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Chapter 2

Business Fundamentals


Our Agenda The Nature of Business Types of Businesses Business Trends Business Functions The Organization of a Business


Our Agenda Information and Business

Operations Information and Business

Management Basic Business Information

Processing Information Systems and Business


Learning Objectives Explain the purpose of a business

and describe the main types of businesses.

Describe several trends that affect businesses today.

Describe the major business functions and explain how a business is organized.


Learning Objectives (cont’d.) Diagram typical flows of

information in business operations. Explain how information is used in

the management of a business. Describe several basic business

information processing activities used in businesses.


Learning Objectives (cont’d.) Explain how information systems

support information needs in all functions of all types of businesses and organizations.


The Nature of Business



The Nature of Business The purpose of a business is to

provide products – goods and services – for its customers.

Money, or value, received from customers for its products is revenue.

To provide its products, the business incurs expenses.


The Nature of Business (cont’d.) Most business are “for profit”. Some businesses are “not-for-

profit”. The business environment includes

economic, legal, cultural, and competitive factors.


Types of Businesses



Types of Businesses Products sold to other businesses

are sold at wholesale. Products sold to the consumer are

sold at retail.


Types of Businesses (cont’d.) Manufacturers Wholesalers (or Distributor) Retailers Service Businesses Not-for-profit Organizations Government


Business Trends



Business Trends Globalization of business Consolidation of businesses Shift away from manufacturing

towards service businesses


Business Functions



Business Functions Accounting Finance Marketing Production Human Resource Management Other functions

Research and Development Information Services


The Organization of a Business



The Organization of a Business Employees often grouped by

general functions. Departments Workgroups

Organization Chart diagrams the arrangement of employees functionally.


Information and Business Operations



Information and Business Operations Business operations are those

activities that provide products and ensure the business makes a profit.

Information flow within a business may be within or between workgroups, within or between departments, or within or outside the business.


Information and Business Management



Information and Business Management Management is all the activities

related to deciding how a business functions.

A decision is a selection among different courses of action.

Management decisions are of three types: Strategic decisions

Usually made at the highest level Generally long-term decisions


Information and Business Management (cont’d.)

Tactical decisions Usually made at the department or

workgroup level Generally short to medium term in nature

Operational decisions Usually made by individuals at the “front

line” Generally short term in nature


Basic Business Information Processing



Basic Business Information Processing Eight basic information processing

activities1. Entering customer orders2. Billing (invoicing) customers3. Collecting customer payments4. Keeping track of inventory5. Purchasing stock and materials6. Paying bills7. Paying employees8. Reporting financial information


Entering Customer Orders Customer order acceptance and

preparation of a sales order in a form the business can use.

Usually part of the marketing function and performed in the Sales Department.

Sales Department determines if there is sufficient inventory on hand and the creditworthiness of the customer.


Entering Customer Orders (cont’d.) Inputs

Customer orders May be received by mail, phone, fax,

email, and other methods

Outputs Sales order Shipping order


Billing Customers Shipping Department uses the

sales order to determine what items should be shipped to the customer.

Billing Department prepares the customer’s bill (invoice) for those goods shipped by the Shipping Department.

Billing department may be part of the accounting or marketing function.


Billing Customers (cont’d.) Inputs

Sales order Shipping order

Outputs Invoice


Collecting Customer Payments The Accounts Receivable

Department uses a copy of the invoice produced by the Billing Department to keep track of the amount a customer owes the business.


Collecting Customer Payments (cont’d.) Inputs

Invoice Customer payments

Outputs Customer statements Overdue notices Accounts receivable reports


Keeping Track of Inventory A business must keep track of its

inventory and report when inventory is low so it can reorder more stock.

Can be a part of the production or operations function.

Can be a part of the marketing or accounting function.


Keeping Track of Inventory (cont’d.) Types of inventory

Raw Materials Work-in-Process Finished goods


Keeping Track of Inventory (cont’d.) Inputs

Receiving notice Outputs

Inventory reorder report Inventory value report


Purchasing Stock and Materials Determine the best suppliers and

prepare purchase orders which indicate to the suppliers what items the business wants to purchase.

Can be a part of the production or operations function.

Can be a part of the accounting function.


Purchasing Stock and Materials (cont’d.) Inputs

Inventory reorder report Outputs

Purchase order


Paying Bills Accounts Payable Department uses

a copy of the purchase order to keep track of money owed by the business for purchases, called accounts payable.

Part of the accounting function.


Paying Bills (cont’d.) Inputs

Purchase order Receiving notice Invoice from supplier

Outputs Checks payable to suppliers Accounts payable report


Paying Employees Involves paying employees wages

or salaries and providing reports to other business functions.

Usually part of the accounting function, but may be part of the human resources management function.


Paying Employees (cont’d.) Inputs

Employee work report (time sheet) Outputs

Payroll report Paychecks to employees


Reporting Financial Information Provides reports of financial

information for the management and owners of the business.

Usually a part of the accounting department.


Reporting Financial Information (cont’d.) Categories of “accounts”

Assets – what the business “owns” Liabilities – what the business “owes” Stockholder’s Equity – what the

business is “worth” Revenues – the income of the

business Expenses – the costs incurred to

produce the revenues of the business


Reporting Financial Information (cont’d.) Inputs

Reports on revenue, expenses, assets and liabilities – the transactions of the business

Outputs Balance Sheet Income Statement


Information Systems and Business



Information Systems and Business IS can control the information flow

in business operations. IS can increase the effectiveness of

management decision making. Information processing activities

are more efficient and effective when IS are utilized.



Key Terms


Key Terms Accounting Department Finance Human Resource Management Information Services Manufacturer

Marketing Operations Organization Chart Production Research and Development (R&D) Retailer


Key Terms (cont’d.) Service Business Wholesaler

(Distributor) Workgroup


Summary The Nature of Business Types of Businesses Business Trends Business Functions The Organization of a Business


Summary Information and Business

Operations Information and Business

Management Basic Business Information

Processing Information Systems and Business

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