WELCOME TO CHECK POINT 60

HOW CAN YOU BENEFIT FROM CHECK POINT 60?

LEAN MANAGEMENT GUIDELINES FOR CHECK POINT 60

COMPUTERIZED SYSTEMS

Business owners and financial managers must be fully informed about the most updated computerized systems and should implement these systems within their organizations to succeed in the competitive business environment.

The majority of small business owners currently use or plan to use a Computerized System to speed up a broad range of management procedures within their organization. Technological progress in the area of Micro-Computers and Mini-Computers and attractive prices further enhance the usefulness of computerized systems. These systems offer several important advantages outlined below.

ADVANTAGES OF COMPUTERIZED SYSTEMS

PERSONAL COMPUTERS

There are a variety of Personal Computers and systems in the marketplace that may be suitable for small and medium-sized organizations. It is essential, therefore, to identify specific computerization requirements and to establish the scope of investment into a suitable computerized system.

The preliminary evaluation of Computerization Needs entails establishing high priority areas in accordance with overall business objectives and setting appropriate cost parameters outlined below.

PRELIMINARY EVALUATION OF COMPUTERIZATION NEEDS

ADDITIONAL INFORMATION ONLINE

INTRODUCTION OF COMPUTERIZED SYSTEMS IN A COMPANY

Computers are frequently used in a variety of accounting procedures, such as preparing salaries and wages, printing job estimates and sales invoices, recording data into the general ledger, and maintaining inventory control records. It is suggested, however to maintain all existing procedures within the accounting department until a reliable and fully tested computerized system is functioning properly.

Introduction Of Computerized Systems usually requires additional training of existing employees, engagement of new employees, and redesign of certain accounting procedures and forms. Thus, the computerization process could present certain challenges during its integration with other operational activities.

There are several types of Computerized Systems available to small and medium-sized organizations outlined below.

TYPES OF COMPUTERIZED SYSTEMS

COST OF A COMPUTERIZED SYSTEM

Many entrepreneurs and small business owners became very familiar with Personal Computers during the last twenty years. A large variety of software programs for a broad range of business applications provides additional stimulation for the use of computers in a business environment. Moreover, services offered by numerous computer service bureaus in such areas as payroll accounting and tax preparation also became very popular among small business owners.

At present, the majority of small business owners use a computer in their business for one purpose or another, depending upon their specific needs. Many business owners are also considering possible purchase and installation of more powerful computers or, alternatively, of Multi-Work Stations for their businesses. The cost of personal computers and multi-work stations has fallen dramatically during recent years, and their average price varies between $500 and $3,000.

Regardless of size, there are three major components in any Computerized System illustrated below.

ADDITIONAL INFORMATION ONLINE

COMPUTERIZED SYSTEM COMPONENTS

Computer system Input Devices enable entry of the initial information into the computerized system through several types of system elements illustrated below.

COMPUTER SYSTEM INPUT DEVICES

A CENTRAL PROCESSING UNIT (CPU)

A Central Processing Unit (CPU) is the brain of the computerized system. Once the data is entered into the system, it is directed to the CPU.

The CPU consists of several elements outlined below.

ELEMENTS OF THE CENTRAL PROCESSING UNIT (CPU)

Note: A computer's memory is measured in Kilobytes, Megabytes, Gigabytes, or Terabytes.

NOTE:

• One Kilobyte of memory has the capacity to store 1,024 characters.
• One Megabyte = 1,000 Kilobytes of memory.
• One Gigabyte = 1,000 Megabytes = 1,000,000 Kilobytes of memory.
• One Terabyte = 1,000 Gigabytes = 1,000,000 Megabytes = 1,000,000,000 characters of memory.

THE PURPOSE OF THE COMPUTER SYSTEM OUTPUT DEVICES

Computer System Output Devices are designed to provide temporary or permanent storage of data and display of requested information to computer operators, or other computers. The output devices consist of several elements outlined below.

COMPUTER SYSTEM OUTPUT DEVICES

A COMPUTER OPERATOR

A Computer Operator represents one of the most critical elements of any computerized system. The prime functions of a computer operator are to activate and to operate the computerized system continuously as outlined below.

MAIN FUNCTIONS OF A COMPUTER OPERATOR

EFFECTIVENESS OF THE COMPUTERIZED SYSTEM

Since the computer is only an electronic machine, the human factor plays a highly significant role in its performance. A computerized system, therefore, is only as effective as the human link involved in its operation.

ADDITIONAL INFORMATION ONLINE

A COMPUTER SOFTWARE

The Computer Software is a special program that is comprised of a set of instructions for the computer to perform routine procedures. There are various computer software packages in the marketplace designed to serve the needs of small and medium-sized companies. These packages are available in several areas outlined below.

GENERAL APPLICATION OF COMPUTER SOFTWARE PACKAGES

The price of these packages may vary between $50 and $5,000 or more, depending upon their functional design and the degree of sophistication. The cost of some ERP systems may run into tens and even hundreds of thousands of Dollars, depending upon the specific system.

ADDITIONAL INFORMATION ONLINE

You can obtain additional information about various accounting software packages online.

IMPORTANCE OF COMPUTERIZED ACCOUNTING SYSTEMS

Correct selection of a Computerized Accounting System may provide several important advantages and may substantially improve the overall work efficiency in the financial department and in the company as a whole.

The majority of all small and medium-sized companies are using various types of Accounting Software Programs for several purposes outlined below.

SPECIFIC APPLICATION OF COMPUTERIZED SYSTEMS

A typical illustration of a Computerized Accounting System using a General Ledger Software is presented below.

MICROPROCESSOR ACCOUNTING SYSTEM 
USING GENERAL LEDGER SOFTWARE

ELEMENTS OF A SUCCESSFUL COMPUTERIZATION PROCESS

The process of switching to a new computerized system requires additional investment in the computer hardware, software, and training of operators. The final decision in introducing a new Computerized Accounting System, therefore, is based on the economic viability of the entire process.

Business owners and managers need to remember that when a new computerized accounting system is installed within the company, the existing system must remain operative until the new system becomes completely reliable.

The switching process can be a lengthy one and may take several months before the new system is fully operational. Any computerized system is only as effective as the people who operate it. Thus, if Computer Operators are not sufficiently trained, unsuitable software packages are used, or both, the result may be very disappointing.

Hence, in order to succeed in installing a new system, it is vitally important to have three essential components outlined below.

THREE ESSENTIAL COMPONENTS OF A COMPUTERIZED ACCOUNTING SYSTEM

ADDITIONAL INFORMATION ONLINE

INTEGTRATED FINANCIAL MANAGEMENT

Once a new computerized accounting system is properly installed in your organization, you and your management team can begin the process of Integrated Financial Management.

The Integrated Financial Management Process entails implementation and coordination of various steps in the areas of finance and accounting within your organization. The implementation of this process is the responsibility of the Vice President, Finance, or the Financial Manager in the accounting department.

A typical integrated financial management process entails a number of steps illustrated below.

ACCOUNTING SOFTWARE PROGRAMS

There are several Accounting Software Programs, which include a Computerized Bookkeeping System, widely available to small business owners today. The prime purpose of an accounting software program is to enable a company's financial manager or bookkeeper to record all financial transactions continuously in a controlled and systematic manner.

An accounting software program entails setting up accounts, recording and processing all financial transactions, and generating a broad range of financial and management accounting reports in a company. This system is driven by an accounting database software program and offers a time-efficient way of accomplishing operational tasks in the Financial Department.

MAIN FUNCTIONS OF AN ACCOUNTING SOFTWARE PROGRAM

ADVANTAGES OF AN ACCOUNTING SOFTWARE PROGRAM

A suitable Accounting Software Program with a Computerized Bookkeeping System provides business owners with several important advantages and helps to improve overall operational efficiency in the financial department.

The main advantages of an accounting software program include:

• High level of accuracy in processing financial transactions.
• Speed in completing financial transactions.

Financial transactions relate to the company's customers, suppliers, bank accounts, employee payroll, job costing, inventory, and taxes. The accounting software program also provides business owners and their management teams with important financial statements, management accounting reports, and numerous charts and graphs designed to assist in the business decision-making process.

POPULAR ACCOUNTING SOFTWARE PROGRAMS

• Sage One

• QuickBooks Intuit

• FreshBooks

• Harvest Software Systems

• NetSuite

FINANCIAL STATEMENTS

You and your financial management team must be able to properly "read" and interpret all financial statements, which are of prime importance to every business organization.

Accurate and comprehensive maintenance of the bookkeeping system facilitates timely preparation of Financial Statements. These statements consist of three important documents, illustrated below, which are designed to provide the most updated information regarding three essential parameters of the company's financial status:

• Company's Solvency.
• Company's Profitability.
• Company's Liquidity.

THREE IMPORTANT FINANCIAL STATEMENTS

ADDITIONAL INFORMATION ONLINE

FINANCIAL PERFORMANCE EVALUATION

You and your financial management team must be familiar with the basic elements of financial performance evaluation, which represents one of the key management functions in every organization.

The timely preparation and availability of financial statements assists top management in the process of examining the condition and performance of a company. This process, known as Financial Performance Evaluation, serves to identify the company's strengths and weaknesses in terms of dollars and percentages.

The financial performance evaluation is designed to provide answers to a broad range of important questions, some of which are outlined below.

ISSUES RELATED TO THE FINANCIAL PERFORMANCE EVALUATION

FINANCIAL PERFORMANCE VARIABLES

All of the above mentioned and other conditions must be met to ensure effective organizational performance and an acceptable level of return on the shareholders' investment.

To determine whether such conditions are met, management must evaluate the company's performance on a regular basis, e.g. once every three, six, or twelve months, and analyze results in terms of three Financial Performance Variables illustrated below.

THREE FINANCIAL PERFORMANCE VARIABLES

ADDITIONAL INFORMATION ONLINE

FINANCIAL PLANNING PROCESS

You and your financial management team must master the art and the science of the budgeting process, which represents a critical part of the integrated financial management process.

The evaluation of financial statements provides management with essential information and assists throughout the Financial Planning Process. The main objective of this process is to prepare a set of plans, or budgets, for the forthcoming fiscal period.

In accounting terms, a Budget is defined as a comprehensive quantitative plan for utilizing the resources of the organization within a specified period of time.

The process of preparing a budget, or the Budgeting Process, is an integral part of the company's operational planning activities. The budgeting process is essential in maintaining an effective control of company activities and it has several important advantages outlined below.

ADVANTAGES OF THE BUDGETING PROCESS

MASTER BUDGET

The final outcome of the budgeting process is a Master Budget which consists of two major components presented next. All individual elements of a master budget are strongly interrelated and must be prepared in a particular sequence.

The formal relationship between these budgets and the sequence of their preparation is illustrated below.

ELEMENTS OF A MASTER BUDGET

ADDITIONAL INFORMATION ONLINE

Please watch these excellent videos professionally narrated and produced by Susan Crosson and SFCC:

© 2008 - 2013 Susan Crosson and CFCC. All rights reserved.

INFLUENCE OF TAX STRATEGIES ON BUSINESS DECISIONS

You and your financial management team must be familiar with various tax strategies and work closely with an experienced and pro-active CPA to ensure the most cost-effective financial performance of the organization.

Income Taxes are an important factor in the overall financial planning process and they often influence business decisions. Selection of the most effective Tax Strategies represents, therefore, an integral part of the budgeting process and necessitates continuous cooperation between business people and their accountants or CPAs.

Tax strategies depend firstly upon the form of business organization. There are four basic forms of business organization illustrated below.

FOUR BASIC FORMS OF BUSINESS ORGANIZATION

COMMON TAX REDUCTION STRATEGIES

Note:

For additional information please go to Internal Revenue Service online or consult with your accountant or CPA.

ADDITIONAL INFORMATION ONLINE

CAPITAL REQUIREMENTS

You and your financial management team must be fully familiar with various methods and sources of financing to ensure stable and profitable performance of their organization.

One of the major elements of Financial Planning is the search for the additional Capital that may be required by your company during a particular accounting period. 

Your company may need additional capital for several reasons, depending on the nature of its activities, stage of development, profitability, and the aspirations of your shareholders. Some of the typical examples of Capital Requirements are outlined below.

REASONS FOR CAPITAL REQUIREMENTS

METHODS OF FINANCING

Once acceptable answers to capital requirement questions have been provided, the search for suitable sources of capital should begin. The first step in this process entails identification of the most viable Method Of Financing. Two commonly used methods of financing are illustrated below.

TWO MAIN METHODS OF FINANCING

Sources Of Capital are discussed in detail in Tutorial 3.

ADDITIONAL INFORMATION ONLINE

INTERNAL CONTROL

You and your financial management team must be familiar with design, installation, and maintenance of stringent Internal Control systems within the financial department which represents one of the critical management functions in every business organization.

There are two types of internal control illustrated below.

TWO TYPES OF INTERNAL CONTROL

INTERNAL ACCOUNTING CONTROL

The main purpose of Internal Accounting Control is to ensure the completeness, accuracy, validity, and maintenance of accounting records and physical security of assets. All basic internal accounting control procedures must be performed in accordance with the Generally Accepted Accounting Principles (GAAP).

Some of the basic requirements of internal accounting control are outlined below. (7).

BASIC REQUIREMENTS OF INTERNAL ACCOUNTING CONTROL

© American Institute of Certified Public Accountants, Professional Standards, Vol. 1

INTERNAL ADMINISTRATIVE CONTROL

The main purpose of Internal Administrative Control is to ensure high operational efficiency within the financial department and adherence to managerial policies related to the accounting function. Main tasks of internal administrative control are outlined below.

INTERNAL ADMINISTRATIVE CONTROL TASKS

ELEMENTS OF INTERNAL CONTROL

Detailed information about various elements of internal control is provided in Tutorial 3:

ADDITIONAL INFORMATION ONLINE

PAYROLL ACCOUNTING SYSTEM

You and your financial management team must be fully familiar with the development, implementation, and maintenance of an effective payroll accounting system, which is one of the prime managerial responsibilities in every company.

One of the major operating expenses incurred by most companies relates to Salaries, Wages, and Commissions paid and benefits provided to employees. In fact, in many labor-intensive manufacturing and service industries, the Payroll Cost represents the largest operating expense.

Hence, one of the important tasks of financial management is development, implementation, and maintenance of an effective Payroll Accounting System. An ordinary payroll accounting system is associated with three general types of liabilities illustrated below.(17)

ELEMENTS OF A PAYROLL ACCOUNTING SYSTEM

Liabilities For Employee Compensation include three types of payments by the company to its employees illustrated below. Each type is discussed in details next.

LIABILITIES FOR EMPLOYEE COMPENSATION

LIABILITIES FOR EMPLOYEE PAYROLL WITHHOLDINGS

Liabilities For Employee Payroll Withholdings represent a second major element of an ordinary payroll accounting system. These liabilities include all deductions that must be withheld by law from employees' earnings and sent directly to the appropriate government agencies. This group of liabilities includes three types illustrated below.

THREE TYPES OF LIABILITIES FOR EMPLOYEE PAYROLL WITHHOLDINGS

Additional Withholdings made from employees' earnings relate to various benefit programs designed for employees. These withholdings may include the following types, as illustrated below.

ADDITIONAL WITHHOLDINGS MADE FROM EMPLOYEES' EARNINGS

LIABILITIES FOR EMPLOYER PAYROLL TAXES

Liabilities For Employer Payroll Taxes represent the final element of an ordinary payroll accounting system. These liabilities include all contributions that, by law, must be paid by the employer and sent directly to the appropriate government agencies. This group of liabilities includes three types illustrated below.

THREE TYPES OF LIABILITIES FOR EMPLOYER PAYROLL TAXES

Payroll Accounting is discussed in detail in Tutorial 3.

ADDITIONAL INFORMATION ONLINE

THE PURPOSE OF COST ACCOUNTING

You and your financial management team must be able to develop, implement, and maintain an effective cost accounting system, which represents one of the most critical financial responsibilities in every business organization.

The main purpose of the Cost Accounting System is to facilitate practical methods of identifying and measuring costs of goods and services supplied by the company.

Cost Accounting deals with four important tasks illustrated below.

FOUR IMPORTANT TASKS OF COST ACCOUNTING

All costs incurred by a company during a process of supplying goods and services to customers are classified into Two Basic Categories illustrated below.

TWO BASIC CATEGORIES OF COSTS

Both, direct and indirect costs differ, depending upon the nature of the company's activities, namely: service, merchandising, or manufacturing.

DETAILED CLASSIFICATION OF COSTS

Cost Accounting is discussed in detail in Tutorial 3.

ADDITIONAL INFORMATION ONLINE

Please watch these excellent videos professionally narrated and produced by Susan Crosson and SFCC:

© 2008 - 2013 Susan Crosson and CFCC. All rights reserved.

MANAGEMENT ACCOUNTING INFORMATION

You and your financial management team must be able to develop, understand, and implement accurate and timely accounting information for planning, decision-making, pricing, and controlling activities within every business organization.

This information, known as Management Accounting Information, must be prepared in the financial department on a regular basis. In order to provide an effective method of handling such an important task, the company must develop, implement, and maintain a comprehensive Management Accounting System.

CRITERIA FOR MANAGEMENT ACCOUNTING REPORTS

The main feature of Management Accounting Reports is their usefulness for day-to-day management control. Hence, the format of these reports may vary from one company to another, depending upon the size, type, and particular requirements of the organization.

Most management accounting reports must be prepared on a regular basis to facilitate comprehensive evaluation of the company's performance.

Effective operational guidelines for a Company's Performance Evaluation include several important principles, as outlined below.

OPERATIONAL GUIDELINES FOR EVALUATING
A COMPANY'S OPERATIONAL PERFORMANCE

COMPARISON BETWEEN ACTUAL AND BUDGETED VALUES

An isolated assessment of actual operating results usually does not provide management with the opportunity to judge the performance of the company objectively. For this reason, actual levels of Revenues, Expenses, and Income must be compared with the corresponding budget projections. Such projections constitute an integral part of the budgeting process and should be formulated prior to the commencement of a particular fiscal period.

This process of comparing actual and budgeted values of revenues, expenses and income represents an essential element of the management control function discussed in detail in Tutorial 1. This process is based on the Feedback Control, and it is designed to help management to evaluate the actual results in light of what was planned in the beginning of a particular fiscal period, and to determine Variances.

Management Accounting is discussed in detail in Tutorial 3.

ADDITIONAL INFORMATION ONLINE

WHAT MUST YOU AND YOUR FINANCIAL MANAGER DO NEXT?

Hopefully, at this stage you and your financial manager are familiar with various elements of the Integrated Financial Management and appreciate the critical importance of each element described above. Now you should be ready to complete each individual task and integrate all financial information and results by means of a suitable accounting software package into a simple and practical format.

Since integrated financial management represents a chain of activities, it is essential to ensure that each element of this chain is properly implemented within your financial department. Always remember that "every chain is a strong as its weakest link". Subsequently, if you skip any of the elements in the integrated financial management process, it may cause unnecessary problems in the future.

CRITICAL IMPORTANCE OF EACH ELEMENT
IN THE INTEGRATED FINANCIAL MANAGEMENT PROCESS