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 (well 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_p
  lanning
• 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/s
  tudent_view0/chapter9/

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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

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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
DFDs 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

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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.