1. ACCT341, Ch. 7 Notes Business Process Fundamentals The accounting cycle begins when an accounting event occurs. Accounting personnel document the event with some sort of a source document. A source document is a piece of paper or electronic form that records a business activity such as the purchase or sale of goods.

2. When to Record

3. The Accounting Cycle 1.Analyze 2.Journalize 3.Post to Ledger 4.Prepare Trial Balance 5.Prepare Financial Statements 6.Closing Entries 7.Reversing Entries The accounting cycle is not what the teacher rides to school each day The accounting cycle is not what the accounting prof rides to school each day

4. Journals Accounting personnel record transactions in a journal, the book of original entry. The journal is a chronological record of business events by account.

5. Types of Journals Sales – all credit sales Purchases – all credit purchases Cash Receipts – all incoming cash Cash Disbursements – all outgoing cash General – any transactions that don’t fit above Newer accounting software often uses different modules or navigators in place of these journals (e.g. QuickBooks) Traditional Journals

6. Traditional Accounting Software: Checkmark Multiledger Journals

7. QuickBooks Journals

8. Ledgers A ledger may be a general ledger or a subsidiary ledger. –A general ledger is a book of T-accounts, listing all transactions that affect each account. –A subsidiary ledger contains detailed records pertaining to a particular control account in the general ledger (e.g. A/R, A/P, PP&E) Posting to ledgers can be done in batches or in real-time.

9. General Ledger The general ledger is a book of T-accounts General Ledger is not a war hero DrCr DrCr DrCr

10. Origins of Double Entry Acctg 15 th century Franciscan monk and mathematician, Luca Pacioli, made famous the concept of double- entry accounting in his book Summa de Arithmetica, printed in 1494 (he did not claim to invent double- entry accounting) Double-entry accounting is derived from a basic premise in algebra, that what happens to one side of the equal sign must happen to the other. Pacioli first used the terms Debit and Credit (from Latin word Debitore and Creditore which means "shall give" and "shall have", respectively) simply to reflect the left and right sides of his ledger Bookkeeping today have changed little since Pacioli, who said that you first start with an inventory of assets and liabilities, listed in order of decreasing liquidity. His trial balance was to ensure that dr = cr and thus reduce transpositional and other mistakes, “which mistake you will have to look for diligently with the industry and intelligence God gave you.”

12. Trial Balances Once an AIS records journal entries and posts them to the general ledger, the system can create a trial balance. Three end of period trial balances are needed: –A preadjusting trial balance after all entries have been posted; –An adjusted trial balance after adjustments have been recorded and posted; –A postclosing trial balance after temporary accounts have closing entries have been recorded and posted.

13. Financial Statements Financial statements are the primary output of a financial accounting system. These statements include: –Income Statement/Comprehensive Income –Statement of Owners Equity –Balance Sheet –Statement of Cash Flows

14. Types of Codes Mnemonic Codes give visible clues concerning the objects they represent (e.g. S, M, L XL, XXL). Sequence Codes assign numbers or letters in consecutive order (e.g. Check numbers). Block Codes are sequential codes in which specific blocks of numbers are reserved for particular uses (e.g. Chart of accounts). Group Codes reveal two or more dimensions or facets pertaining to an object (e.g. fund/asset/cur. asset/acct no. = 1-1-1-10)

15. Block Code Example

16. Sales Process Summary

17. Inputs to the Sales Process Sales Order - prenumbered and usually prepared in multiple copies; used to prepare sales invoice Sales Invoice - prepared after shipment of goods or providing of a service Remittance Advice - serve as source document for credits to accounts receivable Shipping Notice - warehouse prepares after goods are released for shipment, lets A/R know when to bill Debit/Credit memo – debit memos increase customer A/R for additional charges, (change in order, rework, etc.). Credit memos decrease A/R for sales returns and allowances

18. Sample Sales Invoice

19. Purchasing Process Summary

20. Outputs of the Sales Process Financial Statement Information Customer Billing Statement - includes customer account activity such invoices & payments for a period of time Accounts Receivable Aging Report - contains data concerning the status of open balances of all active credit customers arranging the overdue amounts by time periods

21. Inputs to the Purchasing Process Purchase Requisition - shows items requested by original department needing purchased goods/services Purchase Order - based on purchase requisition, sent to vendor Purchase or Vendor Invoice – bill for purchase Receiving Report - reflects the count and condition of received goods Bill of lading – receipt to vendor from common carrier, accompanies the goods sent Packing slip – included in the merchandise package

22. Sample Purchase Order

23. IT in Sales and Purchasing Electronic input –Voice, touch-tone telephones, bar codes, magnetic ink (MICR), wireless shopping (your own mobile check-out device) Inventory Management Systems –RFID Tags

24. Business Processes Outsourcing Business processes outsourcing – focusing on your core competencies E.g. WWU See next slide. Many companies outsource many of their backoffice functions: HR, billing/collecting, tech support, printing, info services, training, payroll, accounting, etc.) Outsourcing to other countries is not all bad – offshoring ($1 offshored to India generates $1.13 net value to U.S.)

25. BPO Examples

26. Business Processes Management Business process management (BPM) software are add-ons to the main database that enable management to have better data to make decisions. E.g. Hundreds of add-ons for QuickBooks See http://marketplace.intuit.com/http://marketplace.intuit.com/