information
• 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)
• Greater visibility and monitoring capabilities for
management
• Improve access of control of the data through security
settings
• Standardization of procedures and reports
• Improves customer service
• Increases productivity through automation
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Disadvantages of ERP System
• Costly
• Significant amount of time to implement
• Customizing or standardizing a business process
• Complexity
• 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
• Subsidiary ledger • File
• Control account • Master file
• Coding • Transaction file
• Sequence code • Database
• Block code • Batch processing
• Group code • Online, real-time processing
• Mnemonic code • Document
• Chart of accounts • Report
• Specialized journal • Query
• Audit trail • Enterprise resource planning (ERP) system
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