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Chapter 9 Textbook Notes

by: Lauren95

Chapter 9 Textbook Notes ACC 375

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This document is a detailed set of notes deal with information in Chapter 9 - Procurement and Human Resource Business Processes. After you review these notes you should be able to: (1) Describe t...
Accounting Information Systems
Dr. Farrell
Class Notes
Accounting Information Systems, chapter 9, Procurement and Human Resource Business Processes, terms, information, Objectives, Farrell, Bodnar, Hopwood
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This 6 page Class Notes was uploaded by Lauren95 on Friday April 8, 2016. The Class Notes belongs to ACC 375 at Pace University taught by Dr. Farrell in Spring 2016. Since its upload, it has received 13 views.


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Date Created: 04/08/16
Chapter 9 – Procurement and Human Resource Business Process  Procurement (Purchasing) is the business process of selecting a source, ordering, and acquiring goods or services. o The goods or services might be obtained internally if the goods are produced by another entity in the company.  The general steps for the procurement process are: o Requirement determination  A purchase requisition is an internal document created to request the procurement of something so that it is available at a certain point in time.  Purchase requisitions can be prepared manually.  They may also be issued automatically by the materials requirements planning (MRP) system.  The MRP system can perform sophisticated analysis to determine requirements based on computer demand for an item and the firms production process.  Purchase requisitions have an input field that indicated how they were created – manually or automatically.  A requisition tracking number is input when a large number of requisitions are issued for the same requirement.  The requisition tracking number enables one to monitor progress of the group of requisitions.  Purchase requisitions are processed line by line (a separate requirement)  They are forwarded electronically to a supervisor for approval. o Selection of source  Selections of source - assign a source of supply to the purchase requisition.  First ERP checks whether there is a contract that exists with a vendor. If it exists then it is requisitioned. If not, then a request for a quotation document is prepared.  Outline agreements are contracts that specify long-term arrangements with vendors.  If quota arrangements for an item have been contracted with vendors, ERP automatically assigned a source of supply to a purchase requisition based on the quotas defined in the contract. o Request for quotation  A request for quotation is created for high-cost items or services for items or services for which bids are required as a matter of company policy.  It is a document sent to vendors inviting them to confirm a price and payment of terms for the supply of a product of service.  The issuing of a request for quotations results in one or more quotation documents being entered into SAP.  Potential vendor’s quotes for pricing and terms are entered into quotation documents.  Used in the selection of a vendor. o Selection of a vendor  Compares procurement needs with vendors’ quotes as they have been recorded in quotation documents and identifies the most suitable quotation for the requisition.  ERP sends rejection letters to vendors’ whose bids were not accepted.  Vendor evaluation offer requires expertise or experience. o Issuing of a purchase order  A purchase order document identifies a vendor and confirms goods ordered, quantity, price, delivery date, terms of delivery, and payment terms.  A purchase order can be created from scratch or by reference to an existing document.  The purchase order can be sent as paper, fax, or electronically as an EDI document.  A system might issue a purchase order automatically for purchase requisitions that do not exceed a specific price or amount.  Several types:  A standard purchase order is issued to a good or service.  A subcontract purchase order is issued when a vendor must receive parts to produce an end product that will be delivered to the company.  A consignment purchase order is issued for goods held in consignment.  A third party purchase order is issued when goods or services are to be delivered to a third party.  A stock transport purchase order is issued to initiate a good movement between plants in the company.  Terms and conditions are usually negotiated and maintained separately by each purchasing organization.  An outline agreement has a header and items  The header specifies much the same data about terms and conditions as is done in a request for quotation and purchase order.  Outline agreements also require specification of the time period to which conditions apply.  Two types of outline agreements:  A contract is an outline agreement in which a vendor provides material for a period of time. o Does not contain specific delivery dates or quantities. o A value contract is used when the total value of release orders is not exceed a certain amount. o A quantity contract is used when the total quantity to be ordered over a period of time is known.  Scheduling agreements are similar to contract, but they also specify the price of items. o Has line items o A rolling delivery schedule is established for each schedule agreement line item by creating a number of individual schedule times that are sent to the vendor in a scheduling agreement release document,  Dates and quantities are specified.  Reduce paperwork.  Helps reduce inventory because it enables just-in-time delivery. o A purchase order that is prepared under an existing contract or scheduling agreement is called a release order. o Receipt of the goods  A receiving report - when a vendor makes delivery, a goods-receipt document is prepared in ERP.  A goods-receipt document is issued whenever goods are inventoried, regardless of the source.  A goods receipt is prepared when an item is delivered from an in-house source as well as an inventory transfer occurs that moves an item from one location to another.  Goods receipt document can be prepared in three ways:  (1) Inventory management system when the good are assigned to temporary storage. After goods have been transferred and goods are checked and recorded, the goods receipt is complete.  (2) Reference to purchase order o Automatically fills the goods receipt document using information in the purchase order and updates the purchase order for the goods receipt.  (3) Goods receipt can be posted into quality inspections. Goods cannot be used until inspected and verified. o Invoice verification  Invoices must be checked against goods-receipt documents and original purchase orders prior to payment.  Invoice verification ensures that cost and quantity requirements have been met.  Invoice verification links materials management and procurement with other ERP modules such as financial accounting and controlling.  The purchase number is entered along with other invoice details.  When an invoice is poster, ERP preforms a three-way match that compares the purchase order with the goods receipt and with the invoice.  Checks against inconsistent charges or incorrect amounts being delivered. o Vendor payment  Once an invoice is posted, payment can take place.  Payment is made according to the payment terms and conditions specified in the purchase order or the vendor master record.  Payment is processed through accounts payable in the financial accounting module.  Enterprise resource planning (ERP) systems are capable of storing and processing a vast amount of information pertaining to the procurement business process.  Procurement documents include: o Purchase requisition o Request for quotation o Quotation o Purchase order o Online agreements o Contracts o Scheduling agreements o Purchasing information records  A procurement documents are assigned a document type code. o This code determines the fields that are displayed on video screens and controls the range of unique numbers that are assigned to particular document types. o Each document has a header area and an item detail area. o The header contains information relevant to the entire document, such as vendor number. o The item specifies the details of the individual items in the document, such as the product numbers of items to be ordered. o The documents use an alphanumeric code.  Master records are created in ERP for the objects that reflect the organizational structure and business processes of the company. o Objects are identified by a code. o The coding system for objects incorporated fields that identify company, plant, storage location, purchasing organization, and purchasing group.  The company code identifies an accounting unit that has a balance sheet and income statement.  A consolidated company consists of several different companies, each of which is legally responsible for creating and maintaining its own accounting documents for legal purposes.  Three categories of information in vendor master records. o (1) General data consists of vendor number, name, address, telephone number, and similar items. o (2) Company code data (accounting data) are define at the company level and are linked to the financial accounting and general ledger modules in ERP. o (3) Purchasing data describes purchasing needs and are defined at the purchasing organization level.  Material master records contain information about materials that a company might procure, produce, or sell to customers.  A goods movement is an internal or external event that causes a change in stock level. o Ex: Internal event – issue of stock to production o External event – a sale to a customer or receipt from a vendor.  Source allocation is the process of vendor evaluation. o These records contain performance information such as price and delivery times for the material from a vendor at a certain data about material, a vendor and a plant.  Transaction Cycle Controls over Procurement: o Requisition (Stores)  Requests for purchases originate outside the purchasing department.  Purchase requisitions should always be approved in the originating department. o Purchasing  Function of the purchasing department to select a vendor and arrange for terms and delivery.  Purchasing may at times override a purchase requisition due to insufficient budget, lack of authorization, or some other reason.  The requesting department should be notified that a purchase order has been issued, and it should review the order as necessary to verify its appropriateness for satisfying the needs identified in the purchase requisition. o Receiving  The receiving function should be separate from and independent of the requisitioning (store) function.  Receiving should access the purchase order and match it with the delivery from the vendor.  The purchase order authorizes the receiving department to accept the delivery from the vendor when it is delivered.  An independent or blind count of a delivery may be obtained by not allowing the counters to have access to quantities shown on the purchase order. o Stores  The stores department acknowledges receipt of the delivery from receiving by signing the receiving report and then forwarding it to accounts payable.  If goods are delivered directly to the requisitioning department rather than to stores, a supervisor in the requesting department should acknowledge receipt on the receiving report and then forward the receiving report to account payable.  This independent verification of receipt of the purchase is a central control feature in the procurement business process. o Accounts Payable  Account payable is responsible for initiating payments to vendors.  Voucher package – the collection of three documents – purchase order, receiving report, and invoice – are available to document a purchase transaction.  A voucher system is essentially a review technique to ensure that all appropriate documentation is assembled, verified, and reviewed prior to actual payment of an invoice. o Additional control features:  Purchasing does not control the actual goods; nor does purchasing have complete control over the documentation that is required for payment.  Receiving is separate from final custody of the delivery, which is the requisitioning function. Acknowledgement from both receiving and final custody should be a requirement before a payment is authorized.  Account payable handles only documents and is not able to obtain merchandise or cash independently.  Inventory records should be updated to reflect the receipt of goods.  Approved vendor lists prepared by an independent function, may be used to restrict a buyers options to those vendors who have been found reliable, financially sound, and free of conflicts of interest.  The attribute rating approach to vendor selection is appropriate whenever an objective evaluation of the options of several independent evaluators is desired, that is, an amalgamation of evaluations of the same system. They following steps are involved: o Identify and list the attributes to be included in the evaluation. o Assign a weight to each attribute based on relative importance and objectivity o Have individual evaluators rank each vendor on each attribute, giving a numerical score on a range of 1- 10 or some other scale. o Total the individual evaluations by multiplying each attribute’s numerical ranking by its weight; then total all evaluations by adding the scores together.  The Sarbanes-Oxley Act of 2002 (SOX) requires that companies maintain an adequate internal control structure over the business process that support financial reporting.  Risk assessment underlies the entire audit process described by the standard outline in SOX, including the determination of significant accounts and disclosures and relevant assertions.  Cash Disbursements Business Process: o This is the business controls check disbursements as well as actual cash disbursement. o Accounts Payable  The accounts payable department accesses the documents that are necessary to support a cash disbursement.  The documents are: purchase order, a receiving report, and a vendor’s invoice.  These are reviewed, certified as to completeness, and processed to prepare a voucher. o Cash Disbursements  Received from the Accounts Payable department  After the voucher and checks are reviewed, they are signed and the vouchers are canceled and filed by number.  Vouchers are canceled to avoid duplicate payments. o General Ledger  The journal voucher is received from accounts payable and the control total from cash disbursements are reconciled, and the totals are posted to the general ledger.  Filed by date. o Internal Audit  The canceled checks are received from the bank along with the bank statement. An independent bank reconciliation is an important control in a cash disbursements business process. o Voucher Systems  A voucher system is essentially a review technique.  A voucher system centers around vouchers.  Vouchers themselves can take several forms, ranging from a simple form or envelope to a voucher-check combination. o Posting Payable  When are liabilities booked?  After invoices have been approved for payment, they may be help until the due date and formally posted at that time.  Built up voucher systems accumulate several invoices from the same vendor and pay these invoices with a single check. o Functions as an accounts payable system. o Stored by vendor or voucher number.  Human Resource Management Business Process o Concerned with establishing and maintaining an information system that processes HR information. o Should provide tools for the setup and maintenance of information pertaining to the organizational structure. o Blue prints – defined data types o The HR data structure contains three elements:  (1) HR master data  Created and maintained for organizational unites, job profiles, employees, and training.  (2) HR data organization  Presented to users in ERP by info types and personal events. o Info type – term that denotes a collection of data fields that are grouped together for display. o Info types change over time. o Delimited info type is one whose validity end date is past. o A personal event is a group of info types.  (3) HR objects  Identified with one or two letter identifiers.  Payroll processing is extremely complex.  Personnel: o The personnel (employment) office is responsible for placing people on the company’s payroll, specifying rates of pay, and authorizing all deductions from pay.  Timekeeping: o The timekeeping function is responsible for the preparation and control of time reports and job-time tickets. o They are responsible for the authorization of the pay, which includes the actual computation and the preparation of the payroll register.  Preparing payroll should be independent of the preparation of the input data on which pay is based.  Other controls in payroll:  The use of a separate imprest payroll account for paychecks to facilitate reconciliations.  An independent reconciliation of the payroll-account bank statement.  The use of an independent paymaster. The person who distributes the pay should be independent of personnel, time-keeping, and payroll preparation.  Federal income taxes on wages of an individual are collected in the period in which the wages were paid.


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