3122 Final
ERP Accounting Software
ERP: enterprise resource planning
organizations use this software for day today activities to manage business activities
ex) accounting, risk management, compliance, etc
package = based on needs of company
customization vs configuration
customization - modification of the software to meet the needs of the company
ex) taking apart a system and putting it back together w/ replacing parts = best result → goal
configuration - deciding on the ERP options or settings that best fit your business
ex) adjusting the system to suit your preferences
advantages: adaptability; functionality
disadvantage: programming costs, upgrade problems, security concerns, compatibility concerns
Chart of Accounts
list of all company's financial accounts
into easily identified categories (asset, liability)
chart of accounts was imported from the GL
Realtime Information: each transaction is posted to the GL as soon as it is entered and saved
note: you can change the posting method at any time on the maintain company info sheet
Types of Data (3)
Types: control, master, transaction
control data - system and technical settings of the accounting system itself; its functions / structure
master - key business info that supports and classifies transactional data & analytical data
helps reduce human error
ex) customer data
transaction data - represents business events that result from business processes
decreases overtime
generated when customer places an order
ERP - Inventory Management
Bill of Materials
list of different inventory components that are used to construct a finished good; required to build a product
includes: raw materials, quantities, labor / overhead, subassemblies
Routing: production steps required to produce the finished product
Steps
order of operation
workstations necessary to produce the product
time required to complete each operation
materials needed at each step
concept: estimate labor costs & allocate overhead to the finished product
period vs product costs
product costs - $ that are directly related to the production of a product or service intended for sale
consists of: direct materials & labor, factory overhead, inventory costs
recognized: on the income statement when inventory is sold rather than when the expense is incurred
period costs - $ incurred by the business that are not directly related to the manufacturing of the product
consists of: selling costs, administrative costs, marketing costs
recognized: on the IS in the period which the expense was incurred
workarounds
method used for overcoming system limitations
can lead to errors, reduce productivity, frustrate employees
goal - minimize workarounds → ensures they meet their needs
Variance & Accounts Receivable
Variance
difference between planned vs actual results
gives insight into an entity's overall performance
equation - actual (-) standard
(+) = unfavorable
(-) = favorable
types: material, labor, overhead (review chart)
inventory cycle counting
cycle counting - inventory auditing method where you count small portions of inventory on a schedule instead of full physical count once
can be chosen @ random, or weighted @ value, or more frequent turnover
limited interruption, inventory records are typically more accurate b/c adjustments are made year round
divided by groups
Accounts Recievable Department
Credit Risk Assessment
evaluates how likely a customer is to pay what they owe on time and in full; ability / willingness to repay by extending credit
risk high → deny / limit credit
low risk → approve credit
Red Flags
order exceeds customer limit
current (+) past unpaid orders exceeds limit
customer unpaid invoices age past 90 days
customer has a credit hold
Before accepting order: customer must agree
pay w/ cash
pay down previous balance
accept smaller order
Cash Application & Payments
cash application
matching incoming customer payments to the correct outstanding invoices in AR; applying it to the specific invoice it pays off
key questions: which invoice is being paid off? why does payment differ from invoice amt?
complex when: disputed charges, take unauthorized discounts, over or under payments
Manual cash application - person reviewing payment details / manually matches payment to correct invoice
AR personnel must see which invoice is being paid
issue: no remittance provided = personnel has to guess or ACH
Automatic cash application - uses software to automatically match incoming payments to invoices w/out personnel
feature applies cash receipt w/out manual intervention
Lockboxes - post office (P.O.) box set up by your bank
steps: customer mails $ → P.O. box → bank collects → bank sends list of your cash receipts & $ deposited in your account
Lockbox advantages:
greater internal control
increased security
improves accuracy
reduces processing costs
files from the bank are automatically digitized
downside: not free - p.o. box
ACH
ACH: automatic clearing house
service provided by the FRBS that is designed to accommodate interbank fund transfers
to send and receive electronic payments / money transfers in batches
advantages: automatically debits accounts, very inexpensive ($.20-$1), just have to upload a file - no manual inputs
AR Reporting & Stratification
Check 21
in 2001 congress passed law: check 21
check 21 allows electronic images of checks to be accepted as the legal equivalent of original paper check
electronic image = paper / physical check
substitute checks - paper or image of front / back of check processed as if it is original check and used as proof of payment
what made deposits known as electronic check deposit
Aged Recievables Report
collections = use AR aged trial balance
ARATB: listing of open AR that reports each receivable in the columns depending on age
(2) Methods: invoice date & invoice due date
why the reports are used:
estimate bad debt
manage cash flow
identify collection issues
audit internal controls
Account stratification
collection procedures consider the importance of each customer account
customer (large company sales) > customer (lower comp. sales)
treated differently from customers of lower importance
treatment concludes: credit department sorts accounts based on received amount or total sales
3 tier system: A, B, C (review %s)
collection methods
collection procedures: identifying & following up w/ late paying customers
involve: issuing reminders, identifying & following up late payments w/ customers, classify / record extent and stages of delinquency, collection for customer accounts to agencies, recommended written off accounts by company
Metrics & Accounts Payable
Estimating Bad Debt Expense
taking the ADA balance and (x) by the bad debt percentage for each days overdue and adding them together
Department Metrics
measuring departmental efficiency - measuring performance of an accounts receivable department
key indicators
Days sales outstanding - measures receivables bal in terms of # of days it reps
DSO=Total credit sales - 3 periodsAged rec. bal over 3 periods×# of days in last 3 periods
3 periods = smooths out ratio due to single period activity
↑ in DSO = not paying as quickly in the past (customers)
Bad Debt Ratio - measures effectiveness of credit and collection policies in relation to sales volume
BDR=cy credit salescy write off (-) recoveries (cy or py) write offs
% of all sales gone bad over the year
unit cost for credit management - measure that shows per unit cost of extending credit
UCCM=annual credit salescredit costs - cost classification
↑ cost component of CM = personnel costs
Accounts Payable Department
Business Email Compromise (BEC)
most common method used to commit payment fraud
scammers use email to trick departm. into transferring $ to illegitimate accounts
grew during pandemic bc ability to verify emails was more challenging
shifted from paper → electronic methods
look @ chart
Vendor Master File & AP Processes
Vendor Master File
repository of info for all vendors w/ whom the company does business
have controls that limit access to file
b4 vendor is entered - verify legitimacy
avoid one time vendors (put in file if receive 3+ payments a year)
Fraud - involves AP b/c includes paying cash
scams & most common: phony invoice for payment, divert payments from legitimate vendor, inactive vendor manipulation
Application form - vendor submits invoice = VMF enter
vendors required to submit application
provided info will be verified through independent sources
changes to VMF - only few can make changes
company should have procedures
requires - special form filled out w/ attachments
approved by 2nd person @ higher level
forwarded to VMF person who inputs info
Evaluated Receipt Settlement
approach used to pay its suppliers
steps (by department)
PO issued
Goods Received (goods in = receiving report filled)
system evaluation (PO + receipt)
payment generated
supplier paid
clerk matches → if matches = suppliers paid by terms
benefits - faster payments, lower costs, improved accuracy, operational efficiency
Negative Assurance - for lower-dollar transactions
invoice < threshold = goods received / service performed
paying for goods based on the assumption they were received
Pcard - credit cards that don't carry a revolving line of credit
Restrictions: limit $ amt to each transaction, limits $ amt in a given month, place a block, manager review / signoff of monthly statements
Fraud Prevention & Payroll
Positive Pay Workflow
proactive fraud prevention service that helps protect your companies checks & cash
steps
check run
file sent to bank
bank matches check
check paid or removed
fraud prevention
eliminates major check-fraud schemes
considerations - provide file regularly, timeliness, include all checks, service fees may apply
issues involving checks review slides
Payroll Department
independent contractors - person who performs work for the company but is not an employee of your organization
completes a W-9 report (contractor)
given check for gross amt (no taxes withheld)
form 1099 is given if $ < $600 (greater than) year
B4 and After tax deductions
Before tax deduction - deduction subtracted from employees pay b4 income taxes are calculated on pay
After tax deduction - ↑ except after income taxes
Pretax = lower tax rate = more $ to take home
Calculating Net Pay
Net Pay = Gross Earnings (earnings for pay period b4 taxes are withheld)
(-) Deduction B4 Tax (b4 only)
= taxable earnings (amt accountant will calc taxes)
(-) federal inc. tax with (15%)
(-) deduction after tax (after only)
= net pay
chart for calc net pay
Imprest Accounts & COSO
Imprest Account
imprest payroll account - bank account (separate) held by a company that has funds solely for paying employees payroll due
general bank acct → transferred → Imprest payroll acct → checks to employees
advantages: identifies check fraud easier, allows for delegation of payroll check-signing duties
general acct = outflow only to another company acct
imprest acct = check signed by payroll supervisor or they approve ACH pmt
General and Application Controls [review slides]
COSO
Control Environment - tone @ the top
set of standards, processes, and structures that provide the basis for carrying out internal control across an org.
expectations - standards of conduct
includes:
commitment to integrity & ethics
BOD demonstrates independence from management & exercises oversight: development & performance
commitment to attract, develop, retain
organizational structure & accountability
accountability for internal control duties
Risk Assessment - evaluating internal / external events that threaten business objectives
risks include: false reports, fraud / theft, recording errors, waste, misuse of recorded, improper vendor activity
Deficiency in Design - critical control is not properly designed
Deficiency in Operation - properly designed control does not operate as intended, or person performing IS NOT authorized