Chapter 3

Chapter 3

CHAPTER 5 SALES AND COLLECTION BUSINESS PROCESS AGENDA Welcome and Introduction Sales and Collection Business Process Midterm Exam Week 5 Homework Questions 2 LEARNING OBJECTIVES 1. Describe the business activities that comprise the sales and collection process

2. Develop an activity model of the sales and collection process 3. Understand and apply different activity modeling options 4. Develop business rules to implement controls for the sales and collection process 5. Develop UML Class Diagrams for the sales and collection process 6.

Implement a relational database from the UML Class Diagram of the sales and collection process 7. Use multiplicities to implement foreign keys in relational tables 5-3 CREDIT SALES SYSTEM FLOWCHART 1 1-4 LO# 1 REVIEW OF SALES AND COLLECTIONS ACCOUNTING 5-5

SUNSET GRAPHICS 6 LO# 2 SUNSET GRAPHICS CONTINUING EXAMPLE Sunset graphics design and sell signs and banners, lettering and vinyl graphics for vehicles and boats, corporate promotional items, and silk-screened t-shirts and embroidered gear, among other products. 5-7 LO# 2

SUNSET GRAPHICS SALES PROCESS DESCRIPTION Sunset prepares a quote that carefully describes the products and services to be provided to the customer Customer places the order for all or part of the quoted products and services Sunset orders any products not in inventory from their suppliers (outside the sales process) Sunset applies graphics Sunset delivers the products to the customer Sunset bills the customer and collects payment 5-8 LO# 2 BASIC BPMN ACTIVITY MODEL 5-9

LO# 3 BPMN MODEL REFINEMENT Collaboration Sales Activity Model 5-10 LO# 3 FURTHER BPMN MODEL REFINEMENT Collaboration Sales Activity Model emphasizing the CHOREOGRAPHY message flows between pools, since Sunset is not interested in the Customers activities. To clarify the diagram, the message flows should be labeled, e.g., quote information for the first message flow. 5-11 LO# 3

MORE BPMN MODEL REFINEMENT Considering EXCEPTIONS to the process. Shows the process flow when the supplier does not have the products necessary to fulfill the customers order. Sub-process represents the PURCHASING activities 5-12 without the detail; the INTERMEDIATE ERROR EVENT shows exception flow. LO# 4 BUSINESS RULES Business rules help ensure that information systems operate in a consistent and effective manner to achieve organizational objectives. Business rules are constraints on the process. Business rules implement control activities, such as Approvals, authorizations, verifications, and reconciliations

Reviews of operating performance Security of assets and segregation of duties 5-13 LO# 4 ESTABLISHING BUSINESS RULES FOR SUNSETS SALES Define objectives for each important business event Use the BPMN activity diagram to identify important business events Define constraints on each event

What people/employees can do. What information is available and not available What the information system should do 5-14 SAMPLE BUSINESS RULES Process Steps Intention

Partner Authority/Action Access Controls Application Controls Provide Quote Provide quotes promptly and accurately Partner must provide quote within 1 business day of request; Manager must approve quotes > $5,000 Partners preparing quotes cannot modify

established product and service prices System must provide quote number control, default values, range and limit checks, and create audit trail Receive Order Record order promptly and accurately; ensure customer credit is authorized Partner must record order

within one hour of receipt; Manager must approve orders > $5,000; Credit manager must approve credit order > $1,000 Partners accepting orders cannot modify established product and service prices; Partners accepting orders cannot approve request for customer credit > $1,000. System must provide order number control, default values, range and limit checks, and create audit trail; system links quote to

order 5-15 LO# 5 SUNSET GRAPHICS STRUCTURE MODELS The primary purpose of an UML model of the sales and collection process is to create a blueprint for the development of a relational database to support the collection, aggregation, and communication of process information. To develop UML class diagrams, the REA framework (resources, events, and agents) is a proven approach to describing business processes in a way that meets both accounting and broad management information requirements. 5-16 THE QUOTATION PROCESS

17 LO# 5 SUNSETS QUOTES - DEFINING BUSINESS RELATIONSHIPS 1. Each Sunset Partner may participate in a minimum of zero Quotes and a maximum of many Quotes, but each Quote involves only one Sunset Partner 2. Each Customer may participate in zero to many Quotes and each Quote is prepared for only one Customer

3. Each Quote specifies prices and quantities for at least one product 5-18 LO# 5 ADDING THE ORDER EVENT 4. Each quote can result in a minimum of 0 orders and a maximum of many orders. Each order may related to 0 or 1 quote (some orders dont have quotes). 5-19 LO# 5 ADDING CASH RECEIPTS

5.Each order can be either paid or unpaid. 6.Each cash receipt is deposited into one bank account 5-20 LO# 5 TYPE IMAGES FOR CATEGORICAL INFORMATION Type images apply guidelines, constraints, and descriptive information to their resources, events, and agents to help manage the business process Type images also support summarization of the economic activity to support managements information requirements For Sunset Graphics, type images allow Product categorization

Order status summary Assignment of partners to manage product categories 5-21 LO# 5 ADDING TYPE IMAGES TO THE MODEL 7. Orders (and Sales) can be summarized by product category. 8. Sunset partners can be assigned to manage on or more product categories. 5-22 LO# 6 UML CLASS MODELS SUPPORT DB PLANNING

The database will contain one table for each class plus one table to support each many-tomany relationships Multiplicities indicate location of foreign keys Multiplicities indicate linking tables 5-23 LO# 6 Product Categories 0..* 1..1 0..* 0..* 1..1

Associations that will be implemented with Linking Tables Quote 0..* 1..1 1..1 0..* Sunset Partner 1..1

0..1 1..* Products 1..* 0..* 0..* 0..* 0..* 0..* Order Status 1..1

Order 1..* Customer 1..1 1..1 1..1 0..1 0..* Cash 1..1 0..*

Cash Receipt 0..* This model would result in a database with 9 tables for classes and 2 linking tables. 5-24 LO# 7 POSTING FOREIGN KEYS EXAMPLE Quote 0..* 0..1 1 3 0..* 0..*

1..1 Order 0..* Customer 1..1 2 1. Customer Number is posted in the Quote table as a foreign key. 2. Customer Number is posted in the Order table as a foreign key. 3. Quote Number is posted in the Order table as a foreign key. 5-25 LO# 7 RULE OF THUMB

POST TOWARD THE * and AWAY FROM THE 1 The primary key of Customer should be a foreign key in the Sale Table! 5-26 LO# 6 RESULTING DB TABLES AND RELATIONSHIPS 5-27 LO# 6 Product Categories 0..*

1..1 0..* 0..* 1..1 Associations that will be implemented with Linking Tables Quote 0..* 1..1 1..1

0..* Sunset Partner 1..1 0..1 1..* Products 1..* 0..* 0..* 0..* 0..*

0..* Order Status 1..1 Order 1..* Customer 1..1 1..1 1..1 0..1 0..*

Cash 1..1 0..* Cash Receipt 0..* This model would result in a database with 9 tables for classes and 2 linking tables. 5-28 LO# 5 GENERIC SALES AND CASH RECEIPTS MODEL 0..*

Inventory 0..* 1..* 1..1 Sales 2 1..1 0..* Employees ?..? 1

4 1..1 ?..? 0..* Cash 1..1 0..* 3 Cash Receipts 0..* Customers

1..1 1. Each customer participates in a minimum of zero and a maximum of many sales. 2. Each sale involves a minimum of one and a maximum of many inventory items. 3. Each cash receipt (e.g., one check from a customer) is deposited into one and only one account, and each account is associated with a minimum of zero cash receipts and a maximum of many cash receipts. These multiplicities reflect typical business practices. 4. These multiplicities depend on the nature of the business. Some businesses require payment at the time of the sale. Some allow payment terms. Some provide revolving accounts for their customers. Some collect payments in advance of the sale (e.g., magazine subscriptions). So, there are no typical 29 multiplicities for this association. HOMEWORK 30 WEEK 5 ASSIGNMENT 1

Please complete the homework in McGraw-Hill connect for Week 5. Due Date: Sunday June 11th at midnight your local time. 31 WEEK 5 ASSIGNMENT 2 Complete discussion questions from your textbook, page 145, 1, 2, 3, 7, and 8. 1. The sales and collection process generates revenue accounts receivable, and cash flow information for a firms financial statements. What other information do you think managers would like to collect? Due Date: Sunday June 11th at

midnight your local time. Upload to How to approach: Think of the other information that is generated and used when the assignment dropbox. there is a sale. How would an organization use that information and what information would help manage the business? 32 WEEK 5 ASSIGNMENT 2 2. What kinds of businesses collect cash before recording the corresponding sales? How would that different sequence affect internal control requirements. Think of businesses that collect cash before delivery of goods and services. For internal controls, does cash collection represent the recognition of revenue? What is the implication of that on internal controls in the sales to cash transaction cycle? 3. Draw a basic sales activity model using BPMN for a fast-food restaurant. Draw a second basic sales activity model using BPMN for a traditional restaurant. Discuss similarities and differences. How would you add taking reservations to the second model?

How to approach: List the steps for each activity model fast-food restaurant and traditional restaurant. The convert that 33 to a BPMN for each one. Make sure that you use the correct notation symbols. WEEK 5 ASSIGNMENT 2 7. From your experience, think about the sales process for an online or brick-and-mortar store. Describe some business rules that help provide internal controls over the process. List business rules that online or brick-and-mortar stores use to provide controls over the process and explain how they do that. 34 WEEK 5 ASSIGNMENT 2 8. What classes and associations would be included in a model that describes the information needed for a query that calculates the accounts receivable balance for each customer? Describe differences in the information for the open-invoice method, where customers pay according to specific invoices, versus the balance-forward method, where customers pay balances on monthly statements?

Create a UML class diagram for the classes and associations that are involved in the accounts receivable process. Then, explain how the queries would work: a. Calculates the accounts receivable balance for each customer. b. What are the differences between the open-invoice method and the balance forward method? 35 QUESTIONS 36

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