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

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 2Chapter 2

Business Processes and Accounting Information

2-2

What are the 3 Phases of the Management Cycle?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

2-3

What are the 4 Business Processes?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

2-4

How does the External Environment Impact Strategy?How does the External Environment Impact Strategy?

• Relatively certain external environment Efficiency strategy Mechanistic structure

• Relatively uncertain external environment Flexibility strategy Organic structure

2-5

What are the Operating Sub-processes?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

2-6

What are Financing and Investing Processes?What are Financing and Investing Processes?

• Financing Raising capital to support operating activities

• Investing Creating the infrastructure to support operating

activities

2-7

What is the Balanced Scorecard?What is the Balanced Scorecard?

• Holistic approach to planning and measuring performance

• 4 perspectives Financial Internal Customer Learning and growth

2-8

What Measures are Used in the Financial Perspective?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

2-9

Financial Perspective ContinuedFinancial Perspective Continued

• Current ratio (Chapter 1)

• Debt to equity ratio (Chapter 1)

• Return on sales ratio (Chapter 1)

2-10

What Measures are Used in the Internal Perspective?What Measures are Used in the Internal Perspective?

• Value-added versus nonvalue-added time Customer response time—from when the

customer places on order until the order is received

• Activity ratios• Quality

Prevention Appraisal Internal failure External failure

2-11

What are the Three Activity Ratios?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

2-12

What are the Voluntary Types of Quality Costs?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

2-13

What are the Involuntary Types of Quality Costs?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

2-14

What Measures are Used in the Customer Perspective?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

2-15

What Measures are Used in the Learning and Growth Perspective?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

2-16

What are the 5 Procedures of Internal Control?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

2-17

What are the Internal Controls for Cash?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

2-18

What is a Bank Reconciliation?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

2-19

What are the Adjustments to the Bank Balance?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

2-20

What are the Adjustments to the Book (accounting) Balance?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