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C HAPTER 2
Overview of Business
Processes
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 1 of 119
INTRODUCTION
• Questions to be addressed in this chapter
include:
– What are the basic business processes in which an
organization engages?
• What decisions must be made to undertake these
processes?
• What information is required to make those decisions?
– 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?
Business Process
• Systems working
Financing Revenue
toward
organizational
goals
Human
Expenditure
Resources
Production
Copyright © 2012 Pearson Education 1-3

INFORMATION NEEDS AND
BUSINESS PROCESSES
• Businesses engage in a variety of processes,
including:
– Acquiring capital
– Buying buildings and equipment Each decision
– Hiring and training employees requires
different types
– Purchasing inventory of information.
– Doing advertising and marketing
– Selling goods or services
– Collecting payment from customers
– Paying employees
– Paying taxes
– Paying vendors
INFORMATION NEEDS AND
BUSINESS PROCESSES
• Types of information needed for decisions:
– Some is financial
– Some is nonfinancial
– Some comes from internal sources
– Some comes from external sources
• An effective AIS needs to be able to
integrate information of different types and
from different sources.
By improving business processes leading to efficient 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
INTERNAL PARTIES
External
AIS Parties
• The AIS interacts with external parties,

such as customers, vendors, creditors,
and governmental agencies.
INTERNAL PARTIES
Internal External
Parties AIS Parties
• The AIS also interacts with internal parties

such as employees and management.
INTERNAL PARTIES
Internal External
Parties AIS Parties
• The interaction is typically two way, in that

the AIS sends information to and receives
information from these parties.
BUSINESS CYCLES
• A transaction is:
– An agreement between two entities to
exchange goods or services; OR
– Any other event that can be measured in
economic terms by an organization.
• EXAMPLES:
– Sell goods to customers
– Depreciate equipment
Business Transactions
• Give–Get exchanges
• Between two entities
• Measured in economic terms
Copyright © 2012 Pearson Education 1- 10 of

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart
BUSINESS CYCLES
• The business transaction cycle is a

process that:
– Begins with capturing data about a
transaction.
– Ends with an information output, such as
financial statements.
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BUSINESS CYCLES
• Many business processes are paired in

give-get exchanges.
• Basic exchanges can be grouped into five
major transaction cycles:
– Revenue cycle
– Expenditure cycle
– Production cycle
– Human resources/payroll cycle
– Financing cycle
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Revenue Expenditure Production
Cycle Cycle Cycle
Data
General Ledger Information for
Internal & External Users
and Reporting
System
•
Data
The General Ledger
and Reporting System:
– Gets data from all of
Human Res./ Financing the cycles.
Payroll Cycle Cycle – Provides information
for internal and
external users.
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Business Cycle Give–Get

BUSINESS CYCLES

give-get exchanges.
• The basic exchanges can be grouped into
five major transaction cycles:
– Revenue cycle
– Financing cycle
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REVENUE CYCLE
• The revenue cycle involves interactions

with your customers.
• You sell goods or services and get cash.
Give Get
Goods Cash
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BUSINESS CYCLES

give-get exchanges.
– Revenue cycle
– Financing cycle
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EXPENDITURE CYCLE
• The expenditure cycle involves

interactions with your suppliers.
• You buy goods or services and pay cash.
Give Get
Cash Goods
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BUSINESS CYCLES

give-get exchanges.
– Revenue cycle
– Financing cycle
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PRODUCTION CYCLE
• In the production cycle, raw materials and

labor are transformed into finished goods.
Give Raw Get

Materials & Finished
Labor Goods
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BUSINESS CYCLES

give-get exchanges.
– Revenue cycle
– Financing cycle
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HUMAN RESOURCES/
PAYROLL CYCLE
• The human resources cycle involves interactions
with your employees.
• Employees are hired, trained, paid, evaluated,
promoted, and terminated. (HTPEPT)
Give Get
Cash Labor
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BUSINESS CYCLES

give-get exchanges.
– Revenue cycle
– Financing cycle
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FINANCING CYCLE
• The financing cycle involves interactions with

investors and creditors.
• You raise capital (through stock or debt), repay
the capital, and pay a return on it (interest or
dividends).
Give Get
Cash cash
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BUSINESS CYCLES
• Thousands of transactions can occur

within any of these cycles.
• But there are relatively few types of
transactions in a cycle.
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BUSINESS CYCLES
• EXAMPLE: In the revenue cycle, the basic

give-get transaction is:
– Give goods
– Get cash
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BUSINESS CYCLES
• Other transactions in the revenue cycle include:

• Handle customer inquiries • Update sales and Accts Rec.
• Take customer orders for sales
• Approve credit sales • Receive customer payments
• Check inventory availability • Update Accts Rec. for
• 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
• Click on the buttons below if you wish to

see the transactions that occur in the other
cycles:
Expenditure Human Res./
Cycle Payroll Cycle
Production Financing
Cycle Cycle
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BUSINESS CYCLES
• Every transaction cycle:

– Relates to other cycles.
– Interfaces with the general ledger and
reporting system, which generates information
for management and external parties.
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Finished Goods

Cycle Cycle Cycle
General Ledger
and Reporting • The Revenue Cycle
System – Gets finished
goods from the
production cycle.
– Provides funds to
the financing cycle.
– Provides data to
Human Res./ Financing the general ledger
Payroll Cycle Cycle and reporting
system.
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Raw
Mats.
Cycle Cycle Cycle
Data
General Ledger
and Reporting • The Expenditure
System Cycle
– Gets funds from
the financing cycle.
– Provides raw
materials to the
production cycle.
Human Res./ Financing – Provides data to
Payroll Cycle Cycle the general ledger
and reporting
system.
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Finished Goods
Raw
Mats.
Cycle Cycle Cycle
General Ledger
and Reporting • The Production Cycle:
System – Gets raw materials
from the expenditure
cycle.
– Gets labor from the
HR/payroll cycle.
– Provides finished
Human Res./ Financing goods to the revenue
Payroll Cycle cycle.
Cycle
– Provides data to the
general ledger and
reporting system.
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Cycle Cycle Cycle
General Ledger
and Reporting • The HR/Payroll
System Cycle:
– Gets funds from
the financing cycle
– Provides labor to
the production
Human Res./ Funds Financing cycle.
Payroll Cycle Cycle – Provides data to
the general ledger
and reporting
system.
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Cycle Cycle Cycle
General Ledger
and Reporting • The Financing
System Cycle:
– Gets funds from
the revenue cycle.
– Provides funds to
the expenditure
and HR/payroll
Human Res./ Funds Financing cycles.
Payroll Cycle Cycle – Provides data to
the general ledger
and reporting
system.
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Cycle Cycle Cycle
Data
General Ledger Information for
Internal & External Users
and Reporting
System
•
Data
The General Ledger
and Reporting System:
– Gets data from all of
Human Res./ Financing the cycles.
Payroll Cycle Cycle – Provides information
for internal and
external users.
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Business Cycle Give–Get

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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BUSINESS CYCLES
• However the cycles are implemented, it is

critical that the AIS be able to:
– Accommodate the information needs of
managers.
– Integrate financial and nonfinancial data.
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TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE
• Accountants play an important role in data
processing. They answer questions such as:
– What data should be entered and stored?
– Who should be able to access the data?
– How should the data be organized, updated, stored,
accessed, and retrieved?
– How can scheduled and unanticipated information
needs be met?
• To answer these questions, they must
understand data processing concepts.
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TRANSACTION PROCESSING:
THE DATA PROCESSING CYCLE
• An important function of the AIS is to
efficiently and effectively process the data
about a company’s transactions.
– In manual systems, data is entered into paper
journals and ledgers.
– In computer-based systems, the series of
operations performed on data is referred to as
the data processing cycle.
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SUMMARY
• 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.
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C HAPTER 2

Copyright © 2012 Pearson Education 1-3

• The AIS interacts with external parties,

• The AIS also interacts with internal parties

• The interaction is typically two way, in that

Copyright © 2012 Pearson Education 1- 10 of

• The business transaction cycle is a

• Many business processes are paired in

Copyright © 2012 Pearson Education 1- 14 of

• Many business processes are paired in

• The revenue cycle involves interactions

• Many business processes are paired in

• The expenditure cycle involves

• Many business processes are paired in

• In the production cycle, raw materials and

Give Raw Get

• Many business processes are paired in

• Many business processes are paired in

• The financing cycle involves interactions with

• Thousands of transactions can occur

• EXAMPLE: In the revenue cycle, the basic

• Other transactions in the revenue cycle include:

• Click on the buttons below if you wish to

• Every transaction cycle:

Revenue Expenditure Production

Copyright © 2012 Pearson Education 1- 40 of

• Many accounting software packages

• However the cycles are implemented, it is

• We’ve learned about the basic business processes

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