 Hello and welcome to the session in which we will discuss the concept of e-commerce as it applies to the CPA exam. So e-commerce, technology, networking, IT infrastructures, those topics, they're going to be tested more heavily on the CPA exam, especially on the BEC section. So whether you are a CPA candidate or an accounting student, I strongly suggest you to take a look at my website, farhatlectures.com. I don't replace your CPA review course. I am a useful addition to your CPA review course. I give you an alternative explanation. I explain the material differently than your CPA review course. I provide you with alternative resources to help you do better on your CPA review course, which you will do better on your CPA exam. So that's what I offer you. I'm not a replacement of your CPA review course. And to try me, all I have to do is to risk one month of subscription to find out whether the system will help increase your score by 10 to 15 points. I can assure you based on history, many students use my system to succeed on the CPA exam. And if not for anything, take a look at my website to find out how well or not well your university doing on the CPA exam. I do have resources for other CPA sections and accounting courses. Also connect with me on LinkedIn. If you haven't done so, take a look at my LinkedIn recommendation. Connect with me on YouTube, like the recording, share it with other, connect with me on Instagram, Facebook, Twitter, and Reddit. So the first thing we're going to learn about e-commerce is the difference between e-commerce and e-business. What is e-business? E-business is carrying business activity electronically in its largest sense. What does that mean? It means anything you do online or electronically it's considered e-business. Like what? Sending an email is an e-business. Communicating on the Internet is a, I'm sorry, is a form of e-business. Any non, could be non-financial activities negotiating. I mean, also sending an email is a form of negotiating. So simply put, connecting via the Internet for business purposes, for any business purpose is called e-business. And just want to let you know, e-commerce is a section of e-business. So basically if this is e-business, if this whole thing is e-business, e-commerce is inside of it. So it's a part of e-business. And to remember that e-commerce is smaller than e-business, remember to be in business, business is bigger than e-commerce. E-commerce is a little bit more specific. This is when you are conducting actual transaction, financial transaction with somebody else, with a trading partner, with a second party. This is where you buy and you sell goods and services online. This is what e-commerce. Now, why do we use e-commerce? What are the benefits of e-commerce for businesses? We have many benefits for e-commerce. We have many types of e-commerce. We're going to discuss them in a moment. But those benefits apply to all of them. Can you think of e-commerce benefit? I'm sure you do. I'm sure you purchase online. Maybe you purchase my course online. One is increased efficiency, faster and cheaper. Through e-commerce, you can communicate information. You can send data, do price quoting. It's much cheaper. Place order via Internet rather than phone calls to call someone. It takes time. The company will have to hire a person on the other side to take the order. There is a room for mistakes, for miscommunication. It replace fax and it would replace mailing. So you can see here, this is part of the efficiency as well in saving costs. You have access to price quotes from multiple suppliers. So if you're shopping for a CPA review course, you can look at various courses before you purchase. If you're a supplier, manufacturing, and you're looking at suppliers, you can check the suppliers' pricing quotes for many suppliers. This way, you would reduce your costs. You'll have inside information, inside market activities and demand. Therefore, you can plan your business properly. It will help reduce your inventory and raw material. This is where we come just-in-time inventory system. So because handling inventory is cost. So notice all these activities, what they're doing is increasing efficiency. What is efficiency? It means doing the same thing faster and a reduction of a cost. It also free up working capital. If you don't have to hold inventory and raw material, it's going to give you more working capital, more cash to use somewhere else. Again, the benefit of e-commerce, I'm pretty sure that each one of you is experiencing this, either directly or indirectly. And as far as e-commerce is concerned, we're going to break it down into six types of e-commerce. Now, although we're going to break it down into six types, basically, we could have more types of e-commerce. But the types are business to business, B2B. This is where one company do business with another company. For example, Google rent cloud space to various businesses. For example, I use Google cloud space. I save my data on Google. All supplier and manufacturers. Business to consumer. Well, you should be all familiar with this. This is when the business sells to consumer. For example, four-hat lectures will sell you services as you are a CPA candidate. Business to consumer is the largest thing of Amazon. Business to government. For example, business handling government activities like website maintenance and marketing activities for certain event. Consumer to consumer is when you, as a student, sell your used books to another student or when you sell on Facebook market. When you sell to another person rather than a business or you can sell to a business, consumer sells to a business. For example, you sell your used book to a company rather than to another individual. And we could have consumer to government where the consumer pays, for example, an example of it paying your taxes online. What are some features of these six types of e-commerce? Usually when I have a list, I go through the whole list. I'm not going to go through the whole list. I'm going to go through two or three types of e-commerce but you will get the idea. First, let's go through business to business, okay? This is what's happening. You can place the order faster through the internet between businesses or through the extra net. Now you need to know what extra net is. Extra net is an enable outside party to partially access your system thus submitting the order in a proper format. Think of the manufacturers, they need supplies and what can they do? They can call, they can send the fax, they can send the representative, they can place themselves the order online. So those are the various ways or what else they can do? They can give their supplier access to their system. So an outside party given access to an outside party. Now access to a particular area of your system and what happened is the supplier themselves, they can submit this information directly. So the supplier would know when you need the information and they will submit it directly. So an outsider party is acting as an insider party. Now what is the benefit of extra net? There is no need to reconfigure the data because you are using the system nor you need what's called EDI, Electronic Data Interchange System which we'll talk about EDI later. So extra net versus EDI and we'll see what EDI later. Simply put, extra net, you're giving, for example, you're giving your, for example, I'm giving you access to my system. So when you know I need something, you can place the order and you're using my system. So I don't need to reconfigure the data that you are sending to me because you're using my system. So it's using common electronic document format and pre-existing arrangement, okay? And here what you do is you have no people involved in the system, system is communicating with the other system. All the format has been, all the forms has been pre-formatted. Business to consumer, this is the fastest growing segment of the economy and think of Amazon. Most likely you place an order of Amazon, okay? Here you can order from the comfort of your own home and business to consumer is done through internet. So notice we have internet and we should all be familiar with internet. Most likely you are viewing my recording through the internet and we have extra net where the company will give access to an outsider to their system through the internet, it's called extra net. And also we have consumer to consumer, facilitated, you know, consumer to consumer and business to consumer. These days are facilitated largely by social media and hopefully we all familiar with social media interaction of people in virtual communities. What are those communities? Well, you could have your own favorite one, could be Facebook, could be LinkedIn, could be Twitter, could be Instagram, could be TikTok, could be Reddit, Snapchat, so on and so forth. So people are connecting with each other on a personal basis. Also the business can connect with you on a personal basis. What happened is when they use your social media data, they know what you like, your age, okay? What are you looking for? What are your hobbies? So really they're connecting with you on a personal basis and that's why all these services are free because they're technically using your information. When something is free, technically you are the product. So this is what's happening here. And what happened, most companies, what they do, they integrate their social media, the information that they collect from social media and marketing from social media with their customer relationship management. What is customer relationship management? It's a software. It's some sort of a system that tracks contact and follow up with customers via email, target promotion, discount offer, so on and so forth. And I'm pretty sure this morning, when you woke up, when you checked your email, most likely you received an ad from the gap store, from target, maybe from four hot lectures. I don't use the system a lot because I practically post what I need to post on social media, but large companies, what they do, they have a marketing campaign that they collect all this data and they target you based on your needs, based on what you're looking for, based on prior purchases. And they do that, they do that through something called customer relationship management. It keeps track of that. It facilitates the automation of marketing. This is when you would receive that email in the morning, you know, it shows your sales, it shows sales history and the projection. What do you think you're gonna buy? It shows trend, it keeps track of all of this. Performance indicators, how many people open the email? How many people clicked on the email? How many minutes did that individual spend on this page so they have interest in that product? So on and so forth. So this customer relationship management, it's integrate all this data and make decision to facilitate business to consumer e-commerce. Now e-commerce, it has its own vulnerability. You have to have security and reliability of a system. So we need to talk about this topic. So e-commerce reduce or eliminate human involvement. As a result, you're gonna have security concerns that are gonna surface. We need to know what are the security concerns for e-commerce. One is authentication, authentication, the properly identifying both parties to the transaction. So if you are buying something from me, I need to know exactly who you are and you need to know exactly who I am. Now, how would you trust me? Well, for example, I have a presence on social media, on Facebook, but how would you trust a new company? Well, there are maybe certification that they can buy, they can place on their website. But this is how you authenticate another party now. Common method for me to authenticate another person like a buyer is login and a password. They have to create an account. They have to identify themselves. A second concern with e-commerce is limit the access or permission of the user. For example, you might have binding agreement in case of the extra net. So you want to make sure that the users, they are limiting themselves. They are not getting involved or having access to information they should not have access to. For example, my customer database. So you want to limit that access from the other party. The size, the size limit, how much can the other party place an order for me if they have access to my extra net? And who has the access? Who's authorized to do so? That's very important. That's limit the access and the permission. Confidentiality and integrity of the information that you transmit between the two parties. Remember, you have two parties, a buyer and a seller. And you're going to communicate. Well, guess what? You have a buyer here and the seller here. The buyer and the seller and they're communicating information. What if someone intercepted this information? Well, guess what? If you intercept this information, this information could have sensitive business data. For example, they would know how much this buyer is buying. They would know something about their business inside information or they can intercept financial information such as bank account information, routing bank, banking information, specific account numbers, so on and so forth, like social security of customers. Therefore, what happened is most companies, they would use encryption. What is encryption? It's basically communicating this data in a secret code that hides the information through meaning. So even if you intercept this information in between, it will not make any sense to you. But once the seller or once the buyer gets this information, they have a way of encrypting of deciphering this information. Encrypting data is called cipher taxed in relationship to a plain taxed. A plain taxed, anyone can see it. Anyone can read it. Anyone can understand it. Cipher taxed, it's ciphered. It cannot be, you cannot read it unless you encrypt it and you will have the key to the encryption. So if you don't have the key to know what the data means, you can have access to the data, but it's meaningless. Reliability of the data must be preserved. Reliability means the data that if I place an order of 100 unit, you would receive the order of 100 unit and not something else, not to 1,000. Okay, so that helps in auditing. If you have an auditing, we want to make sure that the order that was placed, the numbers are reliable. The quantity is reliable. If there's any dispute or litigation, I only ordered 100 unit. Why did you ship 1,000? Well, let me show you the data is reliable. You know, I place this as an e-commerce and an e-commerce application. Five consumer trust. Well, guess what? If I'm buying something online, I want to make sure that the prices that being quoted and the discount are honored. So when I buy 100 unit at $5 per unit, I don't end up paying $6 per unit or $7 per unit. If you're giving me a discount, I'm going to get that discount. That's also another concern with security and reliability. A system is robust. God forbid something happened. You have a backup or a hot site in case of technical difficulty or a hack. For example, I host my four-hat lectures on a third party. I don't have my own software. I don't have my own hosting system. And that party, that's all what they do. So they will have some backup system if something happens. There are verifiability of payment. How do I know that the payment that you are giving me is reliable? What I'm going to be using systems such as PayPal, Stripes, Bank, Credit Card, Bank and Credit Card Services. And these parties, they're going to charge me a fee. But the payment that I receive will be legitimate. For example, for my system, I use Stripe. It's basically a payment system. PayPal is another view. You could be familiar with payment system or you could accept credit cards. I do accept credit cards and they get processed through a system called Stripe. So that's how you verify the payment. And talking about the payment, we need to be familiar with electronic funds transfer, EFT, what is electronic fund transfer? Most likely you're already using electronic fund transfer. It's an application that enabled the transfer of money from one bank and institution to another through access devices such as computers, telephone, chips installed on credit card and debit card. Simply put, when you pay your bill online, that's what you did is an electronic transfer fund. When you receive your paycheck online, it's an electronic transfer fund when the money goes right into your business account. And what EFT is doing is replacing the check, the traditional check that we know about. EFT is cheaper than a check because you don't have to handle the paper. You don't have to handle the check. You don't have, you know, checks. And let's assume you're from LA and you wrote a check to someone in New York. Eventually, the check will have to transfer literally on a plane from LA to New York, okay? So there's a cost for that. EFT is faster when you pay your bill. Usually it's the same day or max the following day. And there's minimal to no clerical errors because on a check you have to write the numbers. You have to put the account number. You have to put the date. All this information is all this minimal, all this clerical errors is eliminated or it has a minimal effect. EFT is administered obviously by third parties that are subject to the same security concern that we mentioned above, especially security concern. The two most common type of EFT that we know about are the Fed wire or simply the wire and chips, which is the clearing house interbank payment system, okay? Now we need to talk about one more thing about e-commerce and that's EDI, electronic data interchange. We spoke about extra net earlier. So you need to know the difference between extra net and electronic data interchange. They're similar, but they're different, okay? This is computer-to-computer exchange between partners either through intranet, internet, not intranet, internet and value added network. And what you're doing is you are exchanging business data purchase orders, confirmation invoices. So it's the difference between EDI and the extra net. Well, this is also gonna reduce the handling cost and the speed of the transaction compared to a traditional paper-based processing that's similar to extra net, okay? Here the transactions are submitted in a specified format. So what you need to do, you need to have a translation software. In an extra net, they're using your system so you don't need to translate the information. Here you need a translation software between the two parties, okay? So why do people then, why do we use, why do you use EDI rather than extra net? Well, there's a strong audit trail and strong control and security. That's why people use EDI. You may not trust the other party to give them access to your system. You say, you know, I'm gonna do business with you but let's use EDI rather than I'm not gonna give you access to my extra net, okay? Assuming I do have extra net. The two most common format of extra net, there's one is the American National Standard Institute format, which is the U.S. And there's an international one called United Nation EDI for Administration, Commerce, and Transport, abbreviated UN edifact. Those are the EDI system. Again, the EDI system is in comparison to extra net. It's costlier, it costs more money because there is a translation cost. Remember, you have to have a translation software to translate the data. There is a cost for that. There's a cost for data transmission. You pay a price for the security, the strong security. You pay the price for the hardware and you pay the price for any legal agreement between you and the other party because you have to draft this agreement what's required and what's not. And this is basically in a nutshell, a review of e-commerce that you will need to know for the CPA exam. Once again, I don't replace your beloved CPA review course. You keep it, you pay thousands of dollars for it. Great, it's going to help you pass the exam. I can only be a useful addition, give you alternative backup explanation at a really minimal cost. Try me, one month of subscription. If you like it, you keep it. If not, you cancel. The maximum you would lose is that one month of subscription. But it's worth the investment. You only have to pass your exam once. Don't shortchange yourself. Good luck, study hard, and of course, stay safe.