Expenditure Cycle
Small Business Information Systems
Professor Barry Floyd
Agenda
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Learning Objectives
Definition of Expenditure Cycle
Data flow diagrams of Expenditure Cycle
QuickBooks demonstration
Objectives
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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
References
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http://en.wikipedia.org/wiki/Enterprise_resource_pla
nning
http://www.quickbooks.com
http://en.wikipedia.org/wiki/Microsoft_Dynamics
http://www.microsoft.com/dynamics/default.mspx
http://highered.mcgrawhill.com/sites/0072404299/student_view0/chapter9/
Definition: Expenditure Cycle
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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
…
Key decisions
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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
Three Key Activities
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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
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(Effectiveness = doing the right thing, efficiency = doing the
right thing well)
DFD’s of Expenditure Cycle
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Expenditure Context Diagram
Expenditure Level 0 diagram
Expenditure Level 1 Receive and Store goods
diagram
 Expenditure Level 1 Pay for goods diagram
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Technology
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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.
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Business Documents
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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)
QuickBooks Money Out
QuickBooks Tasks
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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
Reports
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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?
Summary
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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.