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Week4b_Transaction_Cycles-2.pdf
Week 4b
Business Transaction Cycles
1
INTRODUCTION
• Questions to be addressed in this lecture include:
What are the basic business processes in which an organisation engages?
What decisions must be made to undertake these processes?
What information is required to make those decisions?
2
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 suppliers
Each activity
requires
different types
of decisions.
3
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 suppliers
Each decision
requires
different types
of information.
4
from different sources.
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 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. 5
INTERACTION WITH EXTERNAL AND
INTERNAL PARTIES
• The AIS interacts with external parties,
such as customers, suppliers, creditors,
and governmental agencies.
AIS External
Parties
6
INTERACTION WITH EXTERNAL AND
INTERNAL PARTIES
• The AIS also interacts with internal parties
such as employees and management.
AIS Internal
Parties
External
Parties
7
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
8
• 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 organisation.
• EXAMPLES:
– Sell goods to customers
– Depreciate equipment
BUSINESS CYCLES
9
• The business transaction cycle is a
process that:
– Begins with capturing data about a
transaction.
– Ends with an information output, such as
financial statements.
BUSINESS CYCLES
10
• 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
BUSINESS CYCLES
11
• 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
12
• The revenue cycle involves interactions
with your customers.
• You sell goods or services and get cash.
REVENUE CYCLE
Give
Goods Get
Cash
13
• 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
14
• The expenditure cycle involves
interactions with your suppliers.
• You buy goods or services and pay cash.
EXPENDITURE CYCLE
Give
Cash Get
Goods
15
• 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
16
• In the production cycle, raw materials and
labour are transformed into finished
goods.
PRODUCTION CYCLE
Give Raw
Materials &
labour
Get
Finished
Goods
17
• 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
18
• The human resources cycle involves
interactions with your employees.
• Employees are hired, trained, paid,
evaluated, promoted, and terminated.
HUMAN RESOURCES/
PAYROLL CYCLE
Give
Cash Get
labour
19
• 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
20
• 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).
FINANCING CYCLE
Give
Cash Get
cash
21
• Thousands of transactions can occur
within any of these cycles.
• But there are relatively few types of
transactions in a cycle.
BUSINESS CYCLES
22
• EXAMPLE: In the revenue cycle, the basic
give-get transaction is:
– Give goods
– Get cash
BUSINESS CYCLES
23
BUSINESS CYCLES
• Other transactions in the revenue cycle include:
• Handle customer inquiries • 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
• Take customer orders
• Approve credit sales
• Check inventory availability
• Initiate back orders
• Pick and pack orders
• Ship goods
• invoice customers
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
25
Cycle
• Transactions in the expenditure cycle:
BUSINESS CYCLES
services
• Process purchase orders to
suppliers
• Receive goods and services
• Store goods
• Receive supplier invoices
• MAJOR GIVE-GET: • Update accounts payable for
purchase
Approve invoices for payment
Pay suppliers
• Give cash; get goods or
services •
• OTHER TRANSACTIONS •
• Requisition goods and • Update accounts payable for
payment
• Handle purchase returns,
discounts, and allowances
• Prepare management reports
• Send info to other cycles
Back
26
BUSINESS CYCLES
• Recruit, hire, and train
employees
• Evaluate and promote
employees
• Discharge employees
• Update payroll records
• Transactions in the HR/payroll cycle:
• MAJOR GIVE-GET: • Pay employees
• Give cash; get labour •
• OTHER TRANSACTIONS
Process timecard and
commission data
• Prepare and distribute
payroll
• Calculate and disburse tax
and benefit payments
• Prepare management reports
• Send info to other cycles
Back
27
BUSINESS CYCLES
production
• Requisition raw materials
• Manufacture products
• Transactions in the production cycle:
• MAJOR GIVE-GET: • Store finished goods
Accumulate costs for
products
Prepare management reports
• Give labour and raw •
materials; Get finished goods
• OTHER TRANSACTIONS •
• Design products •
• Forecast, plan, and schedule
Send info to other cycles
Back
28
• Transactions in the financing cycle:
BUSINESS CYCLES
• Give cash; get cash
• OTHER TRANSACTIONS
• Forecast cash needs
• Sell securities to investors
• Borrow money from lenders
• MAJOR GIVE-GET: • Pay dividends to investors
and interest to lenders
• Retire debt
• Prepare management reports
• Send info to other cycles
Back
29
• Every transaction cycle:
– Relates to other cycles.
– Interfaces with the general ledger and
reporting system, which generates information
for management and external parties.
BUSINESS CYCLES
30
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
31
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.
D a ta
32
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 labour 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
33
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 labour to the production cycle.
– Provides data to the general ledger and reporting system.
Funds
34
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
35
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
D a ta
D a ta
36
• Many accounting software packages
implement the different transaction cycles
as separate modules.
– Not every module is needed in every
organisation, 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.
BUSINESS CYCLES
37
• 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.
BUSINESS CYCLES
38
• The traditional AIS captured financial data.
– Non-financial data was captured in other,
sometimes-redundant systems
• Enterprise resource planning (ERP) systems
are designed to integrate all aspects of a
company’s operations (including both
financial and non-financial information) with
the traditional functions of an AIS.
ROLE OF THE AIS
39
We’ve learned about the basic business processes in
which an organisation engages, the decisions that
need to be made, and the information required to
make those decisions.
SUMMARY
40
