1. Business Processes and Accounting Information
Chapter 2
Business Processes and Accounting Information

2. 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

3. 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

4. How does the External Environment Impact Strategy?
Relatively certain external environment
Efficiency strategy
Mechanistic structure
Relatively uncertain external environment
Flexibility strategy
Organic structure

5. 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

6. What are Financing and Investing Processes?
Raising capital to support operating activities
Investing
Creating the infrastructure to support operating activities

7. What is the Balanced Scorecard?
Holistic approach to planning and measuring performance
4 perspectives
Financial
Internal
Customer
Learning and growth

8. 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

9. Financial Perspective Continued
Current ratio (Chapter 1)
Debt to equity ratio (Chapter 1)
Return on sales ratio (Chapter 1)

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. What are the Internal Controls for Cash?
Cash receipts
Separation of incompatible duties
Physical control
Cash disbursements
Proper authorization
Bank reconciliation

18. 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

19. 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

20. 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

21. Lecture Examples
A company has revenues of $450,000, cost of goods sold of $250,000, and operating expenses of $150,000. Its average current assets are $200,000 of which $75,000 is inventory and $20,000 are prepaid items. Of its liquid assets, 30 percent is cash and the remainder is accounts receivable. Its average total assets are $500,000 and its average total owners’ equity is $400, Seventy-five percent of its liabilities are current. Of the current liabilities, 80 percent is accounts payable. What are the return on investment, gross margin, quick, and return on owners’ equity ratios? What are the activity ratios and related days in the cycles?

22. Lecture Examples
2. A company just received its bank statement. According to the bank, the balance in the cash account should be $4, But according to the accounting records, the balance in the cash account is $4, After carefully comparing the check register to the bank statement, the following items were discovered: Deposit in transit $ Interest earned 5.47 NSF check Outstanding checks 1, Service charge on NSF check In addition, it was discovered that check #5567 which was written for $ was incorrectly recorded in the accounting records for $ What is the correct balance in the cash account?

23. Lecture Examples
Answer: Bank Book Recorded balance $4, Recorded balance $4, deposits interest earned outstanding checks 1, NSF check Adjusted balance $3, service charge error* Adjusted balance $3, * error = $ $16.50 = $144.00