PROFESSOR : JOHNSON

Lecture2 : Accounting Second

View the Power Point Presentation of the Lecture

Hi thanks for joining me again class now what I would like to get through in this section of our video lecture is I would like to talk a little bit about reporting and then talk about the sales process and I’ll stop our video lecture after the sales process and then complete it with a third on the purchasing content that is in chapter four of your book so lets talk for a minute about collecting and reporting accounting information your authors indicate that designing a really good or effective accounting information system begins by determining the end first what do the outputs need too look like in order for the system to be considered effective and I think that is an excellent way to think about how design the accounting information system so you need to know what the outputs are going to be and certainly they’re going to include reports to your management team reports to investors and creditors files that retain transaction data for auditing purposes and files that retain current data about your account which we’d like to be ongoing ability of the business to continue on I think its very important when your thinking about outputs who you are designing the output for whether that is board members that the management team reports to or whether it is managers who need the information for whether that is board members that the management team reports to or whether it is managers who kneed the information for decision making purposes its very important to take into consideration who the report is being designed for and I’d like for you to take a look at some reports that are designed for public consumption so I’d like for you when this video lecture is over I’d like for you to go out to Microsoft which is just simply Microsoft.com and go to investor relations click on annual report and I’d like for you to just go through kind of quickly you don’t have to read every word but I’d like for you to go through an annual report designed by large corporation one that I think is very nicely designed for the web and take a look at what the output is expected to look like and that will give you some clues about this topic our other considerations in report designs certainly are what types of report your producing sometimes there are reports that list only exceptions and those are called exception reports your authors point out that when your designing reports you need to be very careful about information overload and I think that’s certainly true in today’s society where we have just multitudes of information at our fingertips many individuals that I have worked for in the past have said if you can’t say it in one page its not worth saying and so I know that right now in Frankfort that the big buzz word is put together a one pager for me on that executive summaries and the ability to clearly articulate your position or what you need or what your trying to report on and to do that in a very succinct fashion is very important I think that your authors are correct also about format the format of the reports that you create need to be convenient certainly needs to contain fundamental identification who prepared the report who the report is prepared for what time period it covers what is the date of the report and that needs to be consistent over time and that’s not just good word processing techniques but I think that what that does is that it presents to whether its your board or the public or even managers within your organization it sets the tone about who you are as an accountant that you are consistently putting titles on the report indicating the time period whose preparing them and that gives you as a manager when you see reports coming to you that are consistently labeled that have the same kind of font that appear on the same type of paper that are prepared in the same way and perhaps falsely so it gives you a sense of security that things are being done correct and consistently and so I would encourage you to think about that when your preparing reports whether it is for internal use or whether it is for board or for public consumption source documents your authors point out have some important characteristics and I think that you should be aware of those important characteristics they source documents certainly dictate what kind of data is being collected so when you create a source document form whether that is a sales invoice which is a fairly standard type of form or whether your creating an intent to participate which is a form we created in a company that I worked with it was a form that we used to actually book a donation in the corporation that dictates what kind of information that your collecting so if you need names or addresses if you need several tax identifications number if you need the form itself the source document indicates what kind of data is being collected and it also encourages completeness of accounting data because when you see a form you immediately think I have to start filling in all the boxes as you did your SUA you started figuring out which pieces of information go in each of the boxes and that encourages the individual filling it out to be complete and that then results in accounting data being somewhat complete source documents also serve as a distributor of information but its often organizations that source documents in multiple copies of the same source document end up in many different places I remember when I first started working at Western Kentucky University and I think I’ve mentioned this before in order to get a pencil I had to fill out a purchase requisition request from the central stores and it was a five part form it was a form that had five copies five different colored copies associated with it and when you wrote on it went through to the other copies and they were distributed in different places and so it does serve as a distributor often of information and it establishes the authenticity of the accounting data because particularly when you have a paper based form which is you know one that can clearly trace someone’s hand writing on it establishes where that document came from lets talk for a minute about corps business process which you’ll find in your text book on page 109 if your following along in your book which I would encourage you to do when your in class or listening to the video lecture an accounting information system collects and reports data related to an organizations business process and I think its interesting that your authors note that while everyone kind of does things a little differently everyone has the same set of corps processes and in every organization every business organization I know of your selling something which generates revenue and often your purchasing things that allow you then to generate that revenues whether that’s raw materials or supplies or whatever so you have the sales process you have the purchasing process and I think that that’s common there’s a common business process in any organization but I think your authors fail to talk about is that there are best practices for how you should carry out those processes and I am hoping that a little bit later on in the textbook we will see some treatment of best practices because these are things that you don’t have to reinvent that you can find out about and you can find out about them with respect to the particular type of organization that your dealing with for example in a professional services firm I think that there are best practices which of course would differ from best practices for the sales process in say a manufacturing firm but at any rate to get back to your text the authors distinguish between an economic event and the business event an economic event being one that involves the increase or the decrease in the dollar amount of the financial statement while a business event is an event that does not impact the financial statements but is none the less important to the business since economic events have an impact on financial statements economic events are often called accounting transactions the sales process this is my favorite place to start in an organization when I am consulting it is always enlightening to start with how does the organization generate revenue and that begins with a customer order for either goods or services and it ends when you actually collect cash from the customer of course the primary objective is to achieve timely efficient revenue collection an organization that generates revenue but fails to collect on these revenues in a timely basis finds itself in a position where it can not pay its bills so I find the sales process fascinating and I always flow chart the sales process as your authors have on page 111 they’ve created a high level flow chart of the sales process in an online environment because I think flow charting the sales process gives you a clue to what’s going on in the organization in terms of information flow of course the sales process has a number of objectives tracking the sales of goods and or services to customers filling out customer orders billing the customers for goods and services collecting payment for goods and services and then I think having that information so that you can forecast sales and cash receipts which are very important to the ongoing concern of the organization there are a number of different inputs to the sales process in terms of document source documents typically there is a sales order often this is pre-numbered is usually prepared in multiple copies and its used it is important to the accounting department because its used to prepare the sales invoice the sales invoice is often prepared after the shipment of goods and the provision of service then there is a remittance advice which serves as a source document for credits to accounts receivable the shipping notice when your using when your selling physical goods the warehouse prepares this after the goods are released for shipment and then a debit and credit memo which is issued for sales returns and allowances and debit memos increase what the customer owes outputs of the sales process or financial statement information the customer billing statement and an accounts receivable aging report and I wont go over these in further detail because you just practiced this both billing statement and the account receivable aging report in your SUA exercise you also can produce a bad debt report cash receipts forecast a customer listing and a sales analysis report the customer listening can often help sales associates that are dealing directly with specific customers to understand you know how they’re what is varying in terms of what they’re buying from what they bought at a certain time last year or the year before so there are lots of outputs to the sales process that help sales managers and sales associates in decision making and moving the organization forward your authors point out the most important control of the credit sales process is that you need to have the credit check performed by someone other than the sales person and I think it would be intuitively obvious to you why you would want that particularly given most sales people are compensation is based on their ability to sell so or the volume in which they sell so you want to have the credit check performed by somebody other than the sales person I think you can your authors automate the credit check and depending on what type of organization your in you want to check for credit approval documentation credit limit and a current state of their balances the most important control in a cash sales process the most important control in a cash sale is to ensure that the transaction is originally recorded and that the cash doesn’t end up in the pocket to do that you can use scanners or other mechanical devices and your authors indicate a customer audit if you use a customer audit this can often help you uncover if you have an organization that has cash sales whether or not those transactions have been appropriately accounted for and I ‘d like for you all to think about what are some examples of a customer audit and how you would go about doing that now we’ll stop and pick up in just a few minutes with the purchasing process.