ACCT341, Ch. 7 Notes
Business Process Fundamentals
• The accounting cycle begins when an
accounting event occurs. Accounting
personnel document the event with some
sort of a source document.
• A source document is a piece of paper or
electronic form that records a business
activity such as the purchase or sale of
goods.
When to Record
The Accounting Cycle
1. Analyze
2. Journalize
3. Post to Ledger
4. Prepare Trial Balance
5. Prepare Financial Statements
6. Closing Entries
7. Reversing Entries
The accounting cycle is
not what the teacher
rides to school each
day
The accounting cycle
is not what the
accounting prof rides
to school each day
Journals
• Accounting personnel record
transactions in a journal, the book of
original entry.
• The journal is a chronological record of
business events by account.
Types of Journals
Traditional Journals
• Sales – all credit sales
• Purchases – all credit purchases
• Cash Receipts – all incoming cash
• Cash Disbursements – all outgoing cash
• General – any transactions that don’t fit above
Newer accounting software often uses different
modules or navigators in place of these journals
(e.g. QuickBooks)
Traditional Accounting Software:
Checkmark Multiledger
Journals
QuickBooks Journals
Ledgers
• A ledger may be a general ledger or a
subsidiary ledger.
– A general ledger is a book of T-accounts, listing all
transactions that affect each account.
– A subsidiary ledger contains detailed records
pertaining to a particular control account in
the general ledger (e.g. A/R, A/P, PP&E)
• Posting to ledgers can be done in batches or in
real-time.
General Ledger
The general ledger is a book
of T-accounts
General Ledger is not a
war hero
Dr
Cr
Dr
Cr
Dr
Cr
Origins of Double Entry Acctg
• 15th century Franciscan monk and mathematician,
Luca Pacioli, made famous the concept of doubleentry accounting in his book Summa de Arithmetica,
printed in 1494 (he did not claim to invent doubleentry accounting)
• Double-entry accounting is derived from a basic premise in algebra, that
what happens to one side of the equal sign must happen to the other.
• Pacioli first used the terms Debit and Credit (from Latin word Debitore
and Creditore which means "shall give" and "shall have", respectively)
simply to reflect the left and right sides of his ledger
• Bookkeeping today have changed little since Pacioli, who said that you
first start with an inventory of assets and liabilities, listed in order of
decreasing liquidity. His trial balance was to ensure that dr = cr and thus
reduce transpositional and other mistakes, “which mistake you will have
to look for diligently with the industry and intelligence God gave you.”
Trial Balances
• Once an AIS records journal entries and posts them
to the general ledger, the system can create a trial
balance.
• Three end of period trial balances are needed:
– A preadjusting trial balance after all entries have
been posted;
– An adjusted trial balance after adjustments have
been recorded and posted;
– A postclosing trial balance after temporary
accounts have closing entries have been recorded
and posted.
Financial Statements
• Financial statements are the primary
output of a financial accounting system.
• These statements include:
–
–
–
–
Income Statement/Comprehensive Income
Statement of Owners Equity
Balance Sheet
Statement of Cash Flows
Types of Codes
• Mnemonic Codes give visible clues concerning the
objects they represent (e.g. S, M, L XL, XXL).
• Sequence Codes assign numbers or letters in
consecutive order (e.g. Check numbers).
• Block Codes are sequential codes in which specific
blocks of numbers are reserved for particular uses
(e.g. Chart of accounts).
• Group Codes reveal two or more
dimensions or facets pertaining to
an object (e.g. fund/asset/cur. asset/acct no.
= 1-1-1-10)
Block Code Example
Sales Process Summary
Inputs to the Sales Process
• Sales Order - prenumbered and usually prepared in multiple
copies; used to prepare sales invoice
• Sales Invoice - prepared after shipment of goods or providing of a
service
• Remittance Advice - serve as source document for credits to
accounts receivable
• Shipping Notice - warehouse prepares after goods are released for
shipment, lets A/R know when to bill
• Debit/Credit memo – debit memos increase customer A/R for
additional charges, (change in order, rework, etc.). Credit memos
decrease A/R for sales returns and allowances
Sample Sales Invoice
Purchasing Process Summary
Outputs of the Sales Process
• Financial Statement Information
• Customer Billing Statement - includes
customer account activity such invoices &
payments for a period of time
• Accounts Receivable Aging Report - contains
data concerning the status of open
balances of all active credit
customers arranging the overdue
amounts by time periods
Inputs to the
Purchasing Process
• Purchase Requisition - shows items requested by
original department needing purchased goods/services
• Purchase Order - based on purchase requisition, sent to
vendor
• Purchase or Vendor Invoice – bill for purchase
• Receiving Report - reflects the count and condition of
received goods
• Bill of lading – receipt to vendor from common carrier,
accompanies the goods sent
• Packing slip – included in the merchandise package
Sample Purchase Order
IT in Sales and Purchasing
• Electronic input
– Voice, touch-tone telephones, bar codes,
magnetic ink (MICR), wireless shopping (your
own mobile check-out device)
• Inventory Management Systems
– RFID Tags
Business Processes Outsourcing
• Business processes outsourcing – focusing on
your core competencies
• E.g. WWU
• See next slide. Many companies outsource
many of their backoffice functions: HR,
billing/collecting, tech support, printing, info
services, training, payroll, accounting, etc.)
• Outsourcing to other countries is not all bad –
offshoring ($1 offshored to India generates
$1.13 net value to U.S.)
BPO Examples
Business Processes Management
• Business process management (BPM) software
are add-ons to the main database that enable
management to have better data to make
decisions.
• E.g. Hundreds of add-ons for QuickBooks
See http://marketplace.intuit.com/