ACCT341, Ch. 7 Notes
Business Process Fundamentals
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The accounting cycle begins when an accounting event occurs. Accounting personnel document the event with some sort of a source document .
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A source document is a piece of paper or electronic form that records a business activity such as the purchase or sale of goods.

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 is not what the accounting prof rides to school each day

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Accountants record transactions first in a journal , the book of original entry.
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The journal is a chronological record of business events by account.

Traditional Journals
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Sales
– all credit sales
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Purchases
– all credit purchases
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Cash Receipts
– all incoming cash
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Cash Disbursements
– all outgoing cash
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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
Setup Journals Reports

QuickBooks Journals

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A ledger may be a general ledger or a subsidiary ledger.
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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, Payroll)
• Posting to ledgers can be done in batches or in real-time (e.g. QB).

General Ledger is not a war hero
The general ledger is a book of T-accounts
Dr Cr Dr Cr
Dr Cr

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15 th 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.”

• Once an AIS records journal entries and posts them to the general ledger, the system can create a trial balance, which proves that debits still equal credits. (Note: if the difference is evenly divisible by 9, perhaps a transpositional error occurred!)
• Three end of period trial balances are often prepared:
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A preadjusting trial balance after all entries have been posted;
– An adjusted trial balance after adjustments have been recorded and posted;
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A postclosing trial balance after temporary accounts have closing entries have been recorded and posted.

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Financial statements are the primary output of a financial accounting system.
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These statements include:
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Income Statement/Comprehensive Income
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Statement of Owners Equity
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Balance Sheet
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Statement of Cash Flows
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In manual systems, the statements must be prepared in the order listed above.

• 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).
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Group Codes reveal two or more dimensions or facets pertaining to an object (e.g. fund/asset/cur. asset/acct no.
= 1-1100-10-107050)

• Sales Order - prenumbered and usually prepared in multiple copies; used to prepare sales invoice
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Sales Invoice - prepared after shipment of goods or providing of a service
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Customer 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

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Financial Statement Information
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Customer Billing Statement - includes customer account activity such invoices & payments for a period of time
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Accounts Receivable Aging Report - contains data concerning the status of open balances of all active credit customers arranging the overdue amounts by time periods

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Purchase Requisition - shows items requested by original department needing purchased goods/services
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Purchase Order - based on purchase requisition, sent to vendor
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Purchase or Vendor Invoice
– bill for purchase
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Receiving Report - reflects the count and condition of received goods
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Bill of lading
– receipt to vendor from common carrier; accompanies the goods sent
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Packing slip
– included in the merchandise package

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Electronic input
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Voice, bar codes, magnetic ink (MICR), biometrics, wireless shopping (your own mobile check-out device)
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Inventory Management Systems
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RFID Tags (e.g. Brother, Boeing,
ConocoPhillips)

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Business processes outsourcing
– focusing on your core competencies (e.g. WWU)
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Many companies outsource back-office functions : HR, billing/collecting, tech support, printing, info services, training, payroll, accounting, etc.) and some front-office functions (customer service, call centers, etc.)
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Outsourcing to other countries is not all bad – offshoring ($1 offshored to India generates
$1.13 net value to U.S.)

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Business process management (BPM) software are add-ons to the main database that enable management to have additional data to improve core business processes.
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E.g. Hundreds of add-ons for QuickBooks
See http://marketplace.intuit.com/