Generic Business Process (1)
Generic Business Process (1)Expenditure Cycle & Revenue Cycle
Topik BahasanExpenditure Cycle Revenue Cycle
Sumber Materi Romney / Steinbart, AccountingInformationSystems, 9th Edition ch.11-12, PrenticeHall
Revenue CycleSales and Cash Collections
Learning Objectives1.2.3.4.5.Describe the major business activities and relateddata processing operations performed in the revenuecycle.Discuss the key decisions that need to be made inthe revenue cycle and identify the informationneeded to make those decisions.Document your understanding of the revenue cycle.Identify major threats in the revenue cycle andevaluate the adequacy of various control proceduresfor dealing with those threats.Read and understand a data model (REA diagram) ofthe revenue cycle.
Learning Objective 1 Describe the major business activities andrelated data processing operationsperformed in the revenue cycle.
Revenue CycleBusiness Activities The first function of the AIS is to supportthe performance of the organization’sbusiness activities.The revenue cycle is a recurring set ofbusiness and related informationprocessing operations associated withproviding goods and services tocustomers and collecting cash paymentfor those sales.
Revenue CycleBusiness ActivitiesWhat are the four basic revenue cyclebusiness activities?1 Sales order entry2 Shipping3 Billing and accounts receivable4 Cash collections
Learning Objective 2 Discuss the key decisions that need to bemade in the revenue cycle and identify theinformation needed to make thosedecisions.
Sales Order Entry (Activity 1)This step includes all the activities involved insoliciting and processing customer orders. Key decisions and information needs: – decisions concerning credit policies, including theapproval of credit– information about inventory availability andcustomer credit status from the inventory controland accounting functions, respectively
Sales Order Entry (Activity 1)The sales order entry function involvesthree main activities:1 Responding to customer inquiries2 Checking and approving customer credit3 Checking inventory available
Information Needs and ProceduresThe AIS should provide the operationalinformation needed to perform thefollowing functions: Respond to customer inquires aboutaccount balances and order status. Decide whether to extend credit to acustomer.
Sales Order Entry (Activity 1) Regardless of how customer orders are initiallyreceived, the following edit checks arenecessary: Validity checksA Completeness testReasonableness testsCredit approval General authorization Credit limit Specific authorization Limit checks
Sales Order Entry (Activity 1)Next, the system checks whether theinventory is sufficient to fill acceptedorders. Internally generated documents producedby sales order entry: – sales order– packing slip– picking ticket
Information Needs and ProceduresDetermine inventory availability. Decide what types of credit terms tooffer. Set prices for products and services. Set policies regarding sales returns andwarranties. Select methods for deliveringmerchandise.
Shipping (Activity 2)Warehouse workers are responsible forfilling customer orders by removing itemsfrom inventory. Key decisions and information needs: Determine the delivery method.– in-house– outsource
ShippingPicking ListSalesOrderEntry2.1PickandPackGoods,Packing ListBill of Lading,Packing SlipBillingand A/R2.2ShipGoodsSales orderInventoryShipmentsGoods,Bill of Lading,Packing SlipCarrier
Shipping (Activity 2) Documents, records, and procedures: The picking ticket printed by the sales order entrytriggers the shipping process and is used to identifywhich products to remove from inventory. A physical count is compared with the quantitieson the picking ticket and packing slip. Some spot checks are made and a bill of lading isprepared.
Billing and AccountsReceivable (Activity 3) Two activities are performed at this stageof the revenue cycle:1 Invoicing customers2 Maintaining customer accounts Key decisions and information needs: Accurate billing is crucial and requiresinformation identifying the items andquantities shipped, prices, and special salesterms.
Billing and AccountsReceivable (Activity 3)The sales invoice notifies customers of theamount to be paid and where to send payment. A monthly statement summarizes transactionsthat occurred and informs customers of theircurrent account balance. A credit memo authorizes the billingdepartment to credit a customer’s account.
Billing and AccountsReceivable (Activity 3) Types of billing systems: In a postbilling system, invoices are prepared afterconfirmation that the items were shipped. In a prebilling system, invoices are prepared (but notsent) as soon as the order is approved. The inventory, accounts receivable, and generalledger files are updated at this time.
Billing and AccountsReceivable (Activity 3) Methods for maintaining accountsreceivable:– open invoice method– balance-forward method To obtain a more uniform flow of cashreceipts, many companies use a processcalled cycle billing.
Information Needs and Procedures What are examples of additional informationthe AIS should provide?––––––response time to customer inquirestime required to fill and deliver orderspercentage of sales that require back orderscustomer satisfactionanalysis of market share and trendsprofitability analyses by product, customer, andsales region
Cash Collections (Activity 4) Two areas are involved in this activity:1 The cashier2 The accounts receivable function
Cash Collections (Activity 4) Key decisions and information needs: Reduction of cash theft is essential. The billing/accounts receivable functionshould not have physical access to cash orchecks. The accounts receivable function must beable to identify the source of any remittancesand the applicable invoices that should becredited.
Cash Collections (Activity 4) Documents, records, and procedures: Checks are received and deposited. A remittance list is prepared and entered online showing the customer, invoice number,and the amount of each payment. The system performs a number of on-lineedit checks to verify the accuracy of dataentry.
Learning Objective 3 Document your understanding of therevenue cycle.
Opportunities for Using InformationTechnology What are some opportunities of usinginformation technology for sales order entry(Activity 1)?–––––on-line processing of sales orders with e-mailelectronic data interchange (EDI)linking EDI with customers’ point-of-sale (POS)optical character recognition (OCR)the Internet
Opportunities for Using InformationTechnology What are some opportunities of usinginformation technology for shipping(Activity 2)?– automated warehouse systems consisting of:– computers– bar-code scanners– conveyer belts– forklifts
Opportunities for Using InformationTechnology What are some opportunities of usinginformation technology for billing andaccounts receivable (Activity 3)?– on-line processing of invoices– electronic data interchange (EDI)– imaging to create and store digital versions ofall paper relating to a customer’s account.
Opportunities for Using InformationTechnology What are some opportunities of usinginformation technology for cash collections(Activity 4)? lockbox (a postal address to which customerssend their remittances) The bank picks up the checks from the postoffice box and deposits them to thecompany’s account.
Opportunities for Using InformationTechnologyelectronic lockbox– electronic funds transfer (EFT)– financial electronic data interchange(FEDI)–
Learning Objective 4 Identify major threats in the revenue cycleand evaluate the adequacy of variouscontrol procedures for dealing with thosethreats.
Control Objectives,Threats, and Procedures The second function of a well-designed AISis to provide adequate controls to ensurethat the following objectives are met: Transactions are properly authorized.Recorded transactions are valid.Valid, authorized transactions are recorded.Transactions are recorded accurately.
Control Objectives,Threats, and ProceduresAssets (cash, inventory, and data) aresafeguarded from loss or theft. Business activities are performedefficiently and effectively.
Control Objectives,Threats, and Procedures What are some threats?– credit sales to customers with poor credit– shipping errors– theft of cash and inventory– failure to bill customers– billing errors– loss of data
Control Objectives,Threats, and Procedures What are some exposures?– uncollectible sales and losses due to baddebts– customer dissatisfaction– loss of assets and overstated assets– loss of revenue and inventory– incorrect records and poor decision making– loss of confidential information
Control Objectives,Threats, and Procedures What are some control procedures?– credit approval by credit manager and salesfunction– reconciliation of sales order with pickingticket and packing slip– restriction of access to inventory and data– lockbox arrangement– segregation of duties
Purchasing and Cash DisbursementsExpenditure Cycle:
Learning ObjectivesDescribe the basic business activities andrelated data processing operations performedin the expenditure cycle.2. Discuss the key decisions that need to bemade in the expenditure cycle, and identify theinformation needed to make those decisions.3. Document your understanding of expenditurecycle activities.1.
Learning Objectives4.5.Identify major threats in the expenditure cycle,and evaluate the adequacy of various controlprocedures for dealing with them.Read and understand a data model (REAdiagram) of the expenditure cycle.
Introduction Linda Spurgeon, Alpha Omega Electronics’(AOE) president, asked Elizabeth Venko,the controller, to address the followingissues: What must be done to ensure that AOE’sinventory records are current and accurate? What can be done to ensure timely deliveryof quality components?
Introduction Is it possible to reduce AOE’s investment inmaterials inventories? What must be done to ensure that availablediscounts are taken? How could the information system providebetter information to guide planning andproduction? How could IT be used to reengineerexpenditure cycle activities?
Learning Objective 1 Describe the basic business activities andrelated data processing operationsperformed in the expenditure cycle.
Expenditure Cycle: MainObjective The primary objective of the expenditurecycle is to minimize the total cost ofacquiring and maintaining inventories,supplies, and the various servicesnecessary for the organization tofunction.
Expenditure Cycle: Key DecisionsWhat is the optimal level of inventory andsupplies to carry? Which suppliers provide the best qualityand service at the best prices? Where should inventories and supplies beheld? How can the organization consolidatepurchases across units to obtain optimalprices?
Expenditure Cycle: KeyDecisionsHow can information technology be used toimprove both the efficiency and accuracy of theinbound logistics function? Is sufficient cash available to take advantage ofany discounts suppliers offer? How can payments to vendors be managed tomaximize cash flow?
Expenditure CycleBusiness ActivitiesThe expenditure cycle is a recurring setof business and related informationprocessing operations associated with thepurchase of and payment for goods andservices. The first function of the AIS is to supportthe effective performance of theorganization’s business activities.
Expenditure CycleBusiness Activities What are the five basic expenditure cyclebusiness activities?12345Requesting the purchase of needed goodsOrdering goods to be purchasedReceiving ordered goodsApproving vendor invoices for paymentPaying for goods purchased
Request Goods (Activity 1)The first major business activity in theexpenditure cycle involves the request topurchase inventory or supplies. The traditional inventory control method(oftencalled economic order quantity [EOQ]): This approach is based on calculating an optimalorder size so as to minimize the sum of ordering,carrying, and stockout costs.
Request Goods (Activity 1) Alternative inventory control methods:– MRP (material requirement planning) This approach seeks to reduce required inventorylevels by scheduling production, rather thanestimating needs.– JIT (just in time) JIT systems attempt to minimize both carrying andstockout costs.
Request Goods (Activity 1)What is a major difference between MRP andJIT? MRP systems schedule production to meetestimated sales need, thereby creating a stock offinished goods inventory. JIT systems schedule production to meetcustomer demands, thereby virtually eliminatingfinished goods inventory.
Request Goods (Activity 1) Documents and procedures:The purchase requisition is a documentthat identifies the following:– requisitioner and item number– specifies the delivery location and dateneeded– specifies descriptions, quantity, and price ofeach item requested– may suggest a vendor
Order Goods What is a key decision?– determine vendor What factors should be considered?– price– quality of materials– dependability in making deliveries
Order GoodsDocuments and procedures: The purchase order is a document that formallyrequests a vendor to sell and deliver specifiedproducts at designated prices. It is also a promise to pay and becomes acontract once it is accepted by the vendor. Frequently, several purchase orders aregenerated to fill one purchase requisition.
Receive and Store Goods(Activity 2)The second major business activityinvolves the receipt and storage ofordered items. Key decisions and information needs: The receiving department has two majorresponsibilities: 1 Deciding whether to accept a delivery2 Verifying quantity and quality
Receive and Store Goods(Activity 3) Documents and procedures:The receiving report documents detailsabout each delivery, including the datereceived, shipper, vendor, and purchaseorder number.For each item received, it shows the itemnumber, description, unit of measure, andcount of the quantity received.
Approve Vendor Invoices(Activity 3)The third activity entails approving vendorinvoices for payments. Key decisions and information needs: The objective of accounts payable is toauthorize payment only for goods and servicesthat were ordered and actually received. This requires internally generated informationfrom both the purchasing and receiving function.
Approve Vendor Invoices(Activity 3)Documents, records, and procedures: There are two basic ways to processvendor invoices:1 Nonvoucher system2 Voucher system – disbursement voucher– voucher package
Pay for GoodsThe final activity is the payment ofapproved invoices. What is a key decision? – taking vendor discounts A short-term cash flow budget is usefulfor making this decision.
Pay for GoodsDocuments, records, and procedures: The cashier receives and reviews eachvoucher package, – computes a batch total, and– enters the disbursement data. The system uses the voucher file toupdate the accounts payable, open invoice,and the general ledger files.
Evaluation of receipt settlementTraditional three way Two way match
Opportunities for UsingInformation Technology What are some opportunities of usinginformation technology for requestinggoods (Activity 1)?– online data entry instead of paper documents– bar-code technology that facilitates themaintenance of accurate perpetual inventoryrecords
Opportunities for UsingInformation Technology-electronic data interchange (EDI)procurement cardsInternet
Opportunities for UsingInformation Technology What are some opportunities of usinginformation technology to receive andstore goods (Activity 2)?– vendor requirement to bar-code all of theirproducts– passive radio frequency identification– satellite technology
Opportunities for UsingInformation Technology What are some opportunities of usinginformation technology to approve vendorinvoices (Activity 3)?– electronic data interchange (EDI)– elimination of vendor invoices entirely– image processing and optical characterrecognition (OCR)– corporate credit cards
Opportunities for UsingInformation Technologyelectronic funds transfers (EFT)– financial electronic data interchange(FEDI)–
Learning Objective 2 Discuss the key decisions that need to bemade in the expenditure cycle, andidentify the information needed to makethose decisions.
Information Needs The third function of the AIS is to provideinformation useful for decision making.Usefulness in the expenditure cyclemeans that the AIS must provide theoperational information needed toperform the following functions:Determine when and how muchadditional inventory to order.
Information NeedsSelect the appropriate vendors fromwhom to order. Verify the accuracy of vendor invoices. Decide whether purchase discountsshould be taken. Monitor cash flow needs to payoutstanding obligations.
Information Needs What are examples of additional informationthe AIS should provide?– efficiency and effectiveness of the purchasingdepartment– analyses of vendor performance such as on-timedelivery, quality, etc.– time taken to move goods from the receiving dockinto production– percentage of purchase discounts taken
Learning Objective 4 Identify major threats in theexpenditure cycle, and evaluate theadequacy of various control proceduresfor dealing with them.
Control Objectives,Threats, and Procedures The second function of a well-designed AISisto provide adequate controls to ensure thatthe following objectives are met:Transactions are properly authorized.Recorded transactions are valid.Valid, authorized transactions are recorded.Transactions are recorded accurately.
Control Objectives,Threats, and ProceduresAssets (cash, inventory, and data) aresafeguarded from loss or theft. Business activities are performedefficiently and effectively.
Control Objectives,Threats, and Procedures What are some threats?– stockouts– purchasing too many or unnecessary goods– purchasing goods at inflated prices– purchasing goods of inferior quality– purchasing from unauthorized vendors– kickbacks
Control Objectives,Threats, and Procedures––––––receiving unordered goodserrors in counting goodstheft of inventoryfailure to take available purchasingdiscountserrors in recording and posting purchasesand paymentsloss of data
Control Objectives,Threats, and Procedures What are some exposures?–––––––production delays and lost salesincreased inventory costscost overrunsinferior quality of purchased goodsinflated pricesviolation of laws or import quotaspayment for items not received
Control Objectives,Threats, and Proceduresinaccurate inventory records– loss of assets– cash flow problems– overstated expenses– incorrect data for decision making–
Control Objectives,Threats, and Procedures What are some control procedures?– inventory control system– vendor performance analysis– approved purchase requisitions– restricted access to blank purchaserequisitions– price list consultation– budgetary controls
Control Objectives,Threats, and Procedures––––––––use of approved vendor listsapproval of purchase ordersprenumbered purchase ordersprohibition of gifts from vendorsincentives to count all deliveriesphysical access controlrecheck of invoice accuracycancellation of voucher package
the revenue cycle and identify the information needed to make those decisions. 3. Document your understanding of the revenue cycle. 4. Identify major threats in the revenue cycle and evaluate the adequacy of various control procedures for dealing with those threats. 5. Read and understand a data model (REA diagram) of the revenue cycle.
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