Expenditure Cycle

1. Expenditure Cycle Small Business Information Systems Professor Barry Floyd

2. Agenda • Learning Objectives • Definition of Expenditure Cycle • Data flow diagrams of Expenditure Cycle • QuickBooks demonstration

3. Objectives • Continue with our understanding of ‘business processes’ • Identify activities and documents in the standard ‘expenditure’ / ‘money out’ business process • Discuss how the appropriate design of expenditure cycle tasks can provide value • Identify key reports to assess process and organizational performance in the expenditure cycle • Identify potential business risks (we’ll discuss how to handle them later in the quarter) • See (and know) how to use QB to perform tasks in the expenditure cycle • IN THE NEWS … SAP is moving into the small business space

4. References • http://en.wikipedia.org/wiki/Enterprise_resource_planning • http://www.quickbooks.com • http://en.wikipedia.org/wiki/Microsoft_Dynamics • http://www.microsoft.com/dynamics/default.mspx • http://highered.mcgraw-hill.com/sites/0072404299/student_view0/chapter9/

5. Definition: Expenditure Cycle • The set of business activities/tasks that occur regularly to acquire (purchasing) and pay for goods and services. • A primary goal of the Expenditure cycle is to minimize costs in acquiring goods and services …

6. Key decisions • Optimal level of inventory (should you have inventory?) • Which are the best suppliers (on time, low cost, high quality) • Which invoices to pay to take advantage of discounts. (How much money do we have) • Along the same line, how to manage cash flow • How efficient is the organization in the expenditure cycle activities

7. Three Key Activities • Ordering goods, supplies, and services • Receiving and storing goods, supplies, and services. • Paying for goods, supplies and services • As we review these activities, think about where Information Technology can play a role to improve efficiency and effectiveness • (Effectiveness = doing the right thing, efficiency = doing the right thing well)

8. DFD’s of Expenditure Cycle • Expenditure Context Diagram • Expenditure Level 0 diagram • Expenditure Level 1 Receive and Store goods diagram • Expenditure Level 1 Pay for goods diagram

9. Technology • Take a few minutes and discuss with those at your table, places in this business process where you think technology can play a role to … • Reduce costs. • Add additional value to the supplier. • Provide better information to management.

10. Business Documents • Purchase Requisition – used internally to request that an item be purchased. Identifies, who, what, how much, when needed, etc. • Purchase Order – formal request to supplier to furnish goods or services. Becomes a contract once supplier accepts it. • Receiving Report – documents details about delivery including date, amount, PO#, who received it, quality check, etc. • Debit Memo – records adjustments to the amount you owe based on your inspecting the shipment you just received (wrong number, damaged, poor quality)

11. QuickBooks Money Out

12. QuickBooks Tasks • Add a new Vendor • Add a new product • Buy something? • Enter bill • Pay bills • Enter refund or credit • Cash/check/credit card payments • Review key reports

13. Reports • What would you want to know about this process to see if it is performing ‘well’? • What metrics are important to you? Why? • Which ones are most important to your business? Why? • What reports does QuickBooks provide? Are they adequate?

14. Summary • The expenditure cycle is an important cycle to understand. • Understanding the use of technology is important for both reducing costs and for improving your business operations, reducing costs and differentiating your business from your competitors.