1. McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 2 Business Processes and Accounting Information

2. 2-2 What are the 3 Phases of the Management Cycle? Planning phase Setting goals and objectives for business activities Performing phase Completing the planned business activities and recording the results of those activities Evaluating phase Providing information to interested users to assess the success of the business activities

3. 2-3 What are the 4 Business Processes? Business organization and strategy process Determines the plan of action for the company Operating processes Profit-making activities of the company Capital resources processes Financing and investing activities of the company Performance measurement and management process Balanced scorecard

4. 2-4 How does the External Environment Impact Strategy? Relatively certain external environment Efficiency strategy Mechanistic structure Relatively uncertain external environment Flexibility strategy Organic structure

5. 2-5 What are the Operating Sub- processes? Marketing/sales/collection/customer service process Resources provided Conversion process Resources used Purchasing/human resources/payment process Resources acquired

6. 2-6 What are Financing and Investing Processes? Financing Raising capital to support operating activities Investing Creating the infrastructure to support operating activities

7. 2-7 What is the Balanced Scorecard? Holistic approach to planning and measuring performance 4 perspectives Financial Internal Customer Learning and growth

8. 2-8 What Measures are Used in the Financial Perspective? Return on investment ratio Relationship between net income and assets Quick ratio Relationship of liquid assets to current liabilities Gross margin Relationship of gross margin to sales

9. 2-9 Financial Perspective Continued Current ratio (Chapter 1) Debt to equity ratio (Chapter 1) Return on sales ratio (Chapter 1)

10. 2-10 What Measures are Used in the Internal Perspective? Value-added versus nonvalue-added time Customer response timefrom when the customer places on order until the order is received Activity ratios Quality Prevention Appraisal Internal failure External failure

11. 2-11 What are the Three Activity Ratios? Accounts receivable turnover Days in the collection cycle Inventory turnover Days in the selling cycle Accounts payable turnover Days in the payment cycle

12. 2-12 What are the Voluntary Types of Quality Costs? Prevention Reducing the opportunity for error to occur Employee training, product and process design Appraisal Finding errors as early in the process as possible Continuous inspection, testing

13. 2-13 What are the Involuntary Types of Quality Costs? Internal failure Correcting errors before the customer knows the error occurred External failure Correcting errors after the customer knows the error occurred Includes customer ill will

14. 2-14 What Measures are Used in the Customer Perspective? Market share Percentage of total sales in the market generated by a particular company Customer satisfaction Surveys Customer loyalty Growth, referrals, retention

15. 2-15 What Measures are Used in the Learning and Growth Perspective? Research and development $ spent, new products developed Employee growth Training, continuing education Information systems Technology

16. 2-16 What are the 5 Procedures of Internal Control? Proper authorization Separating incompatible duties Maintaining adequate documentation Physically controlling assets and documents Providing independent checks on performance

17. 2-17 What are the Internal Controls for Cash? Cash receipts Separation of incompatible duties Physical control Cash disbursements Proper authorization Separation of incompatible duties Bank reconciliation

18. 2-18 What is a Bank Reconciliation? Comparing the accounting records of cash to the bank records of the checking account(s) 2 column bank reconciliation Adjusts bank balance Adjusts book (accounting records) balance

19. 2-19 What are the Adjustments to the Bank Balance? Outstanding checks Checks written by the company that have not been processed (yet) by the bank Subtract from the bank balance Deposits in transit Deposits made by the company that have not been processed (yet) by the bank Add to the bank balance Errors made by the bank

20. 2-20 What are the Adjustments to the Book (accounting) Balance? Interest earned Interest-bearing checking accounts earn interest Add to the book balance Service charges Fees charged by the bank for services rendered Subtract from the book balance NSF checks Checks accepted by the company that bounced due to insufficient funds Subtract from book balance Errors made by the company