1. Small Business Information Systems Professor Barry Floyd
Expenditure Cycle
Small Business Information Systems
Professor Barry Floyd

2. Agenda Learning Objectives Definition of Expenditure Cycle
Data flow diagrams of Expenditure Cycle
QuickBooks demonstration

3. Objectives Continue with our understanding of ‘business processes’
Identify activities and documents in the standard ‘expenditure’ / ‘money out’ business process
Discuss how the appropriate design of expenditure cycle tasks can provide value
Identify key reports to assess process and organizational performance in the expenditure cycle
Identify potential business risks (we’ll discuss how to handle them later in the quarter)
See (and know) how to use QB to perform tasks in the expenditure cycle
IN THE NEWS … SAP is moving into the small business space
Is it possible to reduce the cost of inventory?
Can you assure that you take discounts when offered them?
Who are the best suppliers? Why? What differentiates them? How can you determine this? Is it easy to do?

4. References http://en.wikipedia.org/wiki/Enterprise_resource_planning

5. Definition: Expenditure Cycle
The set of business activities/tasks that occur regularly to acquire (purchasing) and pay for goods and services.
A primary goal of the Expenditure cycle is to minimize costs in acquiring goods and services …

6. Key decisions Optimal level of inventory (should you have inventory?)
Which are the best suppliers (on time, low cost, high quality)
Which invoices to pay to take advantage of discounts. (How much money do we have)
Along the same line, how to manage cash flow
How efficient is the organization in the expenditure cycle activities

7. Three Key Activities Ordering goods, supplies, and services
Receiving and storing goods, supplies, and services.
Paying for goods, supplies and services
As we review these activities, think about where Information Technology can play a role to improve efficiency and effectiveness
(Effectiveness = doing the right thing, efficiency = doing the right thing well)
Ordering goods: what, when, and how much to buy and from whom
Inventory Control Methods
EOQ –
MRP –
JIT -.

8. DFD’s of Expenditure Cycle
Expenditure Context Diagram
Expenditure Level 0 diagram
Expenditure Level 1 Receive and Store goods diagram
Expenditure Level 1 Pay for goods diagram

9. Technology
Take a few minutes and discuss with those at your table, places in this business process where you think technology can play a role to …
Reduce costs.
Add additional value to the supplier.
Provide better information to management.

10. Business Documents
Purchase Requisition – used internally to request that an item be purchased. Identifies, who, what, how much, when needed, etc.
Purchase Order – formal request to supplier to furnish goods or services. Becomes a contract once supplier accepts it.
Receiving Report – documents details about delivery including date, amount, PO#, who received it, quality check, etc.
Debit Memo – records adjustments to the amount you owe based on your inspecting the shipment you just received (wrong number, damaged, poor quality)
Typically have a buyer for the purchasing function. Selects appropriate supplier based on Price, quality of materials (e.g.,, any rework in the past), dependability in making deliveries.
Buyer should be rewarded on total cost of buying not just price.
Buyer may try to combine purchase orders from different departments and may order more than requested based on volume discounts available.

11. QuickBooks Money Out

12. QuickBooks Tasks Add a new Vendor Add a new product Buy something?
Enter bill
Pay bills
Enter refund or credit
Cash/check/credit card payments
Review key reports

13. Reports
What would you want to know about this process to see if it is performing ‘well’?
What metrics are important to you? Why?
Which ones are most important to your business? Why?
What reports does QuickBooks provide? Are they adequate?

14. Summary The expenditure cycle is an important cycle to understand.
Understanding the use of technology is important for both reducing costs and for improving your business operations, reducing costs and differentiating your business from your competitors.