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CHAPTER 2 OVERVIEW OF BUSINESS PROCESSES INTRODUCTION Questions to be addressed in this chapter include: What are the basic business activities in which an organization engages? What decisions must be made to undertake these activities? What information is required to make those decisions? What role does the data processing cycle play in organizing business activities and providing information to users? What is the role of the information system and enterprise resource planning in modern organizations? INFORMATION NEEDS AND BUSINESS ACTIVITIES Businesses engage in a variety of activities, 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, and paying vendors. Each decision requires different types of information. Information needed for decisions may be financial or non-financial and may come from either internal or external sources. An effective AIS needs to be able to integrate this information. INTERACTION WITH EXTERNAL AND INTERNAL PARTIES The AIS interacts with external parties, such as customers, vendors, creditors, and governmental agencies. The AIS also interacts with internal parties such as employees and management. These interactions are 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. The transaction cycle is a process that begins with capturing data about a transaction and ends with an information output, such as a set of financial statements. Many business activities are paired in give-get exchanges The basic exchanges can be grouped into five major transaction cycles. Revenue cycle —Interactions with customers. Give goods; get cash. Expenditure cycle —Interactions with suppliers. Give cash; get goods. Production cycle —Give labor and raw materials; get finished product. Human resources/payroll cycle —Give cash; get labor. Financing cycle —Give cash; get cash. Thousands of transactions can occur within any of these cycles, but there are relatively few types of transactions in a cycle. Every transaction cycle relates to other cycles and interfaces with the general ledger and reporting system, which generates information for management and external parties. Chapter 2: Business Processes 1
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The revenue cycle gets finished goods from the production cycle; provides funds to the financing cycle; and provides data to the general ledger and reporting system. The expenditure cycle gets funds from the financing cycle; provides raw materials to the
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This note was uploaded on 01/22/2011 for the course COB acct taught by Professor Smith during the Fall '09 term at California Coast University.

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