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McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 2Chapter 2
Business Processes and Accounting Information
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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
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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
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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
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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
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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
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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
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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
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2-9
Financial Perspective ContinuedFinancial Perspective Continued
• Current ratio (Chapter 1)
• Debt to equity ratio (Chapter 1)
• Return on sales ratio (Chapter 1)
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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