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CHAPTER 2
OVERVIEW OF BUSINESS PROCESSES
Instructor’s Manual
Learning Objectives:
1. Describe the four parts of the data processing cycle and the
major activities in each.
3. Describe the ways information is stored in computer-based
information systems.
Questions to be addressed in this chapter include:
1. How should I organize the accounting records so that financial
statements can be easily produced?
2. How am I going to collect and process data about all of S&S’s
transactions?
3. How do I organize all the data that will be collected?
4. How should I design the AIS so that the information provided is
reliable and accurate?
Transaction Processing: The Data Processing Cycle
Four Major Steps in the Data Processing Cycle
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1) Data Input
2) Data Storage
Data Input
Data must be collected about three facets of each business
activity:
1. Each activity of interest
For example, collect the following data about a sales
transaction:
2. Employee who made the sale and the checkout clerk who
processed the sale
4. Item(s) sold
6. List price and actual price of each item sold
8. For credit sales: delivery instructions, customer
bill-to and ship-to addresses, customer name
Information Output
This is the final step in the data processing cycle.
Forms of Information Output
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Documents are records of transaction or other company
data, such as checks and invoices.
Documents generated at the end of transaction
processing activities are called operational
documents to distinguish them from source documents,
which are used at the beginning of the process.
Purpose of Output
There are four main types of financial reports that were
covered in Principles of Accounting I & II courses, the
balance sheet, income statement, statement of owner’s
equity or statement of stockholder’s equity and the
statement of cash flows. Sometimes a statement of retained
Multiple Choice 1
Which of the following is NOT a step in the data processing cycle?
a. data collection c. data storage
b. data input d. data processing
Learning Objective Two
Describe documents and procedures used to collect
and process transaction data.
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Source Documents are documents used to collect data about their
business activities. Source documents are also used to support
the validity of the business activities.
Source Data Automation is yet another means to improve the
accuracy and efficiency of data input. An example would be once
the sale of merchandise is rung up on the cash register it would
be interfaced with accounting to automatically record the sale
and also interfaced with the warehouse to automatically reduce
the level of inventory for the item that was sold. This would
also be interfaced with purchasing in which the purchase order
would automatically be printed out for delivery to the vendor.
Multiple Choice 2
Which of the following documents is most likely to be used in the
expenditure cycle?
a. sales orders
Computer–Based Storage Concepts
An entity is something about which information is stored.
For example, employees, inventory items, and customers.
Each entity has attributes, or characteristics of interest,
which need to be stored. For example, an employee’s hourly
rate of pay, unit cost of an inventory item, and a
customer’s address.
Figure 2-5 on page 42 provides examples of data storage
elements:
1. Data values are stored in a physical space called a
2. The sect of fields that contain data about various
3. The contents of each field within a record are called
4. In turn, data elements/data value is composed of
characters such as letters, numbers, and symbols.
6. Two basic types of files exist:
▪ A master file is conceptually similar to a ledger
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Data Processing
Once data about a business activity have been collected and
entered into the system they must be processed.
Data processing implies the execution of a certain procedures,
usually involving a series of tasks.
There are four different types of file processing:
1. Updating data previously stored about the activity, the
resources affected by the activity , or the people who
2. Changing data, such as changing a customer’s address
3. Adding data, such as adding a new employee to the
4. Deleting data, such as purging the vendor master file of
all vendors that the company no longer does business
with
Periodic updating of data is referred to as batch processing.
This approach may be combined with either the off-line or on-line
entry of data.
Multiple Choice 3
Recording and processing information about a transaction at the time it
takes place is referred to as which of the following?
a. batch processing
b. online, real-time processing
c. captured transaction processing
d. chart of accounts processing
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Data Storage
A company’s data are one of its most important resources.
Accountants need to know how to manage data for maximum corporate
use.
Ledgers
General Ledger contains summary-level data for every
asset, liability, equity, revenue, and expense
account of the organization.
Accounts receivable subsidiary ledger would
record detailed data for customers whom buy
products or services on credit.
The accounts receivable subsidiary ledger would
support the accounts receivable general ledger
controlling account.
Coding Techniques
Coding is the systematic assignment of numbers or
letters to items to classify and organize them.
1. With sequence codes, items are numbered
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2. With a block code, blocks of numbers within a
numerical sequence are reserved for categories
having meaning to the user
3. Group codes are often used in conjunction with the
block code. S&S uses a seven-digit product code
1. The code should be consistent with its intended use,
which requires the code designer to determine the types
of system outputs desired by users prior to selecting
the code.
Make sure the coding system is consistent (1) with the company’s
organizational structure and (2) across the different divisions of an
organization
Chart of Accounts
A chart of accounts is a list of all general ledger accounts an
organization uses with each general ledger account being assigned
a specific number.
Audit Trail The accounting data and records should provide a trail
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Multiple Choice 4
How does the chart of accounts list general ledger accounts?
a. alphabetical order
b. chronological order
c. size order
d. the order in which they appear in financial statements
Multiple Choice 5
Which of the following is NOT an advantage of an ERP system?
a. better access control
b. standardization of procedures and reports
c. improved monitoring capabilities
d. simplicity and reduced costs
ANSWERS to Multiple Choice Questions: