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INTRODUCTION

CHAPTER 2 • Questions to be addressed in this chapter

include:
– What are the basic business processes in which an
organization engages?
Overview of • What decisions must be made to undertake these
processes?
• What information is required to make those decisions?

Business Processes – What role does the data processing cycle play in
organizing business processes and providing
information to users?
– What is the role of the information system and
enterprise resource planning in modern
organizations?

INFORMATION NEEDS AND INFORMATION NEEDS AND

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

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INFORMATION NEEDS AND INTERACTION WITH EXTERNAL AND

BUSINESS PROCESSES INTERNAL PARTIES
• Types of information needed for decisions:
– Some is financial
External
– Some is nonfinancial
AIS Parties
– Some comes from internal sources
– Some comes from external sources
• An effective AIS needs to be able to • The AIS interacts with external parties,
integrate information of different types and such as customers, vendors, creditors,
from different
By improving sources.
business processes leading to efficient
and governmental agencies.
production, Toyota has become the largest automobile
manufacturer in the world, a title held by General Motors for
almost 100 years.

INTERACTION WITH EXTERNAL AND INTERACTION WITH EXTERNAL AND

INTERNAL PARTIES INTERNAL PARTIES

Internal External Internal External

Parties AIS Parties Parties AIS Parties

• The AIS also interacts with internal parties • The interaction is typically two way, in that
such as employees and management. the AIS sends information to and receives
information from these parties.

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BUSINESS CYCLES BUSINESS CYCLES

• A transaction is: • The business transaction cycle is a

– An agreement between two entities to process that:
exchange goods or services; OR – Begins with capturing data about a
– Any other event that can be measured in transaction.
economic terms by an organization. – Ends with an information output, such as
• EXAMPLES: financial statements.
– Sell goods to customers
– Depreciate equipment

BUSINESS CYCLES BUSINESS CYCLES

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

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REVENUE CYCLE BUSINESS CYCLES

• The revenue cycle involves interactions • Many business processes are paired in
with your customers. give-get exchanges.
• You sell goods or services and get cash. • The basic exchanges can be grouped into
five major transaction cycles:
– Revenue cycle
– Expenditure cycle
Give Get – Production cycle
Goods Cash – Human resources/payroll cycle
– Financing cycle

EXPENDITURE CYCLE BUSINESS CYCLES

• The expenditure cycle involves • Many business processes are paired in

interactions with your suppliers. give-get exchanges.
• You buy goods or services and pay cash. • The basic exchanges can be grouped into
five major transaction cycles:
– Revenue cycle
– Expenditure cycle
Give Get – Production cycle
Cash Goods – Human resources/payroll cycle
– Financing cycle

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PRODUCTION CYCLE BUSINESS CYCLES

• In the production cycle, raw materials and • Many business processes are paired in
labor are transformed into finished goods. give-get exchanges.
• The basic exchanges can be grouped into
five major transaction cycles:
– Revenue cycle
– Expenditure cycle
Give Raw Get
Materials & – Production cycle
Finished
Labor Goods – Human resources/payroll cycle
– Financing cycle

HUMAN RESOURCES/
BUSINESS CYCLES
PAYROLL CYCLE
• The human resources cycle involves • Many business processes are paired in
interactions with your employees. give-get exchanges.
• Employees are hired, trained, paid, • The basic exchanges can be grouped into
evaluated, promoted, and terminated. five major transaction cycles:
– Revenue cycle
– Expenditure cycle
Give Get – Production cycle
Cash Labor – Human resources/payroll cycle
– Financing cycle

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FINANCING CYCLE BUSINESS CYCLES

• The financing cycle involves interactions with • Thousands of transactions can occur
investors and creditors.
within any of these cycles.
• You raise capital (through stock or debt), repay
the capital, and pay a return on it (interest or • But there are relatively few types of
dividends). transactions in a cycle.

Give Get
Cash cash

BUSINESS CYCLES BUSINESS CYCLES

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

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BUSINESS CYCLES BUSINESS CYCLES Back

• Click on the buttons below if you wish to • Transactions in the expenditure cycle:
see the transactions that occur in the other • MAJOR GIVE-GET: • Update accounts payable for
cycles: • Give cash; get goods or purchase
services • Approve invoices for payment
Expenditure Human Res./ • OTHER TRANSACTIONS • Pay vendors
Cycle Payroll Cycle • Requisition goods and • Update accounts payable for
services payment
• Process purchase orders to • Handle purchase returns,
vendors discounts, and allowances
Production Financing
Cycle Cycle • Receive goods and services • Prepare management reports
• Store goods • Send info to other cycles
• Receive vendor invoices

BUSINESS CYCLES Back BUSINESS CYCLES Back

• Transactions in the HR/payroll cycle: • Transactions in the production cycle:

• MAJOR GIVE-GET: • Pay employees • MAJOR GIVE-GET: • Store finished goods
• Give cash; get labor • Process timecard and • Give labor and raw materials; • Accumulate costs for
• OTHER TRANSACTIONS commission data Get finished goods products
• Recruit, hire, and train • Prepare and distribute • OTHER TRANSACTIONS • Prepare management reports
employees payroll • Design products • Send info to other cycles
• Evaluate and promote • Calculate and disburse tax • Forecast, plan, and schedule
employees and benefit payments production
• Discharge employees • Prepare management reports • Requisition raw materials
• Update payroll records • Send info to other cycles • Manufacture products

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BUSINESS CYCLES Back BUSINESS CYCLES

• Transactions in the financing cycle: • Every transaction cycle:

• MAJOR GIVE-GET: • Pay dividends to investors – Relates to other cycles.
• Give cash; get cash and interest to lenders – Interfaces with the general ledger and
• OTHER TRANSACTIONS • Retire debt
reporting system, which generates information
• Forecast cash needs • Prepare management reports
• Send info to other cycles for management and external parties.
• Sell securities to investors
• Borrow money from lenders

Finished Goods

Raw
Mats.
Revenue Expenditure Production Revenue Expenditure Production
Cycle Cycle Cycle Cycle Cycle Cycle
Data

General Ledger General Ledger

and Reporting • The Revenue Cycle and Reporting • The Expenditure
System – Gets finished System Cycle
goods from the – Gets funds from
production cycle. the financing cycle.
– Provides funds to – Provides raw
the financing cycle. materials to the
– Provides data to production cycle.
Human Res./ Financing the general ledger Human Res./ Financing – Provides data to
Payroll Cycle and reporting Payroll Cycle the general ledger
Cycle system. Cycle and reporting
system.

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Finished Goods

Raw
Mats.
Revenue Expenditure Production Revenue Expenditure Production
Cycle Cycle Cycle Cycle Cycle Cycle

General Ledger General Ledger

and Reporting • The Production Cycle: and Reporting • The HR/Payroll
System – Gets raw materials System Cycle:
from the expenditure
cycle.
– Gets funds from
the financing cycle
– Gets labor from the
HR/payroll cycle. – Provides labor to
– Provides finished the production
Human Res./ Financing goods to the revenue Human Res./ Funds Financing cycle.
Payroll Cycle Cycle cycle. Payroll Cycle Cycle – Provides data to
– Provides data to the the general ledger
general ledger and and reporting
reporting system. system.

Revenue Expenditure Production Revenue Expenditure Production

Cycle Cycle Cycle Cycle Cycle Cycle
Data

General Ledger General Ledger Information for

and Reporting • The Financing and Reporting
Internal & External Users

System Cycle: System

– Gets funds from
the revenue cycle.
•
Data

The General Ledger

– Provides funds to
the expenditure and Reporting System:
and HR/payroll – Gets data from all of
Human Res./ Funds Financing cycles. Human Res./ Financing the cycles.
Payroll Cycle Cycle – Provides data to Payroll Cycle Cycle – Provides information
the general ledger for internal and
and reporting external users.
system.

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BUSINESS CYCLES

• Many accounting software packages

implement the different transaction cycles
as separate modules.
– Not every module is needed in every
organization, e.g., retail companies don’t have
a production cycle.
– Some companies may need extra modules.
– The implementation of each transaction cycle
can differ significantly across companies.

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