1. Module 3 Expenditure Cycle Using SAP Individual Assignment
Important Points of the Assignment
These slides are designed to supplement the slides that you use in your standard textbook lectures.
The contents of this slide set is intended to cover material not typically covered in the textbook material and to highlight the learning objectives of the assignment.
Accounting Information Systems

2. Accounting Information Systems
Slide Set Contents
1. Learning Objectives
1.1. Primary Learning Objectives
1.2. Secondary Learning Objectives
Review of Expenditure Cycle Transactions
Test of Transactions
Suspense Accounts
Review of Application Controls
Information Records
SAP Configuration Issues
SAP Documents
Steps in the Assignment
Accounting Information Systems

3. Primary Learning Objectives
Use the SAP system to experience the steps in a typical purchasing transaction
See how a highly integrated ERP system (SAP) handles a typical purchasing transaction
Work through the procedures involved in a test of transactions
Investigate the various types of application controls in an ERP system
Accounting Information Systems

4. Secondary Learning Objectives
See the integration between the materials management (MM) module and financial accounting (FI) module in SAP
Learn about how a suspense account (the Goods Received/ Invoice Received account) is used
Look at some of the basic settings needed in the FI module in order to have the system function properly in this situation
Review the journal entries involved in purchasing
Accounting Information Systems

5. Expenditure Cycle Transactions
Typical Expenditure Cycle Transactions Include:
Purchase Requisition – Internal request to acquire goods – While SAP handles this part of the transaction, it is not critical to understanding the system, hence we ignore it.
Purchase Order – Formal order for the goods – this document is sent to the vendor and requests the goods from the vendor.
Goods Delivery – Receipt of goods in the receiving department. This event usually triggers the creation of the receiving document that verifies the items received.
Invoice Receipt – The bill is received from the vendor.
Payment – The vendor is paid.
Accounting Information Systems

6. Purchasing Cycle Purchasing Exp & Funds Mgmt Materials Mgmt
Purchase Requisition
Issue Payment (AP zeroed)
Check Budget Availability
Purchasing
Exp & Funds Mgmt
Materials Mgmt
Accounts Payable
Cash Availability Verified
Select Vendor(s)
Invoice Verified & Processed
Purchase Order
Goods Receipt
(creates accrued liability)
Accounting Information Systems
Idea for Chart taken from Univ. of Toronto

7. Professions, Purchasing, and SAP
Materials Management
Accounting & Finance
Auditing
Accounts Payable
IT-Data base with data integrity
Inventory levels adequate
Product Quality
Budgeting and Cash Flow Projections
Daily Cash Flow Decisions
General Ledger Account Review
Oversight of Accounts Payable
Survey of Controls – including IT
Tests of Controls
Tests of Transactions
Tests of Account Balances
Process Invoices
Payment Priorities
Accounting Information Systems

8. Accounting Information Systems
Test of Transactions
A test of transactions is an audit procedure used for compliance testing
A normal business transaction is followed through all of the steps in the business process
As the transaction is processed, for each step, all affected accounts are checked to certify that the transaction is being processed properly
For this assignment the following accounts will be checked:
Goods tracked in the inventory control area (in units)
General ledger inventory valuation (in monetary units)
General ledger cash account
General ledger accounts payable control account
General ledger Goods Received / Invoice Received suspense account
Accounts payable subsidiary ledger
As you step through the assignment, these checks will show how the transaction is processed
Accounting Information Systems

9. Accounting Information Systems
Suspense Accounts
Suspense accounts are a way to enter part of a transaction when not all of the details of the transaction are known
Suspense accounts provide for timing differences that occur in the real world
In typical academic situations the goods and invoice arrive at the same time with the following journal entry:
Goods Inventory XXX
Accounts Payable XXX
However, in business the goods and the invoice will usually not be available simultaneously
In a real time system you can‘t delay the entry of the data into the system until all the data is available
For example, if you received goods and placed them in inventory but didn‘t record the receipt because you don‘t know the amount you will be billed, then the inventory will be misstated
Accounting Information Systems

10. Accounting Information Systems
Suspense Accounts
So a suspense account entry is made to “hold“ the transaction until the rest of the transaction‘s data can be resolved
If the goods are received first, then the entry is:
Goods Inventory XXX
Goods Received/Invoice Received XXX
Then when the invoice is received, the following entry is made:
Goods Received/Invoice Received XXX
Accounts Receivable XXX
The GR/IR account should zero out when all the information for the transaction is entered
Accounting Information Systems

11. Review of Application Controls
There are two categories of controls dealing with computerized environments:
Application Controls – Controls that are programed into the computer applications
General controls – Controls that are not application controls (i.e. All other controls)
Following is a list of application controls:
Field check
Sign check
Limit check
Range check
Size (or capacity) check
Completeness check
Validity check
Reasonableness test
The assignment asks you to classify specific application controls in SAP
Accounting Information Systems

12. Accounting Information Systems
Information Records
SAP uses the term information record to denote the linking relationship between two different entities, such as in this assignment between vendors and goods
This is not standard terminology, but this linking is a standard (and necessary) practice in accounting information systems
From a technical perspective, since a vendor can provide many products and a product can be provided by many vendors, this necessitates the use a separate database table to store the information
While a transaction can be completed without an information record, the information stored in the information record is very important
It allows us to compare prices, delivery conditions, minimum and normal order quantities, etc. for a given product for multiple vendors
With this information we may use one vendor for normal purchases because of a lower price and a different vendor for rush orders because of shortened delivery times.
Accounting Information Systems

13. SAP Configuration Issues
Configuring the SAP system is a very complex activity
In this assignment we will look at just a couple of the more straightforward configuration issues
Specifically we look at two items:
The set up of various accounts in the chart of account
The set up of the fiscal accounting period
Accounting Information Systems

14. Accounting Information Systems
SAP Documents
The SAP system records all steps in a transaction in a series of documents
A given transaction step may produce one or many documents
Because of the integration of an ERP system, transactions done in one part of the system (such as the material management module in SAP) will generate parallel activities in other parts of the system (such as the financial accounting module in SAP)
These documents are automatically generated by the system – this is termed automated account determination
This means that the system is configured so that there is no need to make manual journal entries
Accounting Information Systems

15. Accounting Information Systems
SAP Documents
Since an ERP system tracks all related steps in a transaction, the documents are linked together by the system
Hence, knowing the document number of a preceding transaction step is critical to processing the next step
For this reason, in the assignment you are asked to record the document numbers
Accounting Information Systems

16. Steps in the Assignment
Following are the steps you will do in the assignment:
Examine the chart of accounts
Examine the account settings for financial accounting use
Create a material master
Create a vendor master
Create an information record to link the vendor and material
Check the inventory and accounting records
Create a purchase order for the material
Receive the material
Receive the invoice from the vendor
Make payment to the vendor
Write down the journal entries that the system made
Accounting Information Systems

17. Accounting Information Systems
Learning Objectives
Review a typical purchasing cycle of transactions while observing how a highly integrated ERP system (SAP) handles them.
Observe the integration between the materials management (MM) module and financial accounting (FI) module.
Work through procedures involved in a test of transactions
Investigate various types of application controls in an ERP system
Learn how a suspense account (the Goods Received/ Invoice Received account) is used
Accounting Information Systems

18. Purchasing Cycle Purchasing Exp & Funds Mgmt Materials Mgmt
Purchase Requisition
Issue Payment (AP zeroed)
Check Budget Availability
Purchasing
Exp & Funds Mgmt
Materials Mgmt
Accounts Payable
Cash Availability Verified
Select Vendor(s)
Invoice Verified & Processed
Purchase Order
Goods Receipt
(creates accrued liability)
Accounting Information Systems
Idea for Chart taken from Univ. of Toronto

19. Professions, Purchasing, and SAP
Materials Management
Accounting & Finance
Accounts Payable
Auditing
IT-Data base with data integrity
Inventory levels adequate
Product Quality
Budgeting and Cash Flow Projections
Daily Cash Flow Decisions
General Ledger Account Review
Oversight of Accounts Payable
Process Invoices
Payment Priorities
Survey of Controls – including IT
Tests of Controls
Tests of Transactions
Accounting Information Systems

20. Accounting Information Systems
Test of Transactions
A test of transactions is an audit procedure used for compliance testing
A normal business transaction is followed through all of the steps in the business process
As the transaction is processed, for each step, all affected accounts are checked to certify the transaction is being processed properly:
Inventory control area (in units)
GL inventory
GLcash account
GL AP control account
GL Goods Received / Invoice Received suspense account
APsubsidiary ledger
Accounting Information Systems

21. Review of Application Controls
There are two categories of controls dealing with computerized environments:
Application Controls – Controls that are programed into the computer applications
General controls – Controls that are not application controls (i.e. All other controls)
Following is a list of application controls:
Field check
Sign check
Limit check
Range check
Size (or capacity) check
Completeness check
Validity check
Reasonableness test
The assignment asks you to classify specific application controls in SAP
Accounting Information Systems

22. Accounting Information Systems
Suspense Accounts
Provide for timing differences in the real world
In academia, goods and invoices arrive at the same time making one entry to Inventory and AP possible, however this does not happen in business
In a real time system, if you delay recording the inventory received until the invoice is received, inventory (and accrued liabilities) will be misstated
So a suspense account entry is made to “hold“ the transaction until the rest of the transaction‘s data can be resolved
If the goods are received first, then the entry is:
Goods Inventory XXX
Goods Received/Invoice Received XXX
Then when the invoice is received, the following entry is made:
Goods Received/Invoice Received XXX
Accounts Receivable XXX
The GR/IR account should zero out when all the information for the transaction is entered
Accounting Information Systems

23. Accounting Information Systems
Information Records – The link between two “many to many” relationships
SAP uses the term information record to denote the linking relationship between two different entities, such as in this assignment between vendors and goods
This is not standard terminology, but this linking is a standard (and necessary) practice in accounting information systems
From a technical perspective, since a vendor can provide many products and a product can be provided by many vendors, this necessitates the use a separate database table to store the information
While a transaction can be completed without an information record, the information stored in the information record is very important
It allows us to compare prices, delivery conditions, minimum and normal order quantities, etc. for a given product for multiple vendors
With this information we may use one vendor for normal purchases because of a lower price and a different vendor for rush orders because of shortened delivery times.
Accounting Information Systems

24. Steps in the Assignment
Following are the steps you will do in the assignment:
Examine the chart of accounts
Examine the account settings for financial accounting use
Create a material master, vendor master, and linking information record
Check the inventory and accounting records after you record each transaction:
Create a purchase order for the material (a purchase requisition is not included in this assignment)
Receive the material
Receive the invoice from the vendor
Make payment to the vendor
Accounting Information Systems

25. Accounting Information Systems
SAP Documents
Since an ERP system tracks all related steps in a transaction, the documents are linked together by the system
Hence, knowing the document number of a preceding transaction step is critical to processing the next step
For this reason, in the assignment you are asked to record the document numbers
Accounting Information Systems