@$Accounting information system Ch-2.ppt

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C
HAPTER 2
Overview of Business Processes

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INTRODUCTION
•Questions to be addressed in this chapter include:
What are the basic business processes in which an
organization engages?
What decisionsmust be made to undertake these processes?
What information is required to make those decisions?
does data processing cycle play an important role in organizing
business processes and providing information to users?
What is the role of the information system and enterprise
resource planning in modern organizations?

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INFORMATION NEEDS AND
BUSINESS PROCESSES
•Businesses engage in a variety of processes,
including:
–Acquiring capital
–Buying buildings and equipment
–Hiring and training employees
–Purchasing inventory
–Doing advertising and marketing
–Selling goods or services
–Collecting payment from customers
–Paying employees
–Paying taxes
–Paying vendors
Each activity
requires
different types
of decisions.

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INFORMATION NEEDS AND
BUSINESS PROCESSES
•Businesses engage in a variety of processes,
including:
–Acquiring capital
–Buying buildings and equipment
–Hiring and training employees
–Purchasing inventory
–Doing advertising and marketing
–Selling goods or services
–Collecting payment from customers
–Paying employees
–Paying taxes
–Paying vendors
Each decision
requires
different types
of information.

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•Typesofinformationneededfordecisions:
–Someisfinancial
–Someisnonfinancial
–Somecomesfrominternalsources
–Somecomesfromexternalsources
•AneffectiveAISneedstobeableto
integrateinformationofdifferenttypes
andfromdifferentsources.
INFORMATION NEEDS AND
BUSINESS PROCESSES
Byimprovingbusinessprocessesleadingtoefficient
production,Toyotahasbecomethelargestautomobile
manufacturerintheworld,atitleheldbyGeneralMotorsfor
almost100years.

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INTERACTION WITH EXTERNAL AND
INTERNAL PARTIES
•The AIS interacts with external parties,
such as customers, vendors, creditors,
and governmental agencies.
AIS
External
Parties

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INTERACTION WITH EXTERNAL AND
INTERNAL PARTIES
•The AIS also interacts with internal parties
such as employees and management.
AIS
Internal
Parties
External
Parties

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INTERACTION WITH EXTERNAL AND
INTERNAL PARTIES
•The interaction is typically two way, in that
the AIS sends information to and receives
information from these parties.
AIS
Internal
Parties
External
Parties

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•Atransactionis:
–Anagreementbetweentwoentitiesto
exchangegoodsorservices;OR
–Anyothereventthatcanbemeasuredin
economictermsbyanorganization.
EXAMPLES:
–Sellgoodstocustomers
–Depreciateequipment
BUSINESS CYCLES

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•Thebusinesstransactioncycleisaprocess
that:
–Beginswithcapturingdataaboutatransaction.
–Endswithaninformationoutput,suchas
financialstatements.
BUSINESS CYCLES

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•Manybusinessprocessesarepairedin
give-getexchanges.
•Basicexchangescanbegroupedintofive
majortransactioncycles:
–Revenuecycle
–Expenditurecycle
–Productioncycle
–Humanresources/payrollcycle
–Financingcycle
BUSINESS CYCLES

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•Many business processes are paired in
give-get exchanges.
•The basic exchanges can be grouped into
five major transaction cycles:
–Revenue cycle
–Expenditure cycle
–Production cycle
–Human resources/payroll cycle
–Financing cycle
BUSINESS CYCLES

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•The revenue cycle involves interactions
with your customers.
•You sell goods or services and get cash.
REVENUE CYCLE
Give
Goods
Get
Cash

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•Many business processes are paired in
give-get exchanges.
•The basic exchanges can be grouped into
five major transaction cycles:
–Revenue cycle
–Expenditure cycle
–Production cycle
–Human resources/payroll cycle
–Financing cycle
BUSINESS CYCLES

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•The expenditure cycle involves
interactions with your suppliers.
•You buy goods or services and pay cash.
EXPENDITURE CYCLE
Give
Cash
Get
Goods

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•Many business processes are paired in
give-get exchanges.
•The basic exchanges can be grouped into
five major transaction cycles:
–Revenue cycle
–Expenditure cycle
–Production cycle
–Human resources/payroll cycle
–Financing cycle
BUSINESS CYCLES

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•In the production cycle, raw materials and
labor are transformed into finished goods.
PRODUCTION CYCLE
Give Raw
Materials &
Labor
Get
Finished
Goods

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•Many business processes are paired in
give-get exchanges.
•The basic exchanges can be grouped into
five major transaction cycles:
–Revenue cycle
–Expenditure cycle
–Production cycle
–Human resources/payroll cycle
–Financing cycle
BUSINESS CYCLES

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•Thehumanresourcescycleinvolves
interactionswithyouremployees.
•Employeesarehired,trained,paid,
evaluated,promoted,andterminated.
HUMAN RESOURCES/
PAYROLL CYCLE
Give
Cash
Get
Labor

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•Many business processes are pairedin
give-get exchanges.
•The basic exchanges can be grouped into
fivemajor transaction cycles:
–Revenue cycle
–Expenditure cycle
–Production cycle
–Human resources/payroll cycle
–Financing cycle
BUSINESS CYCLES

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•Thefinancingcycleinvolvesinteractionswith
investorsandcreditors.
•Youraisecapital(throughstockordebt),repay
thecapital,andpayareturnonit(interestor
dividends).
FINANCING CYCLE
Give
Cash
Get
cash

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•Thousandsoftransactionscanoccur
withinanyofthesecycles.
•But there are relatively few typesof
transactions in a cycle.
BUSINESS CYCLES

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EXAMPLE:
•In the revenue cycle, the basic give-get
transactionis:
–Give goods
–Get cash
BUSINESS CYCLES

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•Other transactions in the revenue cycle include:
BUSINESS CYCLES
•Handle customer inquiries
•Take customer orders
•Approve credit sales
•Check inventory availability
•Initiate back orders
•Pick and pack orders
•Ship goods
•Bill customers
•Update sales and Accts Rec.
for sales
•Receive customer payments
•Update Accts Rec. for
collections
•Handle sales returns,
discounts, and bad debts
•Prepare management reports
•Send info to other cycles
Note that the last activity in any
cycle is to send information to other
cycles.

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•Click on the buttons below if you wish to
see the transactions that occur in the other
cycles:
BUSINESS CYCLES
Expenditure
Cycle
Human Res./
Payroll Cycle
Production
Cycle
Financing
Cycle

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•Everytransactioncycle:
–Relatestoothercycles.
–Interfaceswiththegeneralledgerand
reportingsystem,whichgeneratesinformation
formanagementandexternalparties.
BUSINESS CYCLES

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General Ledger
and Reporting
System
Revenue
Cycle
Expenditure
Cycle
Production
Cycle
Human Res./
Payroll Cycle
Financing
Cycle
The Revenue Cycle
Gets finished goods
from the production
cycle.
Provides funds to the
financing cycle.
Provides data to the
general ledger and
reporting system.
Finished Goods

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General Ledger
and Reporting
System
Revenue
Cycle
Expenditure
Cycle
Production
Cycle
Human Res./
Payroll Cycle
Financing
Cycle
The Expenditure Cycle
Gets funds from the
financing cycle.
Provides raw materials
to the production cycle.
Provides data to the
general ledger and
reporting system.
Raw
Mats.
Data

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General Ledger
and Reporting
System
Revenue
Cycle
Expenditure
Cycle
Production
Cycle
Human Res./
Payroll Cycle
Financing
Cycle
The Production Cycle:
Gets raw materials from
the expenditure cycle.
Gets labor from the
HR/payroll cycle.
Provides finished goods
to the revenue cycle.
Provides data to the
general ledger and
reporting system.
Raw
Mats.
Finished Goods

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General Ledger
and Reporting
System
Revenue
Cycle
Expenditure
Cycle
Production
Cycle
Human Res./
Payroll Cycle
Financing
Cycle
The HR/Payroll Cycle:
Gets funds from the
financing cycle
Provides labor to the
production cycle.
Provides data to the
general ledger and
reporting system.
Funds

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General Ledger
and Reporting
System
Revenue
Cycle
Expenditure
Cycle
Production
Cycle
Human Res./
Payroll Cycle
Financing
Cycle
The Financing Cycle:
Gets funds from the
revenue cycle.
Provides funds to the
expenditure and
HR/payroll cycles.
Provides data to the
general ledger and
reporting system.
Funds

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General Ledger
and
Reporting System
Revenue
Cycle
Expenditure
Cycle
Production
Cycle
Human Res./
Payroll Cycle
Financing
Cycle
The General Ledger
and Reporting System:
Gets data from all of the
cycles.
Provides information for
internal and external
users.
Information for
Internal & External Users
Data
Data

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Manyaccountingsoftwarepackages
implementthedifferenttransactioncycles
asseparatemodules.
Noteverymoduleisneededinevery
organization,
e.g.,retailcompanies don’thavea
productioncycle.
Somecompaniesmayneedextramodules.
Theimplementationofeachtransactioncycle
candiffersignificantlyacrosscompanies.
BUSINESS CYCLES

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•Howeverthecyclesareimplemented,itis
criticalthattheAISbeableto:
–Accommodate theinformationneedsof
managers.
–Integratefinancialandnonfinancialdata.
BUSINESS CYCLES

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Accountantsplayanimportantroleindata
processing.Theyanswerquestionssuchas:
Whatdatashouldbeenteredandstored?
Whoshouldbeabletoaccessthedata?
Howshouldthedatabeorganized,updated,
stored,accessed,andretrieved?
Howcanscheduledandunanticipatedinformation
needsbemet?
Toanswerthesequestions,theymust
understanddataprocessingconcepts.
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE

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AnimportantfunctionoftheAISisto
efficientlyandeffectivelyprocessthedata
aboutacompany’stransactions.
Inmanualsystems,dataisenteredintopaper
journalsandledgers.
Incomputer-basedsystems,theseriesof
operationsperformedondataisreferredtoas
thedataprocessingcycle.
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE

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•The data processing cycle consists of four
steps:
–Data input
–Data storage
–Data processing
–Information output
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE

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•The data processing cycle consists of four
steps:
Data input
–Data storage
–Data processing
–Information output
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE

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Thefirststepindataprocessingisto
capturethedata.
Usuallytriggeredbyabusinessactivity.
Dataiscapturedabout:
Theeventthatoccurred.
Theresourcesaffectedbytheevent.
Theagentswhoparticipated.
DATA INPUT

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Anumberofactionscanbetakento
improvetheaccuracyandefficiencyof
datainput:
Turnarounddocuments.
DATA INPUT
EXAMPLE:
The stub on your telephone bill that you tear off and return with
your check when you pay the bill.
The customer account number is coded on the document, usually
in machine-readable form, which reduces the probability of human
error in applying the check to the correct account.

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Anumberofactionscanbetakento
improvetheaccuracyandefficiencyof
datainput:
–Turnarounddocuments.
Sourcedataautomation.
DATA INPUT
•Capture data with minimal human intervention.
•EXAMPLES:
–ATMs for banking.
–Point-of-sale (POS) scanners in retail stores.
–Automated gas pumps that accept your credit card.

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Anumberofactionscanbetakento
improvetheaccuracyandefficiencyof
datainput:
–Turnarounddocuments.
–Sourcedataautomation.
Well-designedsourcedocumentsanddata
entryscreens.
DATA INPUT
•How do these improve the accuracy and efficiency of data
input?

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•Anumberofactionscanbetakento
improvetheaccuracyandefficiencyof
datainput:
–Turnarounddocuments.
–Sourcedataautomation.
–Well-designedsourcedocumentsanddata
entryscreens.
Usingpre-numbereddocumentsorhaving
the system automaticallyassign
sequentialnumberstotransactions.
DATA INPUT
•What does it mean if a document number is missing in the
sequence?

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Anumberofactionscanbetakento
improvetheaccuracyandefficiencyof
datainput:
–Turnarounddocuments.
–Sourcedataautomation.
–Well-designedsourcedocumentsanddata
entryscreens.
–Usingpre-numbereddocumentsorhaving
the system automaticallyassign
sequentialnumberstotransactions.
DATA INPUT
•What does it mean if there are duplicate document
numbers?

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Anumberofactionscanbetakentoimprove
theaccuracyandefficiencyofdatainput:
–Turnarounddocuments.
–Sourcedataautomation.
–Well-designedsourcedocumentsanddataentry
screens.
–Usingpre-numbereddocumentsorhavingthesystem
automaticallyassignsequentialnumbersto
transactions.
Verifytransactions.
DATA INPUT
•EXAMPLE: Check for inventory availability before
completing an online sales transaction.

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•The data processing cycle consists of four
steps:
–Data input
Data storage
–Data processing
–Information output
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE

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Dataneedstobeorganizedforeasyand
efficientaccess.
Let’sstartwithsomevocabularyterms
withrespecttodatastorage.
DATA STORAGE

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Ledger
DATA STORAGE
Aledgerisafileusedtostorecumulative
informationaboutresourcesandagents.We
typicallyusethewordledgertodescribethe
setoft-accounts.
Thet-accountiswherewekeeptrackofthe
beginningbalance,increases,decreases,and
endingbalanceforeachasset,liability,
owners’equity,revenue,expense,gain,loss,
anddividendaccount.

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Ledger
–Following is an example of a ledger account
for accounts receivable:
DATA STORAGEACCOUNT: Accounts Receivable Account Number: 120
Date Description Post RefDebit CreditBalance
01/01/05 42,069.00
01/03/05Sales S03 1,300.00 43,369.00
01/13/05Cash collectionsCR09 4,600.00 38,769.00
01/23/05Sales S04 5,600.00 44,369.00
GENERAL LEDGER

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•Ledger
General ledger
DATA STORAGE
Thegeneralledgeristhesummarylevel
informationforallaccounts.
Detailinformationisnotkeptinthisaccount.

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•Ledger
•General ledger
DATA STORAGE
Example:
SupposeXYZCo.hasthreecustomers.Anthony
AdamsowesXYZ$100.BillBrownowes$200.And
CoryCampbellowesXYZ$300.
Thebalanceinaccountsreceivableinthegeneral
ledgerwillbe$600,butyouwillnotbeabletotellhow
muchindividualcustomersowebylookingatthat
account.Thedetailisn’tthere.

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•Ledger
•General ledger
Subsidiary ledger
DATA STORAGE
Thesubsidiaryledgerscontainthedetailaccounts
associatedwiththerelatedgeneralledgeraccount.
Theaccountsreceivablesubsidiaryledgerwill
containthreeseparatet-accounts-oneforAnthony
Adams,oneforBillBrown,andoneforCory
Campbell.

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•Ledger
•General ledger
Subsidiary ledger
DATA STORAGE
Therelatedgeneralledgeraccountis
oftencalleda“control”account.
Thesumofthesubsidiaryaccount
balancesshouldequalthebalanceinthe
controlaccount.

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•Ledger
•General ledger
•Subsidiary ledger
Coding techniques
DATA STORAGE
Codingisamethodofsystematicallyassigningnumbersor
letterstodataitemstohelpclassifyandorganizethem.
Therearemanytypesofcodesincluding:
–Sequence codes
–Block codes
–Group codes

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•Ledger
•General ledger
•Subsidiary ledger
Coding techniques
DATA STORAGE
Sequencecodes,items(suchaschecksorinvoices)are
numberedconsecutivelytoensurenogapsinthesequence.
Thenumberinghelpsensurethat:
All items are accounted for.
There are no duplicated numbers, which would suggest errors or
fraud.

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•Ledger
•General ledger
•Subsidiary ledger
Coding techniques
DATA STORAGE
Blockcodesareused,blocksofnumberswithinanumerical
sequencearereservedforaparticularcategory.
EXAMPLE:ThefirstthreedigitsofaSocialSecuritynumber
makeupablockcodethatindicatesthestateinwhichthe
SocialSecuritynumberwasissued:
–001–003NewHampshire
–004–007Maine
–008–009Vermont

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•Ledger
•General ledger
•Subsidiary ledger
Coding techniques
DATA STORAGE
Group codesare used, two or more subgroups of digits are
used to code an item.
EXAMPLE: The code in the upper, right-hand corner of many
checks is a group code organized as follows:
–Digits 1–2 Bank number
–Digit 3 Federal Reserve District
–Digits 4–7 Branch office of Federal Reserve
–Digits 8–9 State

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•Ledger
•General ledger
•Subsidiary ledger
•Coding techniques
DATA STORAGE
Groupcodingschemesareoftenusedinassigninggeneral
ledgeraccountnumbers.
Thefollowingguidelinesshouldbeobserved:
Thecodeshouldbeconsistentwithitsintendeduse,somake
sureyouknowwhatusersneed.
Provideenoughdigitstoallowroomforgrowth.
Keepitsimpleinorderto:
Minimizecosts
Facilitatememorization
Ensureemployeeacceptance
Makesureit’sconsistentwith:
Thecompany’sorganizationstructure
Otherdivisionsoftheorganization

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•Ledger
•General ledger
•Subsidiary ledger
•Coding techniques
Chart of accounts
DATA STORAGE
Thechartofaccountsisalistofallgeneralledgeraccountsan
organizationuses.
Groupcodingisoftenusedforthesenumbers,e.g.:
Thefirstsectionidentifiesthemajoraccountcategories,suchas
asset,liability,revenue,etc.
Thesecondsectionidentifiestheprimarysub-account,suchas
currentassetorlong-terminvestment.
Thethirdsectionidentifiesthespecificaccount,suchasaccounts
receivableorinventory.
Thefourthsectionidentifiesthesubsidiaryaccount,e.g.,thespecific
customercodeforanaccountreceivable.
ThestructureofthischartisanimportantAISissue,asitmustcontain
sufficientdetailtomeettheorganization’sneeds.

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•Ledger
•General ledger
•Subsidiary ledger
•Coding techniques
Chart of accounts
DATA STORAGE
Table 2-4 in your textbook contains the chart of accounts for S&S.
What is the account number for federal unemployment taxes
payable?
What is the account number for cost of goods sold?
What is the range of account numbers for expenses?
With this chart of accounts, can S&S easily distinguish the costs they
incur for automobile insurance from the costs for health insurance?

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•Ledger
•General ledger
•Subsidiary ledger
•Coding techniques
•Chart of accounts
Journals
DATA STORAGE
Inmanualsystemsandsomeaccountingpackages,the
firstplacethattransactionsareenterediscalledthe
journal.
Ageneraljournalisusedtorecord:
•Non-routinetransactions,suchasloanpayments
•Summariesofroutinetransactions
•Adjustingentries
•Closingentries
Aspecialjournalisusedtorecordroutinetransactions.The
mostcommonspecialjournalsare:
•Cashreceipts
•Cashdisbursements
•Creditsales
•Creditpurchases

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•Ledger
•General ledger
•Subsidiary ledger
•Coding techniques
•Chart of accounts
•Journals
Audit trail
DATA STORAGE
Anaudittrailexistswhenthereissufficient
documentationtoallowthetracingofa
transactionfrombeginningtoendorfromthe
endbacktothebeginning.
Theinclusionofpostingreferencesand
documentnumbersenablethetracingof
transactionsthroughthejournalsandledgers
andthereforefacilitatetheaudittrail.

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Nowthatwe’velearnedsomestorage
terminology,let’sreturntothedata
storageprocess.
Whentransactiondataiscapturedona
sourcedocument,thenextstepisto
recordthedatainajournal.
Ajournalentryismadeforeach
transactionshowingtheaccountsand
amountstobecredited.
DATA STORAGE

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•If you took a principles of financial accounting
class, you probably worked with journals that
looked something like this:
DATA STORAGE01/15/04Accounts receivable 2,200
Sales revenue 2,200
01/18/04Cash 1,800
Accounts receivable 1,800
01/21/04Salaries expense 900
Cash 900

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Youmaynothavegottenmuchexperiencewith
specialjournals,butinmostreal-world
situations,journalentriesreallyworklikethis.
Entriesareoriginallymadeinthegeneraljournalonly
for:
•Non-routinetransactions
•Summariesofroutinetransactions
Routinetransactionsareoriginallyenteredinspecial
journals.Themostcommonspecialjournalsare:
•Creditsales
•Cashreceipts
•Creditpurchases
•Cashdisbursements
DATA STORAGE

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•Let’sworkthroughanexamplewitha
specialjournal.
•Inthiscasewe’llusethesalesjournal.
DATA STORAGE

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•On December 1, a sale is made to Lee Co.
for $800. Lee Co. was sent Invoice No. 201.
DATA STORAGEPage 5
Date
Invoice
Number
Account
Debited
Account
NumberPost Ref.Amount
12/01/04 201Lee Co.120-122 800.00
Sales Journal

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Thegeneralledgeraccountnumberforaccounts
receivableisNo.120.LeeCo.wasaboutthe122
nd
customer,sotheirsubsidiaryaccountnumberis
120-122.
DATA STORAGEPage 5
Date
Invoice
Number
Account
Debited
Account
NumberPost Ref.Amount
12/01/04 201Lee Co.120-122 800.00
Sales Journal

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ThenextsaleonDecember1wasmade
toMayCo.for$700.
DATA STORAGEPage 5
Date
Invoice
Number
Account
Debited
Account
NumberPost Ref.Amount
12/01/04 201Lee Co.120-122 800.00
12/01/04 202May Co.120-033 700.00
Sales Journal

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ThethirdandfinalsaleonDecember1
wasmadetoDLKCo.for$900.
DATA STORAGEPage 5
Date
Invoice
Number
Account
Debited
Account
NumberPost Ref.Amount
12/01/04 201Lee Co.120-122 800.00
12/01/04 202May Co.120-033 700.00
12/01/04 203DLK Co.120-111 900.00
Sales Journal

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Suppose the company making these sales posts
transactions at the end of each day.
Consequently, at day’s end, they will post each
individual transaction to the accounts receivable
subsidiary ledger:
An $800 increase in accounts receivable (debit) will
be posted to Lee Co.’s subsidiary account (120-122).
A $700 debit will be posted to May Co.’s subsidiary
account (120-033).
A $900 debit will be posted to DLK Co.’s subsidiary
account (120-111).
DATA STORAGE

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•Then a summary journal entry must be made to
the general journal. The sales for the period are
totaled. In this case, they add up to $2,400.
DATA STORAGEPage 5
Date
Invoice
Number
Account
Debited
Account
NumberPost Ref.Amount
12/01/04 201Lee Co.120-122 800.00
12/01/04 202May Co.120-033 700.00
12/01/04 203DLK Co.120-111 900.00
TOTAL 2,400.00
120/502
Sales Journal

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•The“120/502”thatappearsbeneaththetotalindicates
thatasummaryjournalentryismadeinthegeneral
journalwithadebittoaccountsreceivable(120)anda
credittosales(502).
DATA STORAGEPage 5
Date
Invoice
Number
Account
Debited
Account
NumberPost Ref.Amount
12/01/04 201Lee Co.120-122 800.00
12/01/04 202May Co.120-033 700.00
12/01/04 203DLK Co.120-111 900.00
TOTAL 2,400.00
120/502
Sales Journal

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Theentriesinthegeneraljournalareperiodically(or
automatically)postedtothegeneralledger.The$2,400
debittoaccountsreceivablewillbepostedtothe
accountsreceivablecontrolaccount,andthe$2,400
creditwillbepostedtothegeneralledgeraccountfor
sales.
DATA STORAGE12/01/04Accounts receivable 2,400
Sales revenue 2,400
12/01/04Cash 1,800
Accounts receivable 1,800
12/01/04Salaries expense 900
Cash 900

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Fromtimetotime,thesubsidiaryaccount
balanceswillbeaddedup,andthissum
willbecomparedtothebalanceofthe
controlaccount.
Whatdoesitmeaniftheyaren’tequal?
DATA STORAGE

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Review so far:
Whenroutinetransactionsoccur,theyarerecordedin
specialjournals.
Whennon-routinetransactionsoccur,theyarerecordedin
thegeneraljournal.
Periodically,thetransactionsinthespecialjournalaretotaled,
andasummaryentryismadeinthegeneraljournal.
Theindividuallineitemsinthespecialjournalarepostedto
thesubsidiaryledgeraccounts.
Theitemsinthegeneraljournalarepostedtothegeneral
ledger.
Periodically,thebalancesinthegeneralledgercontrol
accountsarecomparedtothesumsofthebalancesinthe
relatedsubsidiaryaccounts.
DATA STORAGE

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Clickthebuttonbelowifyouwishto
gothroughasummaryofthe
remainingstepsintheaccounting
cycle:
DATA STORAGE
See Remainder
Of
Accounting Cycle

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•Nowlet’smoveontodiscussingsome
computer-basedstorageconcepts,including:
–Entity
–Attribute
–Record
–DataValue
–Field
–File
–MasterFile
–TransactionFile
–Database
COMPUTER-BASED STORAGE
CONCEPTS

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Anentityissomethingaboutwhichinformation
isstored.
Inyouruniversity’sstudentinformationsystem,
oneentityisthestudent.Thestudent
informationsystemstoresinformationabout
students.
Whataresomeotherentitiesinyourstudent
informationsystem?
COMPUTER-BASED STORAGE
CONCEPTS

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Attributesarecharacteristicsofinterestwith
respecttotheentity.
Someattributesthatastudentinformation
systemtypicallystoresaboutthestudententity
are:
–Student ID number
–Phone number
–Address
Whataresomeotherattributesaboutstudents
thatauniversitymightstore?
COMPUTER-BASED STORAGE
CONCEPTS

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Afieldisthephysicalspacewhereanattribute
isstored.
ThespacewherethestudentIDnumberis
storedisthestudentIDfield.
COMPUTER-BASED STORAGE
CONCEPTS
Col. 1–9 Col. 10–30Col. 31–40Col. 41–50
328469993 SIMPSON ALICE 4053721111
328500732 ANDREWS BARRY 4057440236
529036409 FLANDERS CARLA 4057475863

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Arecordisthesetofattributesstoredfora
particularinstanceofanentity.
ThecombinationofattributesstoredforBarry
AndrewsisBarry’srecord.
COMPUTER-BASED STORAGE
CONCEPTS
Col. 1–9 Col. 10–30Col. 31–40Col. 41–50
328469993 SIMPSON ALICE 4053721111
328500732 ANDREWS BARRY 4057440236
529036409 FLANDERS CARLA 4057475863

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Adatavalueistheintersectionoftherowand
column.(FieldVsRecord)
ThedatavalueforBarryAndrews’phone
numberis405-744-0236.
COMPUTER-BASED STORAGE
CONCEPTS
Col. 1–9 Col. 10–30Col. 31–40Col. 41–50
328469993 SIMPSON ALICE 4053721111
328500732 ANDREWS BARRY 4057440236
529036409 FLANDERS CARLA 4057475863

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Afileisagroupofrelatedrecords.
Thecollectionofrecordsaboutallstudentsat
theuniversitymightbecalledthestudentfile.
Iftherewereonlythreestudentsandfour
attributesstoredforeachstudent,thefilemight
appearasshownbelow:
COMPUTER-BASED STORAGE
CONCEPTS
Col. 1–9 Col. 10–30Col. 31–40Col. 41–50
328469993 SIMPSON ALICE 4053721111
328500732 ANDREWS BARRY 4057440236
529036409 FLANDERS CARLA 4057475863

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Amasterfileisafilethatstores
cumulativeinformationaboutan
organization’sentities.
Itisconceptuallysimilartoaledgerina
manualAISinthat:
Thefileispermanent.
Thefileexistsacrossfiscalperiods.
Changesaremadetothefiletoreflectthe
effectsofnewtransactions.
COMPUTER-BASED STORAGE
CONCEPTS

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Atransactionfileisafilethatcontains
recordsofindividualtransactions(events)
thatoccurduringafiscalperiod.
Itisconceptuallysimilartoajournalina
manualAISinthat:
The files are temporary.
The files are usually maintained for one fiscal
period.
COMPUTER-BASED STORAGE
CONCEPTS

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A databaseis a set of interrelated, centrally-
coordinated files.
When files about students are integrated with
files about classes and files about instructors,
we have a database.
COMPUTER-BASED STORAGE
CONCEPTS
Student
File
Class
File
Instructor
File

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•The data processing cycle consists of four
steps:
–Data input
–Data storage
–Data processing
–Information output
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE

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Oncedataaboutabusinessactivityhas
beencollectedandenteredintoasystem,
itmustbeprocessed.
DATA PROCESSING

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Therearefourdifferenttypesoffile
processing:
Updatingdatatorecordtheoccurrenceofan
event,theresourcesaffectedbytheevent,
andtheagentswhoparticipated,e.g.,
recordingasaletoacustomer.
Changingdata,e.g.,acustomeraddress.
Addingdata,e.g.,anewcustomer.
Deletingdata,e.g.,removinganoldcustomer
thathasnotpurchasedanythingin5years.
DATA PROCESSING

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Updatingcanbedonethroughseveral
approaches:
Batch processing
DATA PROCESSING

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•Batch processing:
Sourcedocumentsaregroupedintobatches,
andcontroltotalsarecalculated.
Periodically,thebatchesareenteredintothe
computersystem,edited,sorted,andstored
inatemporaryfile.
Thetemporarytransactionfileisrunagainst
themasterfiletoupdatethemasterfile.
Outputisprintedordisplayed,alongwitherror
reports,transactionreports,andcontroltotals.
DATA PROCESSING

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Updatingcanbedonethroughseveral
approaches:
–Batch processing
Online batch processing
DATA PROCESSING

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•Online batch processing:
Transactionsareenteredintoacomputer
systemastheyoccurandstoredina
temporaryfile.
Periodically,thetemporarytransactionfileis
runagainstthemasterfiletoupdatethe
masterfile.
Theoutputisprintedordisplayed.
DATA PROCESSING

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Updatingcanbedonethroughseveral
approaches:
–Batch processing
–Online batch processing
Online, real-time processing
DATA PROCESSING

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•Online, real-time processing
Transactionsareenteredintoacomputer
systemastheyoccur.
Themasterfileisimmediatelyupdatedwith
thedatafromthetransaction.
Outputisprintedordisplayed.
DATA PROCESSING

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Updatingcanbedonethroughseveral
approaches:
Batch processing
Online batch processing
Online, real-time processing
Ifyou’regoingthroughenrollment,
whichoftheseapproacheswouldyou
preferthatyouruniversitywasusing?
Why?
DATA PROCESSING

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The data processing cycle consists of four
steps:
–Data input
–Data storage
–Data processing
–Information output
TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE

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•The final step in the information process is
information output.
•This output can be in the form of:
–Documents
INFORMATION OUTPUT
•Documentsarerecordsoftransactionsor
othercompanydata.
•EXAMPLE:Employee paychecks or
purchaseordersformerchandise.
•Documentsgeneratedattheendofthe
transactionprocessingactivitiesare
knownasoperationaldocuments(as
opposedtosourcedocuments).
•Theycanbeprintedorstoredas
electronicimages.

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•The final step in the information process is
information output.
•This output can be in the form of:
–Documents
–Reports
INFORMATION OUTPUT
Reportsareusedbyemployeesto
controloperationalactivitiesandby
managerstomakedecisionsand
designstrategies.
They may be produced:
–On a regular basis
–On an exception basis
–On demand
Organizationsshouldperiodically
reassesswhethereachreportis
needed.

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•The final step in the information process is
information output.
•This output can be in the form of:
–Documents
–Reports
–Queries
INFORMATION OUTPUT
Queries are user requests for specific
pieces of information.
They may be requested:
–Periodically
–One time
They can be displayed:
–On the monitor, called soft copy.
–On the screen, called hard copy.

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Output can servea variety of purposes:
Financial statements can be provided to both
external and internal parties.
Some outputs are specifically for internal use:
•For planning purposes
INFORMATION OUTPUT
•Examples of outputs for planning
purposes include:
–Budgets
•Budgets are an entity’s formal expression of
goals in financial terms.
–Sales forecasts

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•Output can serve a variety of purposes:
–Financial statements can be provided to both
external and internal parties.
–Some outputs are specifically for internal use:
•For planning purposes
•For management of day-to-day operations
INFORMATION OUTPUT
•Example: Delivery schedules

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•Output can serve a variety of purposes:
–Financial statements can be provided to both
external and internal parties.
–Some outputs are specifically for internal use:
•For planning purposes
•For management of day-to-day operations
•For control purposes
INFORMATION OUTPUT
•Performance reports are outputs that are
used for control purposes.
•These reports compare an organization’s
standard or expected performance with
its actual outcomes.
•Management by exceptionis an
approach to utilizing performance
reports that focuses on investigating and
acting on only those variances that are
significant.

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•Output can serve a variety of purposes:
–Financial statements can be provided to both
external and internal parties.
–Some outputs are specifically for internal use:
•For planning purposes
•For management of day-to-day operations
•For control purposes
•For evaluation purposes
INFORMATION OUTPUT
•These outputs might include:
–Surveys of customer satisfaction.
–Reports on employee error rates.

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•Behavioral implications of managerial
reports:
–YOU GET WHAT YOU MEASURE!
INFORMATION OUTPUT

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Supposeaninstructorwantstoimprovestudent
learning.
Hedecidestoencouragebetterattendanceby
gradingstudentsonattendance(i.e.,measuringit).
Theresultwillbebetterstudentattendance,i.e.,you
getwhatyoumeasure.
Theimprovedattendancemayormaynotimprove
learningoutcomes.
Studentsmaybegettingbettergradeswhen
attendanceismeasured,butnotlearningmore.
Somestudentsmayinfactreducetheirstudying
becausetheybelievetheycanusetheattendance
scoretoboosttheirgrade.Thisbehaviorwouldbea
dysfunctionalresultofthemeasurement.
INFORMATION OUTPUT

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Budgets can cause dysfunctional behavior.
–EXAMPLE:
–In order to stay within budget, the IT department
did not buy a security package for its system.
–A hacker broke in and devastated some of their
data files.
–Critical security measures were foregone in order
to meet budgetary goals.
–The resulting costs far outweighed the savings.
INFORMATION OUTPUT

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Budgetingcanalsobedysfunctionalin
thatthefocuscanberedirectedto
creatingacceptablenumbersinstead
ofachievingorganizationalobjectives.
Does thismean organizations
shouldn’tbudget?
INFORMATION OUTPUT

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•The saying goes, “Not many people sit
around and have a roast goose fall in their
lap.”
•In other words, if you want a roast goose,
you have to aim.
•With financial results, you’re also unlikely to
achieve when you don’t aim.
•Just be careful where you aim!
INFORMATION OUTPUT

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The traditional AIS captured financial data.
–Non-financial data was captured in other,
sometimes-redundant systems
ROLE OF THE AIS

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Enterpriseresourceplanning(ERP)systems
aredesignedtointegrateallaspectsofa
company’s operations(includingboth
financialandnon-financialinformation)with
thetraditionalfunctionsofanAIS.
ROLE OF THE AIS

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•We’ve learned about the basic business processes
in which an organization engages, the decisions
that need to be made, and the information required
to make those decisions.
•We’ve reviewed the data processing cycle and its
role in organizing business processes and
providing information to users.
•Finally, we’ve touched on the role of the
information systems in modern organizations and
introduced the notion of enterprise resource
planning systems.
SUMMARY

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End
of
Chapter 2