McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. ENTERPRISE INFORMATION SYSTEMS A PATTERN BASED APPROACH Chapter 13 The Financing Business Process

13-2 Chapter Learning Objectives 1.Identify the activities and documents common to most financing business processes 2.Explain the various components of the REA ontology in the financing process 3.Create a REA business process level model for an enterprise’s financing process 4.Identify common information needs that exist within the financing process 5.Create database queries to retrieve financing process information from a relational database

13-3 Financing Cycle in the Value System

13-4 Financing Cycle in the Value Chain

13-5 Financing Cycle Business Process Level

13-6 Financing Cycle Resources Cash –Is the resource acquired –Is the resource given up –Type level entity – represents accounts in which cash and cash instruments are stored

13-7 Financing Cycle Events Cash Requisition –Is an instigation event whereby a request is made to obtain additional cash from external sources, usually on the basis of a cash flow budget –Is usually symbolized by a cash requisition number that identifies a requisition document that includes the date/time of requisition and information about the resources and agents involved in the event

13-8 Cash Requisition Document

13-9 Relational Tables Encompassing Cash Requisition Event

13-10 Financing Cycle Events Financing Agreement - Debt –Is a mutual commitment event that obligates the external creditor to provide a certain amount of cash to the enterprise and obligates the enterprise to provide a certain amount of cash in a specified time to the external creditor. –May be called Loan Agreement, Mortgage, Promissory Note, Bond, etc.

13-11 Debt Financing Agreement: Promissory Note

13-12 Debt Financing Agreement: Bond Certificate

13-13 Financing Cycle Events Financing Agreement – Equity –Is a Commitment Event that obligates the external investor to provide a certain amount of cash to the enterprise. Implicitly obligates the enterprise to provide cash in exchange to the investor; however, amount and timing are not specific nor guaranteed Dividend Declaration – Equity –Is a Commitment Event that obligates the enterprise to provide cash or other resource to the external investor; amount and timing are specific and are a legal obligation

13-14 Equity Financing Agreement: Stock Certificate

13-15 Relational Tables Encompassing Debt and Equity Financing Agreements

13-16 Relational Tables Encompassing Debt and Equity Financing Agreements

13-17 Financing Cycle Events Cash Receipt Event –An economic increment event that represents the receipt of cash from an external investor or creditor in fulfillment of a debt or equity financing agreement –Typically represented by a deposit slip; data captured as to date, amount, cash account into which it is deposited, agent from whom it was received, which financing agreement it fulfilled

13-18 Relational Tables Encompassing Cash Receipt Event

Financing Cycle Events Cash Disbursement –An economic decrement event that represents the payment of cash by the enterprise to investors or creditors in fulfillment of a debt financing agreement or an equity dividend declaration (or stock re-purchase) –Is usually symbolized by a check or disbursement voucher; data captured as to date, amount, cash account from which it is dispersed, agent to whom it was dispersed, which commitment it fulfilled

13-20 Relational Tables Encompassing Cash Disbursement Event

13-21 Relational Tables Encompassing Cash Disbursement Event

13-22 Financing Cycle Agents External Agents –Investors for Equity financing –Creditors for Debt financing Internal Agents –Cashiers typically process cash receipt events –Financial Officers (possible also Board of Directors) approve debt and equity financing agreements –Financing Clerks (or accounts payable clerks or cashiers) typically process cash disbursements

13-23 Financing Cycle Relationships Duality –Cash is exchanged for cash; duality represents the timing difference between the related cash inflows and outflows Fulfillment –Financing agreement (debt or equity) fulfills cash requisition event –Cash receipt fulfills financing agreement (debt or equity) –Cash disbursement fulfills debt financing agreement or equity dividend declaration (or stock repurchase)

13-24 Proposition –Cash requisition proposes to increase cash to meet financing needs Reservation –Debt Financing agreement reserves cash to be received and also reserves cash to be disbursed (with different timing patterns) –Equity Financing agreement reserves cash to be received –Equity Dividend Declaration reserves cash to be disbursed Stock-flow –Cash resource is increased by cash receipts –Cash resource is decreased by cash disbursements Financing Cycle Relationships

13-25 Financing Cycle Relationships Participation relationships –See agent descriptions for events in which each type of agent participates Reciprocal –Between Equity Financing Agreement Commitment Event and Dividend Declaration Commitment Event Dividend declaration event (or stock repurchase agreement) specifies the obligation of the enterprise to pay cash to the investors that was implicitly a commitment in the equity financing agreement

13-26 Financing Cycle Resource Queries Cash is the most common resource in the financing process See cash query examples in chapters 8-12

13-27 Financing Cycle Event Queries What are details about each event instance? What are details about a specific event? –E.g. what dollar amount was requested on cash requisition 3 –E.g. which loans bear interest rates > 9% and what are the dollar amounts of those loans What is summarized information for events for a specific time period? –E.g. how many shares of common stock have been issued as of May 31, 2010 –E.g. how many cash receipts occurred in May 2010 What is summarized information for events that meet specific criteria for a time period?

13-28 How many shares of common stock were issued as of 5/31/2010?

13-29 Financing Cycle Agent Queries Detailed status information at one or more points in time for each agent –Or for those who meet specific criteria Summarized status information at one or more points in time for each agent –Or for those who meet specific criteria E.g. what are the names and addresses of the investors who have been rated as excellent? E.g. which financial officer has the highest limit for which to authorize debt?

13-30 Which financial officer has the highest limit for which to authorize debt?

13-31 Financing Cycle Duality and Fulfillment Queries Which cash receipts and cash disbursements correspond to each other? Which commitment events have not yet been fulfilled or have been only partially filled? Which commitment events have been completely filled? E.g. what is the outstanding principal balance of a specific debt financing agreement as of a specific date?

13-32 Outstanding principal balance of debt financing agreement L1 as of May 1, 2010

13-33 Outstanding principal balance of debt financing agreement L1 as of May 1, 2010

13-34 Outstanding principal balance of debt financing agreement L1 as of May 1, 2010

13-35 Financing Cycle Stockflow Queries Which resource was affected by an economic event? –E.g. which cash account was decreased by a cash disbursement or by a cash receipt By what amount was a resource affected by an economic event? –E.g. what total dollar amount of cash disbursements or cash receipts were made from a specific cash account

13-36 Dollar amount of cash disbursements made from cash accounts held at 1 st Local Bank through May 31, 2010

13-37 Financing Cycle Reservation Queries What dollar amount is a financing agreement committing to acquire for a specific cash account? From which cash accounts will any dividend declarations that occurred during a specific time period be paid? What is the dollar value of cash reserved by a dividend declaration? On what dates is a financing agreement committing to acquire cash?

13-38 Total dollar amount reserved for cash account Ca by financing agreements during May 2010

13-39 Total dollar amount reserved for cash account Ca by financing agreements during May 2010

13-40 Total dollar amount reserved for cash account Ca by financing agreements during May 2010

13-41 Financing Cycle Participation Queries Which financial officer authorized a cash requisition? How many debt financing agreements has a financial officer approved? How much cash has been disbursed to a specific creditor? How many shares has a specific investor purchased? Which cashier processed a specific cash receipt?

13-42 List name and address of investors to which the most shares of common stock have been issued

13-43 List name and address of investors to which the most shares of common stock have been issued

13-44 Summary We discussed the financing process and how it fits in at the value system and value chain levels We discussed the extended REA pattern at the business process level We examined documents typically used to represent events and discussed related resources and agents We examined examples of relational database tables for the financing cycle and discussed data input into those tables We systematically discussed types of queries for the financing process to support decision-makers in various functional areas We provided selected examples of queries of various types

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. ENTERPRISE INFORMATION SYSTEMS A PATTERN BASED APPROACH Chapter 13 End of Chapter