Management and e-Commerce
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Small Business Accounting with Production Management and e-Commerce |
Accounting & Technology 101
Basics on the three disciplines upon which WebSBA was build. 1) business planning and control, 2) basic accounting and 3) Information Technology principles.
Introduction
Following the introduction of the PC in the early 1980s, some Small Businesses moved from pencil and paper to computerize accounting, others have stayed with the old method because they lacked resources. In a typical small business environment the task of acquiring installing and maintaining a computerized system is often daunting. Computerizing a "brick and mortar" small business requires an on going investment in computer equipment software and change in methodology. Acquiring and maintaining knowledge in a dynamic technical environment (which is not often related to the business's functions) is sometimes perceived as a non-justifiable investment.
The small businesses that have made the move to computerization have incurred substantial expenses in equipment programs and personnel over the years. They have, however, reaped benefits similar to the ones of large companies as a result of their investment in technology. Computerized accounting improved productivity and contributed to their readiness to enter world markets following the explosion of the Internet in the mead 1990s.
Now with the introduction to fast Internet access, small businesses can make their presence in the Web in a similar manner larger businesses do. Those who don't want to make the investment in in-house technology, (computers, programs and personnel) can hook up to a resource in the Internet to perform their basic accounting functions and or make their goods available to the world. With a minimum of one computer connected to the web and a current browser, a small business can do the following:
- Customize a chart of accounts.
- Create and inventory item list (parts and services) including multilevel Bill of Material using component average cost, labor and overhead for building assemblies.
- Create receive and track purchase orders.
- Produce accounts payable reports.
- Make Accounts Payable payments from multiple checkbooks.
- Make journal entries for accounting adjustments.
- Write checks for expenses outside of the Accounts Payable system.
- Produce sales orders and sales invoices as need.
- Produce Accounts Receivable reports.
- Receive payments to accounts receivable or cash on hand from goods sold or other income.
- Produce a "components needed over a certain horizon" list based on forecasted sales on assemblies.
- Produce finical statements as needed.
- Make products in the item list available for sale on the web using an on line-shopping cart.
The WebSBA application was developed for the aforementioned small businesses as well as for larger business lacking an in-house production management application.
Before entering the detail explanation and operating procedures for the application one may benefit from a review of the basics on business planning and control, basic accounting as well as Information Technology principles.
SECTION -ONE
I. ACCOUNTING, CONTROL, AND PLANNINGWith the introduction of the Personal Computer (PC's)a number of accounting software packages have become available and are now used by small businesses as accounting and control tools.
Integrated software applications for small businesses that allow for planning, controlling, and accounting require hardware resources and experienced personnel for effective use. Many small businesses lack both and thus use simple packages with basic accounting functions for monitoring of income and expenses
This Profit and loss accounting has been known from very early, and is often referred to by the ungracious term of "bean counting".
II. PLANNING AND THE PLANNING PROCESS.
A Business Plan has been recognized as a must for any organization, large or small to be successful. Planning and controlling are critical functions for every enterprise and should be part of its operating climate. However in most situations any planning that is done is limited to financial planing and sales forecasting, in support of a budget. Performance comparisons are generally done at the end of fiscal periods based on accounting reports and budget forecasts. This is really a look backward at performance and does not allow for corrective actions at the point in time when the process starts to drift off track.
A definition of the function of planning within an organization, encompasses the following:
Definition of the goals and objectives of the business or organization.
. Development of strategic and tactical plans and the provision of tools to allow for the preparation of financial and operational reporting.
3. Definition of products or services and markets to be pursued.
Planning is known as the process of deciding, on the objectives of the organization, on the resources needed to attain these objectives, and on the policies that are to govern the organization, including use and disposition of its resources. It is the process having to do with the formulation of long range strategic plans and policies that determine or change the character or direction of the organization. All other plans should be based on and be consistent with the long range plans. The long range plan in turn should reflect the Mission Statement for the organization or the "reason for being" of the enterprise. This should be a concise statement of why it is here? what does it have to offer? where does it want to go? If these three questions can not be clearly answered there is little hope for the organizations survival--Why are you in business?
1. Components of a Business Plan: There are several elements that are essential to every business plan. Different aspects are emphasized depending on the nature of the enterprise but in general the following areas must be covered.
1. Description of the Business. What is it that makes your business unique? Describe your business, be specific as to goals.
2. Products and Services. What is it you intend to provide or produce and what are the costs attached to this? What profits do you expect. Do you have patents or other legal protection. What direction do you expect the business to take in the future.
3. Market Analysis and Strategy. Where and to who do you expect to sell? What are your markets and customers? What are the plans for penetrating these markets? How much of the market do you expect to dominate.
4. Competition. Who and where is your major competition?
5. Management. What is your preferred management structure? What are your available skills and disciplines and how and when will you fill the gaps?
6. Risks. Key elements for success or failure. Contingency plans if the situation changes.
7. Financial Plans. What kind of financing will you need and by when? What are your profit objectives. How will you finance expansion? What kind of financial controls will you have in place.
2. Controlling the Management Plans: There would be no need for control if there were no goals and objectives. Almost all organizations have some controlling mechanism in place usually developed around accounting budgets. In the absence of any business plans the focus evolves around fiscal expenditures hence the term Controller in most organizations.
The function of Controlling is to monitor all plans and budgets to provide for intervention when necessary to redirect strategies or operations toward the accomplishment of set goals. The primary element for monitoring progress is real time reporting. That is, reporting accurate and timely enough to permit for effective corrective actions when necessary.
The tools for controlling an organization are the various financial reports that are made available to management on some regular basis. Modern computerized accounting packages have greatly simplified the task of preparing the these reports and a large variety of powerful accounting tools are now available to even the smallest enterprise.
An overview of business and accounting concepts, guidelines, and practices is outlined in the following sections to facilitate understanding of the information needs of a business and the availability of integrated management software. The discussion is intended to provide an introduction to some basic business and accounting concepts as well as terms and practices. The processes and procedures that follow apply to all types of organizations and are at the heart of most professional accounting software available in the marketplace.
Specialty packages appeal to certain types of businesses for they appear to be developed specifically with them in mind. A major retail store prefers an accounting system which emphasizes the inventory control capabilities through a point of sale function. The retail requirement appears different from that of a doctors office which focuses on services and insurance payments. The manufacturing business on the other hand focuses on inventory (raw materials and finished goods), labor, and investment for equipment and plants. The manufacturing facility is additionally concerned with capital equipment expenditures. The general accounting guidelines are valid on all three. However manufacturing incorporates additional concepts which are applicable only to it.
3. THE CONCEPT OF THE BUSINESS MODEL AND THE TRANSACTION CYCLE: Accounting systems are empty shells until the categories and groupings that need to be tracked and reported are decided upon. Depending on the end products the emphasis of the system will vary, a service industry has different control points than a producer of goods, as does a retail merchandiser differ from a financial institution. In the final analysis the accounting system must track the process.
A business model can be a useful tool to illustrate the order in which transactions and information moves through a company.
A merchandizing business acquires inventory from a vendor with the intent of reselling it at a profit. Upon acceptance of the shipment of goods from its supplier the merchandizing company incurs a cost for the goods which are now part of its inventory. In the accounting system all money paid for inventory is categorized in a line item as cost of inventory. When the inventory is sold to customers, it is said to have produced revenue for the business. In the organizations Financial Statement there is always a line item specified for "cost of goods sold". Income is categorized in another line item as revenue.
In a merchandizing business the inventory is the main source of revenue. If the business is a service, labor is the source for revenue. When certain inventory no longer has asset status, that is when its potential to produce future revenue is lost, at that point it becomes an expense. Rents, taxes, utilities, depreciation, labor, etc. are also expenses. Matching of expenses against revenue for a given time period gives the operators and investors a good idea of the health of the enterprise.
SECTION -TWO
1. THE TRADITIONAL ACCOUNTING FUNCTION
In any business or organization the discipline which assists management with the task of monitoring revenues and expenditures is called accounting. Accounting is the process of recording, summarizing, reporting and interpreting financial information.
In practice accounting is a series of transactions consisting of debits and credits which equal each other. The transactions are journalized by entering them into books of original entry called "Journals". The data is later transferred or posted to the General Ledger which is a summary file that serves as the source document for the preparation of financial statements. These financial reports reflect the current asset versus liability positions of the company and a serve as a summary of its operations over a given period of time.
A. ACCOUNTING CONCEPTS: Accounting is an old profession and is based on certain generally accepted concepts. Accounting records are kept and interpreted according to Generally Accepted Accounting Principals (GAAP) and general statements accepted by members of the accounting profession. The current principles are issued by the Financial Accounting Standard Board.
The "Business Entity Concept" assumes that a business enterprise is separate and distinct from the person or persons who supply the assets. Each business is it's own entity. As a separate entity the accounting records must relate only to the business and should be kept separate from the owners personal records at all times. This concept applies to all businesses.
The "Unit of Measurement" concept accepts that the effects of business transactions should be expressed in monetary terms. Money is both the common factor of all business transactions and the only feasible unit of measurement that can be used to achieve uniform and comparative financial data.
The concept of double entry accounting relates to the "Fundamental Accounting Equation". The equation states that what is owned, that is the assets, must equal the claims against those assets, which is known as liabilities and owner's equity. The accounting equation is expressed as follows:
ASSETS= LIABILITIES + OWNER'S EQUITY.
This equation remain always in balance for it is based on a fundamental accounting equation of double entry accounting DEBIT = CREDITS. We will return to this equation later and discuss the types of accounts that make up its various elements.
Double entry accounting, simply stated, means that a transaction must affect at least two accounts in the accounting equation. It must be stated in dollar amounts, and that the equation must maintain its equality (debits must equal credits). It is possible to have a transaction that would affect only one side of the equation i.e. one asset amount is increased while reducing another asset amount. In this case there is no net change to the accounting equation, the accounting equation maintains its equality.
The "Matching Principle" requires that the revenues earned in one accounting period be matched against the expenses incurred in earning that revenue over the same accounting period. The expenses must be compared against the related revenues to accurately state the fair amount of net income (or net loss) earned by the business during the accounting period. Accounting periods are generally thought of as a period of one year - a 12-month passage of time. It need not be a regular calendar year ending on December 31. If other than a calendar year is adopted it is referred to as a fiscal year. The accounting period may also be broken down into 52 weeks, 13-week quarters, or 12 months.
We must recognize that for effective management of the business, as well as for proper disclosure of the operations to the absentee owners or shareholders, financial reports are needed more frequently. Such reports are known as interim statements, and the time spanned by interim reports covers less than a year.
B. ACCOUNT TYPES AND CLASSIFICATIONS: In the fundamental accounting equation, assets, liabilities, and owner's equity are known as "elements" of the equation. Within each element is a type of account.
An account is a record or file used to collect financial changes. These changes are a result of "transactions," which are financial events that cause the accounts in the accounting equation to change. In their simplest form there are six types of accounts. They are the asset, liability, owners equity, revenue, cost, and expense accounts.
These six accounts can be further subdivided into Permanent and Temporary accounts. The asset, liability, and owners equity accounts are classified as "permanent accounts" In that they normally maintain a balance and their balances are carried forward from one accounting period to the next. They are an expression of the financial position of the enterprise at a given point in time and are reported on in the balance sheet.
1. Assets: Assets are anything of monetary value owned by a business. The six basic categories of assets are cash, receivables, inventories, plant, and equipment. Assets are listed on the balance sheet as either "current" or "fixed". Current assets are cash, other assets are those that may reasonably be expected to be realized in cash, by being sold, or used up, usually within one year or less through normal operations of the business.
Building and equipment assets are called permanent tangible or fixed assets. Except for land, these assets gradually wear out or otherwise lose their usefulness with the passage of time. This is known as depreciation. The expense associated with depreciation is refereed to as depreciation expense.
Included in each of the asset accounts are:
Cash account: This includes coins, currency, checks, money orders as well as money deposited in bank accounts.
Receivables: This represents amounts to be received or collected in the future. Types of receivables accounts includes notes interests and rents receivable.
Inventories: As discussed, reflect the cost of goods available for resale to customers. In merchandising the inventory account is normally called merchandising inventory. In a manufacturing business the inventory accounts are called raw materials, work in process and finished goods.
Plant and equipment: These are commonly refereed to as fixed assets, represent the costs of assets such as buildings, furniture, land, machinery, office equipment, and trucks. Fixed assets are used to operate the business over a long period of time.
Natural resources, referred to as wasting assets, are those assets held in their natural state until converted into products to be sold in the future, such as coal mines, oil fields, and standing timber.
Intangible assets are used in the operation of the business, but have no physical characteristics. Copyrights, patents, franchises, trademarks, and goodwill are classified as intangible assets.
2. Liabilities: Liabilities are claims against the assets of a business by creditors as a result of buying or borrowing on credit. Liabilities are identified by the word "Payable" attached to the account title and like assets are classified as current or as long-term.
Current liabilities are debts that must be paid within one year of the balance sheet date and include accounts payable, notes payable, loans payable, and federal income taxes payable. Debts that are not due within one year of the balance sheet date are considered long-term or fixed liabilities. Mortgage payable represents a long-term liability. Owner's equity represents the owner's claim against the assets of a business. This financial interest by the owner is derived from the fundamental equation by subtracting the liabilities from the assets as:
ASSETS - LIABILITIES = OWNERS EQUITY
Examples of owner's equity accounts include capital, capital stock, paid-in capital, retained earnings, and treasury stock,
3. Temporary Accounts: Revenue, cost, and expense accounts are classified as "temporary accounts" because they collect information for only one accounting period. Their balances are then transferred to the Owner's Equity (capital) account during closing procedures at the end of the accounting period. These temporary accounts are an extension of owner's equity and represent the net result of current operations. Revenues increase the owner's equity account as a result of the selling of goods and/or services. Sales, fees, and commissions are names which identify revenue accounts. The closing process zeroes the books for the next accounting period.
Costs decrease the owner's equity account as they are subtracted from revenues in determining "gross profit". They represent the cost of goods purchased for resale to customers. A cost account commonly used is the purchases account. Other cost accounts include transportation, purchase returns and allowances, and purchases discounts. Expenses decrease the owner's equity account as they are subtracted from revenues and represent the purchases of goods and services used to operate or manage the business. Expenses are also known as expired costs. Expense accounts are generically named and include such titles as delivery, insurance, payroll taxes, rent, salaries, supplies, telephone, and utilities.
4. Transactions: All changes in an organizations financial position begins with a transaction. A transaction is a financial event that causes the fundamental equation to change. For example, if the owner started his business with a cash investment of $10,000, the equation and accounts would be affected as follows:
ASSETS = LIABILITIES + OWNERS EQUITY OR Cash = liabilities + Capital
$10,000 = $0 + $10,000
Assume the owner also purchases office equipment on credit for $5,000. The equation is now expanded to:
ASSETS = LIABILITIES + OWNERS EQUITY OR
Cash + Furniture = Accounts Payable + Capital
$10,000 + $5,000 = $5,000 + $10,000
Notice the double entry concept and how the equation remains in balance after both transactions have been recorded.
5. Debits and Credits: The concept of "debit" and "credit" as used in accounting is easily illustrated with the use of the "T". A "T" divides the account into two sides, the left side is the "debit" side, and the right side is the "credit" side.
Left Side Right Side
L----------------------------------------R
Debits Credits
By convention debit amounts are placed on the left side of the account. Credit amounts are placed on the right side of the account. Assets are on the debit side of the ledger and liabilities and owners equity are placed on the credit side. The abbreviations Dr and Cr are used to indicate debit or credit respectively.
6. Permanent Accounts: Balance sheet accounts represent the worth of the organization. The Balance Sheet is the current status of the asset, liability, and owner's equity capital accounts. Depending on the type of account debited or credited the dollar amount either increases or decreases. There are rules for increasing and decreasing balance sheet accounts. These are the permanent accounts.
The balances of the permanent accounts are carried forward from one accounting period to the next. An account balance is the difference between the total debits and credits to an account. If the debit side is larger, then the account has a "debit balance"; if the credit side is larger, the account has a "credit balance". The account balances represent the financial condition of the business as of a specific date, and are reported on in the balance sheet.
The rules for debiting and crediting are developed from the accounting equation. All accounts making up the equation have a "normal balance side". The normal balance side is that side (debit or credit) of an account in which the balance would appear if an account has monies placed in it.
Again we can use the T" accounts to illustrate this principle. It is difficult for non-accountants to remember when a transaction should be a debit or credit to the account. The following are some rules to assist in remembering when to increase or decrease the Balance Sheet Accounts.
ASSETS = LIABILITIES - OWNERS EQUITY
Debit Increase Debit Decrease Debit Decease
Normal Balance Normal Balance Normal Balance
Debit Credit Credit
7. Temporary Accounts: Revenue, cost, and expense accounts are known as "temporary accounts" because their balances are closed (zeroed) out at the end of the accounting period to permit the separation of one accounting period to the next.
Revenue, cost, and expense accounts are reported on in the financial statement called the income statement. This report reflects the financial activity of the company for a particular length of time known as an accounting period. (Refer to discussion of accounting periods.)
The recording of all revenues (sale, fees commissions, etc.), costs (cost of goods, etc.), and expenses into the owner's equity capital account is not practical. For proper control all entries in the account would need to be sorted in order to separate each different revenue, cost, and expense transaction, which would be time consuming and confusing.
A better solution is to provide a separate account for each revenue, cost, and expense transaction permits the collection of expenditures by specific types - advertising expense, rent expense, salaries expense, utilities expense, and so on. The individual amounts of each revenue, cost, and expense account are then distinguishable and readily available.
Since revenue increases an owner's equity, revenue accounts have their normal balance side on the right (credit) and the same rules apply for the increasing and decreasing as the owner's equity account. Revenue accounts are increased on the right (credit) side and decreased on the left (debit) side.
As costs and expenses decrease the owner's equity, their normal balance side is on the opposite side of the revenue account as their balances are subtracted from revenue. The balances in these accounts are increased on the debit (left) side because owner's equity is decreased on the debit (left) side and the balance decreased on the credit (right) side.
Liabilities and owner's equity are on the right side of the equation. Their normal balance side would be on the right (credit) side. Their increase and decrease sides are opposite that of assets. They are increased on the right side (credit side) of the account, and decreased on the left side (debit side).
Below are the rules for increasing and decreasing Income Statement (temporary) Accounts.
REVENUE COSTS EXPENSES
(Credit Increase) (Debit Increase ) (Debit Increase)
Normal Balance Normal Balance Normal Balance
Credit Debit Debit
C. PREPARING A TRANSACTION: All transactions should be analyzed to indicate their proper debit and credit parts before being entered into the accounting system. The following steps can be used to assist in identifying which accounts to debit and credit:
1. Identify at least two account tiles or names used in the Transaction.
2. Classify the names as one of the three elements:
(asset, liability, owner's equity) in the accounting equation.
3 Determine the effect of the transaction on the accounts. Is the account balance increasing or decreasing?
4. Using the rules for increasing and decreasing accounts, identify which account to debit and credit.
5 Journalize the transaction, always placing the debit part first, and the credit part second..
Using the above transaction analysis, the transaction example given below would be analyzed and journalized as follows:
Paid $1500 cash for the January Rent.
1. Accounts Identified are: Rent Expense, Cash
2. Elements Affected: Owner's Equity, Asset
3. Increase or Decrease: Decrease, Decrease
4. Identify Debit/Credit Debit Credit
5. Journal Entry: Credit Cash $1500 Debit Rent $1500
D. Setting up an Accounting System
a. Charts of accounts: The first step in setting up an accounting system is to prepare a chart of accounts. A chart of accounts is a listing of those accounts that make up your accounting system, subdivided into sections. These should match the accounting equation element types (assets, liabilities, owner's equity, revenues, costs, and expenses) but could be given more specific names. The chart has the added feature of displaying the account title and account number assigned to each of the accounts used.
A simple analogy would be to picture a filing cabinet with six drawers numbered one through six. Each drawer would represent one of the six types of accounts. Each drawer would contain file folders for collecting the financial activity information (transactions). A file folder is made up for each account title listed on the chart of accounts and placed into its proper drawer in the filing cabinet with each file folder having the assigned name (title) of the account and the account number displayed.
Displayed below is a sample chart of accounts. Notice that the first number from the left indicates the type of account. A "1" indicates an asset account, "2" indicates a liability account, "3" indicates owners equity, and so on.
b. Sample chart of accounts:
Sample Company
ASSETS
LIABILITIES
OWNER'S EQUITY
REVENUES
COSTS
EXPENSES
After the chart of accounts is prepared , the next step is to record transactions into the system. Entering data into the accounting system is accomplished by recording the data into a journal. A "journal" is a book of original entry where the financial information is first recorded. The information contained in the journal is then transferred (posted) to the accounts. The most common journal is called the "general journal" which can be used to record all possible transactions.
E. THE JOURNALS: The process of recording financial data into the journal is called "journalizing". The data entered is the "journal entry". All journal entries must contain a date, a debit account and amount, a credit account and amount, and an explanation or reason for the transaction.
All entries in a journal must be substantiated by showing proof or a reason for the entry. The evidence used to support the entry is a source document which is a written or printed form containing data about the transaction. Checks, invoices, cash register tapes, and memoranda are examples of source documents. The documents help provide an "audit trail" which assists in tracing data from its origination to its destination, or vice versa. Rather than using just one general journal, large enterprises may choose to break this up into four special journals to enter data: sales journal, cash receipts journal, purchases journal, and cash payments journal. Each journal is designed to collect specific types of transactions.
The sales journal records all sales on credit, while the purchases journal records the purchases of all merchandise on credit for resale to customers. The cash receipts journal records all monies received, and the cash payments records all monies disbursed or paid out. Special journals may also be set up for any function the accountant may feel needs a separate book of original entry, such as a payroll journal or a detailed fixed assets and depreciation journal.
Journals may have more than one debit part and credit part which is known as a compound journal entry. As in the case of an owner purchasing a building for $20,000 paying $5,000 cash, and incurring a mortgage payable (liability) for the balance.
As stated in step 5 of the Preparing a Transaction section, the debit part of the transaction is recorded first. After the debit information is transferred (posted) to the ledger, it is necessary to place in the journal the account number to which the debit part of the entry was posted. Repeat the above process, posting any additional debits. When the debit part(s) of the entry have been posted, continue posting the credit part(s) of the entry. Then move on to the next entry.
F. Types of Journal Entries: There are different types of journal entries. The entries most commonly used are adjusting, closing, and correcting entries.
a. Adjusting entries: Certain asset accounts must be adjusted at the end of an accounting period because the final balance in the account is not the true balance. For example, assume that an insurance policy was prepaid for the entire year by paying a premium of $1200 on January 1. The journal entry would be to debit (increase) the asset account called "prepaid insurance," and credit (decrease) the asset account "cash."
At the end of January, one month or one/twelfth of the premium has expired. The asset account, "Prepaid Insurance," shows 12 months' premiums. An adjustment must be made in the journal to increase the insurance expense account and decrease the prepaid insurance account by $100.
After journalizing and posting the entry to the General Ledger, the prepaid insurance account will show a balance of $1100 on February 1, which represents 11 months' coverage remaining. The insurance expense account now reflects the proper amount to be charged against the revenue for the month of January.
Other accounts that may need to be adjusted at the end of the accounting period include receivables, merchandise inventory, supplies, and any assets that must be depreciated, as well as any other assets requiring adjustment.
b. Closing entries: Closing entries are those entries used to close (transfer) amounts in the temporary owner's equity accounts to the permanent owner's equity account, usually referred to as the "capital account". These temporary accounts are the revenue, costs, and expense accounts.
The balances in these temporary accounts are transferred to the owner's equity capital account during the closing process. The closing process brings the temporary accounts back to zero in preparation for gathering the next accounting period's information. The final amount transferred to the owner's equity capital account represents the net income or the net loss for the business for the current accounting period. The amounts in the temporary accounts are first transferred to a temporary owner's equity account called income and expense summary. The only time this account is used is during the closing process at the end of each accounting period. After all the revenue, cost, and expense totals are transferred to the income and expense summary account, the total of the debit side is compared to the total of the credit side.
Income and Expense Summary
L----------------------------------------R
Cost and Expense Side ¦ Revenue Side
Dr ¦ Cr
If the debit side is larger, there is a net loss as costs and expenses are greater than the revenue. If the credit side is larger, there is a net income, because revenue is greater than the costs and expenses. The balance of the income and expense summary account is then transferred to the capital account. To close an account, enter an amount on the opposite side of the account that makes the balance equal to zero. Refer to the following illustration of closing entries used at the end of the accounting period.
Given:
Sales $500
Rents $500
Utilities $300
Closing entries are prepared based upon the following three-step procedure:
Step 1
Close the revenue account(s) and transfer the total to the credit side of the income and expense summary account.
Dr Sales $1300 Cr Income & Expense Summary $1300
Sales
L ---------------------------------------- R
1300 T 1300
Income & Expense Summary
L------------------------- R
(L) 900 ¦ 1300(R)
Step 2
Close the expense accounts and transfer as a total to the income and expense summary account.
Dr Income & Expense Summary $900
Cr Rent Expense $600
Cr Utilities Expense $300
Rent Expense Utilities
l--------------- R L---------------R
600 ¦ 600 (L) 300 ¦ 300 (R)
Step 3
Close the income and expense summary account to the capital account.
Dr Income and Expense Summary $600 Cr Capital $600
G. Correcting entries: A correcting entry is used to transfer an amount from one account to another. Examples of the need for a correcting entry would be a posting to the incorrect account or having to make a prior period adjustment.
Lets assume the debit was recorded to the advertising expense account instead of to the insurance account. A correcting entry should be recorded in the general journal and posted. The insurance expense account (the account that should have been increased) should then be debited, and the advertising expense account credited (decreased) to reduce the amount that was incorrectly entered.
A prior period adjustment is needed when an error has been detected which has a major affect on any prior period financial statements. For example, assume the bookkeeper recorded the rent for January as $5,000 instead of $500, but the error was not detected until April. The rent expense was debited (increased) and accounts payable was credited (increased).
Rent Expense Accounts Payable
L--------------------R L--------------------R
5,000 ¦ ¦ 5,000 Dr ¦ Cr Dr ¦ Cr
This is a major error, as the expenses for January are overstated
by $4,500, and the income for January is understated by $4,500. A correcting entry needs to be recorded and posted to January, as this is the accounting period that is in error. The financial statements for January and succeeding months would require adjustment to reflect the new information. The correcting entry would require a debit (decrease) to accounts payable for
$4,500 and credit (decrease) to Rent Expense for $4,500.
H. Discounts: A discount is a reduction in the amount to be received from a charge customer or paid to a vendor, depending on whose accounting books you are addressing. To the seller a discount is a reduction to sales, and to the buyer the discount is a reduction to purchases.
Some businesses offer credit terms such as 2/10, net 30 to induce the customer to pay his bill in full before the end of the credit period. The terms 2/10, net 30 mean that the customer may reduce the amount he must pay the seller by two percent if he pays the full amount (less the discount) of the invoice within 10 days from the date of the invoice. If the full amount is not paid within the discount period, the buyer must pay the full, or net amount, within 30 days from the date of the invoice. Should the customer take advantage of the discount, the seller must reduce the revenue account, because a lesser amount will be received than what was originally recorded in the revenue account at the time of the sale. As an example, assume the customer purchased merchandise for $300 on credit. at the time of sale the seller would increase (debit) the accounts receivable account and increase (credit) the revenue account. The buyer would increase (debit) the purchases account and increase (credit) accounts payable.
G. The Ledger:
1. Ledger vs. Journals: Journals are referred to as books of original entry, where they serve as a diary in which each transaction, or batch of similar transactions, are recorded intact. The next step is to record these same transactions over again in the "ledger", or book of final entry. The difference is that each part of the entry recorded in the journal is posted (copied) to its own ledger account. Therefore, if a journal entry is made up of five parts, those five parts will each be posted to a separate ledger account. The group consisting of asset, liabilities, owner's equity, revenue, cost, and expense accounts, is known as the "General Ledger."
The Journal is organized as a chronological record of transactions in the order of their occurrence. The Ledger is organized into as many different pages (or accounts) as needed to accumulate the postings from the various journals, but classified according to significant financial elements instead of chronology.
The General Ledger is used in the preparation of the Financial Statements as all pertinent information needed to prepare these reports is stored in the accounts in the General Ledger. In our previous example, the six filing drawers including the file folders represents the General Ledger.
2. Subsidiary Ledgers: Another type of ledger used in accounting is called a "subsidiary ledger". It contains detailed information about an account that is summarized in the General Ledger.
Examples of two subsidiary ledgers are the accounts receivable and accounts payable ledgers. The general ledger contains two "controlling accounts" called accounts receivable and accounts payable which show only the total amount that will be received from customers on account and the total amount owed to creditors.
The controlling accounts do not list all names of the customers or the creditors. Therefore, a separate ledger (filing drawers) is required to track the individual names and the amounts to be received or paid. The subsidiary ledger can be arranged alphabetically or numerically and must be updated constantly to reflect current balances in the accounts. The sum totals of the subsidiary ledgers must equal the total of the controlling accounts. Refer to the examples below:
GENERAL LEDGER ACCOUNTS RECEIVABLE
ASSETS LEDGER
Accounts IBM CO $5,000
Receivable Xerox Corp $2,000
DEC $4,000
State CA $3,000
SCE $6,000
$20,000 $20,000
GENERAL LEDGER ACCOUNTS PAYABLE
LIABILITIES LEDGER
Accounts ABC Co. $1,000
Payable CPZ Corp. $ 500
IBSB Co. $1,500
$7,000 XYZ Co. $4,000
J Cash Basis vs. Accrual Basis Accounting: Cash basis accounting differs from accrual basis accounting in the way it relates to the time that the actual transaction is recorded. Cash basis accounting recognizes the revenues, costs, and expenses only upon the receipt or payment of cash. In contrast, accrual accounting records the revenues, costs, and expenses when the commitment is made, even though cash has not yet been received or paid out.
While accrual accounting is not perfect, it is far superior to accounting on a cash basis. Under the cash basis system, neither receivables, payables, nor the sales or purchase of merchandise are recognized until the related cash changes hands. There are no revenues, costs, or expenses except as they flow in the form of cash. The accrual basis of accounting recognizes the revenues, costs, and expenses even though they may have been paid for in advance of, at the time of, or in some cases, after delivery.
Under the accrual concept, revenues are generated, and it matters not when the actual payment takes place. In short, revenues, costs, and expenses accrue and are realized at the time of sale, whether or not cash is received. Expenses are also accrued when using the accrual method, rather than being recorded only on a cash basis. An expense is accrued in the accounting period that should logically be charged with the expense, although the related cash outlay may or may not occur in whole or in part in that same period. A worthwhile accounting principle is the "matching principle". This Principle states that one should strive to bring together in the same accounting period the revenues earned in that period and the expenses that were incurred to produce those revenues.
It is fairly easy to determine which accounting period should get credit for a given sale or other revenue-producing act, but it is a much tougher job to determine how much of each of the many variations of expenses should be accrued in the same period.
Revenues tend to dominate the process of income determination as they are "realized" by sale, and expenses are accrued to match.
K. Financial Statements: Financial statements are prepared from account balances in the General Ledger. Three common financial reports are the income statement, balance sheet, and the statement of financial change.
Financial statements are prepared on a regular schedule as determined by management policies. They are usually prepared monthly and can be prepared at anytime, but whenever they are prepared they are only accurate as of the date of posting to the ledger.
1 Trial Balance: In order to prepare the financial statements, the summarized balances from the general ledger must be in balance, that is the "debits" must equal the "credits". To prove the equality of the posting to the general ledger, a "trial balance" is prepared. This is made up of a listing of all the accounts in the general ledger, including both the account title and the account balance. This is known as a formal trial balance.
A calculator can also be used to conduct a "quick" trial balance by entering the debit balances as a plus (+) and credits as a minus (-). After all debits and credits have been entered, the calculator should show a zero balance. This is known as "zero proof".
2 Worksheet: A form known as a "worksheet," is also used. This is a ten- column tabular form similar to a computer spreadsheet. The first two columns of the worksheet are the trial balance debit/credit columns. The total of the trial balance debit column must equal the total of the trial balance credit column. The next two columns are used for planning the adjustments. After the adjustments are calculated, the extended balances are entered into the adjusted trial balance debit/credit columns. The adjusted trial balance columns should also be equal.
3 The Income Statement: Businesses report the measurement of their income in an income statement also known as a profit and loss statement. A company will measure its revenues, costs, and expenses on a regular basis (monthly, quarterly, yearly). These are known as accounting periods. We generally think of the accounting period as a year, or a 12-month passage of time. We must recognize that for effective management of the business, as well as for effective disclosure of operations, financial reports are needed more frequently. Such reports are known as interim statements; the time spanned by these reports, as has been pointed out, is less than a year.
Income is measured by matching costs and expenses against revenue that has been realized in the same accounting period. The income statement reports this matching of the revenue to costs and expenses.
4 Balance Sheet: The balance sheet represents an extension of the accounting equation:
Assets = Liabilities + Owner's Equity
The balance sheet is a historical report in that most of the data represents the result of past and completed transactions. It does not contain projected or budgeted data.
Comparing the income statement to the balance sheet is like comparing a moving picture to a still photo. The income statement spans a given period of time rather than a snapshot at a given instant. The information needed to prepare the financial statements is taken from the worksheet which uses the information in the General Ledger.
5 Assets section: The assets section of the balance sheet is usually divided into current assets, and intangible assets. Current assets are those asset accounts which are cash, or other resources which are reasonably expected to be realized into cash, or consumed, during the normal operating cycle of the business, which is usually one year. A sample list of current assets would include cash, marketable securities, account-receivables, inventories, and prepaid assets.
Fixed assets are those assets which are defined as having usefulness because of their physical characteristics. They are used or consumed during the operation of the business, over a period of time which is normally longer than the accounting cycle. These assets include buildings, furniture, land, machinery, equipment and trucks.
Intangible assets are those which have no physical existence, although they may be evident through various tangible documents. This type of asset would include patents, copyrights, goodwill, leasehold improvements, research and development costs, licenses, franchises and organizational costs.
6 Liabilities section: Current liabilities are those obligations whose liquidation is reasonably expected to require the use of existing resources, properly classified as current assets, or the creation of other current liabilities.
As a balance sheet category, the classification is intended to include obligations for items which have entered into the operating cycle, such as payables (expenses) incurred in the acquisition of materials and supplies to be used in the production of goods, or in providing services to be offered for sale. Collections received in advance of the delivery of goods or performance of services, and debts which arise from operations directly related to the operating income, would be classified as current liabilities. Other liabilities whose regular and ordinary liquidation is expected to occur within a relatively short period of time, usually twelve months, are also intended for inclusion. This would include items such as short-term obligations, amounts required to be expended within one year under sinking fund provisions, and agency obligations arising from the collection or acceptance of cash or other assets for the account of third persons.
Current liabilities should not include any long-term notes or bonds whose maturity is greater than one year. Typical accounts to be found under current liabilities are accounts payable, notes payable, accrued expenses, and taxes payable.
Long-term liabilities are debts which will not be paid until more than one accounting cycle has passed. The most common of these types of debts are long term notes, mortgage loans, mortgage and debenture bonds, and installment purchases.
7 Equities section: The three basic types of equity accounts used in a corporate form of business ownership are capital stock, paid-in capital, and retained earnings.
Capital stock reflects the summary, at face value, of each share of stock that has been issued by the company. There may be several types of capital stock issued within one business; therefore, each type or class of stock must be reported in a separate account.
Paid-in capital is the sum of the amounts contributed to the company over the face value of the stock or perhaps the funds contributed where no stock was issued. It represents a permanent contribution of funds.
Retained earnings represent the net worth of the company, or profit added from its operations. This would be the sum of the net profit of the company since it started, not for just one accounting period. A negative or debit balance in the retained earnings account is commonly called a deficit.
The equity section for a sole proprietorship and a partnership differs from the corporate form of business ownership section. The business owner is identified by a single "capital" account for a sole owner, and a separate "capital" account for each partner of a partnership as illustrated below:
Sole Owner: OWNER'S EQUITY
John Doe, Capital
Partnership: PARTNER'S EQUITY
John Doe, Capital
Peter Peters, Capital
8 Statement of Changes in Financial Position: The statement of changes in financial position, also referred to as a "funds statement," details changes in assets and liabilities by focusing on changes in working capital. The excess of a business' total current assets over its total current liabilities at the same point in time may be termed its "net current assets" or "working capital". Indications of changes in financial position as reported on the balance sheet can be determined by comparing the individual items on the current balance sheet with the related amounts on the earlier statements. However, significant changes in the financial position may be overlooked and appear completely undisclosed by the statements. Therefore a separate report, the Statement of Changes,is issued to focus on current assets.
This statement reports all sources of funds, provided from both operating and non-operating sources, as well as the application of such funds.
9 The Accounting Cycle: The accounting cycle is the set of monthly procedures used to input and extract financial data. Although a specific bit of accounting data will typically flow through the various stages of the cycle in consecutive order, such bits of data are being introduced into the accounting system at all times throughout the period and thus, within the business as a whole several parts of the cycle will be undergoing activity simultaneously.
The accounting cycle:
1. Source documents are checked for accuracy, and transactions are analyzed into debit and credit parts.
2. Transactions from information on source documents are recorded in a journal. 3. Journal entries are posted to ledger. 4. The worksheet, including a trial balance, is prepared from the ledger.
5. Financial statements are prepared from the worksheet.
6. Adjusting and closing entries are journalized from the worksheet and posted to the ledger.
7. A post-closing trial balance of the ledger is prepared.
9. The cycle is started over.
Appendix 1
MANUFACTURING FACILITIES- Work Flow and Cost Accounting
I INTRODUCTION: Immediately upon their acquisition computers in small business were usually monopolized by the Accounting Department. In most cases an accountants primary interest was to capture the data for reporting purposes and little use was made of the computer to assist manufacturing with forecasting materials and labor management. Oliver Whyte and G. Blosel attracted the attention of executive management and through their efforts, the computer made its entry into production and inventory control management. Since most manufacturing managers at first had no experience with computers they relied heavily on data processing departments to develop the required software.
II MANUFACTURING ENTERPRISES: As referred to earlier the accounting principles already discussed are common to all businesses. While these elements are also an essential part of a manufacturing enterprise there are some special needs connected to a business that produces goods out of raw materials or secondary products.
The transaction cycle for a manufacturing facility is a little different than what has already been discussed. Because of the special case where one product may be used to produce a second product, and the need to keep materials on hand(inventory), the transaction cycle needs a couple of more elements or special accounts.
Manufacturing differs from other businesses to the extent that it acquires raw materials ads labor to them, and produces finished goods for sale. It can be defined as the process of producing a product from a number of materials by utilizing labor and equipment which operate under specific instructions. These instructions are in the form of engineering drawings, bills of material, production routings, schedules, and work orders.
In a manufacturing facility certain products will be combined with others to produce a higher level product called an assembly which in turn may be intermediate in a whole line of assemblies and sub-assemblies, or be incorporated into a finished product. The final assembly in the chain representing the goods that the enterprise sells is the product of that enterprise. However the person buying this product may consider it only as a raw material for his business. The bicycle as purchased from the retail store is a finished product and its wheel is an assembly. The wheel however, when purchased from a parts store can be considered a finished product as far as the parts store is concerned.
The commonly known manufacturing environments are discrete, process and job shops.
Job Shop:
A shop that builds custom made goods for customers with specific needs is a job shop i.e. a special computer. In all cases a bill of materials is the means by which the architecture and structure of the product are depicted.
Process:
A refinery is a process manufacturing. A chip manufacture is a process manufacturer.
Discrete
A computer manufacturer that produces computers from memory chips and other components is a discrete manufacturer.
III PRODUCTION PLANNING: The ideal manufacturing environment can be described as one where the required components arrive in production just in time for the production of the finished product (not earlier, not later than when they are needed). Much like the daily bun and meat shipments to a hamburger stand. The sales person at the register sells a burger and reaches back into the food warmer picks up a ready hamburger and hands it to the customer. The burger was prepared in anticipation of the sale, from component parts that arrived that very day. This is the result of good planning. The outcome of no planning or bad planning on the other hand could be devastating. Continuing with the burger analogy, one scenario would require an expediter who would run to the wholesale house for meat or buns as soon as the order was received. Obviously the customer wouldn't wait and the business would lose a sale. In another scenario the products could be purchased well in advance and kept in stock. The problem with this approach is that the meat spoils and the buns get stale.
In manufacturing as contrasted to a food stand, planning for production is a little more difficult because different people are involved who are motivated by different factors, and who want different things out of the facility. Marketing people want to sell anything the customers requests. Engineers always need more time to design the product, and production wants more time to build it. The purchasing department wants the design firmed up before ordering the necessary components, and finally the controller wants to keep the inventory costs to a minimum and not order anything before it is needed. These motives are good but they are conflicting. A system is needed to control inventory and to help every one involved plan for the necessary items to come together exactly when they are needed- no earlier, no later. There are tools available to provide control over the flow and cost of materials. Businesses who use these tools successfully are generally more profitable than the ones who don't for they provide good customer service at minimum cost.
IV THE BILL OF MATERIALS (BOM) CONCEPT: The Bill of Materials is a type of structured parts list that shows what materials go into the finished product. One can picture the Bill of Materials as an organizational chart, or a family tree. The top block or zero level is the finished product. The various blocks are arranged at organizational levels depicting the sub-assemblies and their place in the hierarchy as indicated in the diagram. The raw materials are depicted at the level they enter the assembly stream.
C
W ________ | ________ R
|
A
____ |____
X Y
The components (raw materials) X and Y are used to make assembly A. Assembly A and raw materials W and R are used to make the finished product C. Product C is also considered an assembly and is often called the top level assembly. The raw material parts called here W and R (regular parts) can never have any components going into them. If they had they would be assemblies and a bill of material would need to be developed to define their structure.
V. PROCESS FLOW IN MANUFACTURING: Manufacturing Processes are defined as a sequence of steps and methods used to produce a product based on the Bill of Materials (BOM). The facility processes raw materials into a finished product, or puts together components and assemblies, into higher level products based on the BOM, the production routing, and the work order. As the Bill of Materials defines the component structure of a product (what), the manufacturing Routing defines the processes and methods (how), i.e. take part A and part R to work center #1 to be combined to produce part C. Processes are tasks performed by people or machines at a work station or work center. Before preparing a Routing one or more work centers need to be defined. The work center names are generally descriptive of the process or the work that will be performed there. Management can identify the costs that were added to the product at a specific work station. A simple work center would be the shop floor, the location in the factory where work takes place.
1. The Shop Floor: The shop floor is where products are produced in manufacturing. Raw materials and assemblies go in, and finished product comes out. The value of the inventory, materials, assemblies and partly finished products, on the shop floor is called Work in Progress. Its value is comprised of material and labor costs. It is most difficult to compute costs of products if the shop floor is the only level of work center, unless the process is very simple. To simplify the process and account for costs most manufacturers divide the floor into work stations.
2. Work Station and Manufacturing Routings: At a work center or work station materials are directed to that center's machines and people perform work. Accountants call it a cost center because there, cost is added to materials as a result of labor and other associated expenses. The cost of the final product is a sum of materials, labor, and overhead costs that were applied to the product at each of the work centers.
Depending on the detail required, each station can be also used as a separate cost center, by formally releasing materials to it and, accounting for it when the work at the station is completed. At completion time the assemblies are transferred to the stock room and from there, if more work is to be done, to another work center. This approach of breaking the job into discrete steps can assist management to track costs and productivity.
3. Production Orders: Depending on the company inventory policy i.e whether it is build to order or build for stock, a production order is issued to the production facility as a function of the sales order. Work orders are issued to the plant to build certain product quantities for the purpose of satisfying orders from customers. Production orders are based either on forecasts or actual customer orders.
4. Routings: To build an assembly as defined in the engineering Bill of Materials, production management needs instructions and procedures detailing the sequence and methods to be used. This information is found in the Manufacturing Routing File. A document, often referred to, as the "Routing sheet", with the build instructions that accompanies the product.
The manufacturing Routing is also hierarchical. It defines the sequence of steps and materials needed at each work station, and the scheduling of the timely arrival of sub-assemblies, to produce the finished product.
The chart of accounts for manufacturing contains a distinctive extra line item which reflects the cost of manufacturing. A manufacturing business will also have a line item for Work in Progress over and above the raw materials and finished goods inventory.
5. Job Costing: In manufacturing as in other environments the function of the purchasing department is to acquire the raw materials for a product from vendors based on the engineering specifications. The work order document authorizes the production department to produce a certain number of products or assemblies. Upon completion of the work order, the finished product is available for sale. However the cost of the finished product now includes the cost of all materials used, the cost of all direct labor involved in producing, and the cost of overhead. Cost of overhead typically includes the cost of buildings, equipment, and management salaries, including the cost of money that was used to purchase materials and pay for labor and or equipment. Figuring and keeping track of the cost of production is a sub-part of accounting called cost accounting.
VI PURCHASING AND ACCOUNTS PAYABLE: To acquire either materials or labor for sale an organization issues a document which is called a purchase order, and authorizes the vendor to deliver a product to the facility. Issuance of a purchase order may be the first transaction in a series of transactions that culminate when revenue is produced and profit or loss shown in the financial statement. There is no effect, however, of a purchase order in the businesses' financial position until the merchandize arrives and is received. At that point a cost has been incurred. The business now has an obligation to pay for that merchandise or worker (in the case of labor).
In an accrual accounting environment, until payment is made the amount owed remains in a file called accounts payable. An accounts payable clerk, periodically reviews this file and decides what invoices are to be paid. The terms of the invoice is arranged in advance. Some terms are net 30 or net 10 2% discount. etc.
In a retail or distribution environment the purchased product will be sold without alteration. Thus the cost of the product will be the sum of the costs involved in purchasing the materials, the cost of labor for handling, the cost of warehousing, transportation, and the cost of money, used to purchase or handle the product.
VII SALES AND ACCOUNTS RECEIVABLE: The accounts Receivable function of the organization maintains a journal called accounts receivable. Payments received against outstanding invoices are posted in that journal. A payment of an outstanding invoice decreases the total amount of accounts receivable and increases the cash. As soon as the product becomes available for sale or "in stock" it can be sold and revenue produced. Regardless of the type of business, if payment is not received at the time of the sale the amount of the sale is kept in the accounts receivable file.
The transaction of selling merchandise or services to a customer, unlike the purchase order, immediately effects the organization's financial position. Before the sale an order for the desired product or service is placed by the customer. The order may or may not be placed in writing. In all cases an invoice is issued. This document includes the name and address of the customer, terms of sale, and the code and price of the product sold. By posting this invoice to the sales journal a series of accounting transactions transpire. A labor or merchandise expense is changed to revenue. In case of a cash payment the cash account is increased and the inventory account is reduced. In the case where the product or service is sold on terms, the accounts receivable function is increased. A transparent transaction relative to sales tax also takes place.
VIII GENERAL JOURNAL ENTRIES AND FINANCIAL STATEMENTS: As in all accounting procedures, at the end of the fiscal period the Journals are summarized and Financial Statements are prepared.
IX Material Requirements Planning (MRP):
MRP is an inventory management method,
which assists with the “how much” and “when” to order specific inventory
parts (components) that go into assemblies and or finished products. MRP
calculates and maintains an optimum manufacturing plan based on master
production schedules, sales forecasts, inventory status, open orders and bills
of material. If properly implemented, it will reduce cash flow and increase
profitability. MRP will provide you with the ability to be pro-active rather
than re-active in the management of your inventory levels and material flow.
Implementing or improving Material Requirements Planning can provide the
following benefits for Make-to-order, make-to-stock, assemble-to-stock and
mixed-mode companies:
Reduced Inventory Levels
Reduced Component Shortages
Improved Shipping Performance
Improved Customer Service
Improved Productivity
Simplified and Accurate Scheduling
Reduced Purchasing Cost
Improve Production Schedules
Reduced Manufacturing Cost
Reduced Lead Times
Less Scrap and Rework
Higher Production Quality
Improved Communication
Improved Plant Efficiency
Reduced Freight Cost
Reduction in Excess Inventory
Reduced Overtime
Improved Supply Schedules
Improved Calculation of Material Requirements
Improved Competitive Position
MRP
uses the following elements to plan optimal inventory levels, purchases,
production schedules and more:
Master Production Schedule (MPS)
Bill of Materials (BOM)
Quantity on Hand (QOH)
Part Lead Times
Sales Order Quantities / Due Dates
Scrap Rate
Purchase Order Quantities / Due Dates
Lot Sizing policies for All Parts
Safety Stock Requirements
MRP will plan production so that the right materials are at the right place at the right time. MRP determines the latest possible time to product goods, buy materials and add manufacturing value. Proper Material Requirements Planning can keep cash in the firm and still fulfill all production demands. It is the single most powerful tool in guiding inventory planning, purchase management and production control. MRP is easy to operate and adds dramatically to profits.
The
MRP Logic.
The excerpt below is taken
from an MRP run of a computer assembly SYS-B-I810E. Based on a given sales
forecast, over the 12 months period, a Master schedule with specific quantities
(for the assembly for each period) was prepared and entered as a “Master
Schedule” for every one of the 12 periods. The Master Schedule for the
assembly is depicted by a string of discrete numbers following the assembly.
Commas separate the 12 groups of quantities, corresponding to the respective
periods.
The same numbers of the
Master Schedule appear under each period as projected requirements in the MRP
run. We can infer from this that only one (COM-MB-I810E) main board is included
in the bill of material (which is not shown here) for the above assembly.
Clearly the quantities appearing as “Projected Requirements” would be a
multiple of the number of main boards included in the BOM (Bill of Material) of
the assembly. The above assembly could be included in other finished products.
If such a finished product were included in the same MRP run, it would have
increased the requirements by the quantity defined in the BOM of the finished
product. The MRP logic for the specific example below is as follows:
The
“Lot Size” for main boards in this example represents the “Economical
Order Quantity” of 2 units at the time. One may justify such a lot size as
follows: 1. Free periodic delivery and concern for obsolescence and cost of main
boards. The “lead time” is equal to one period. That is, it takes one
planning period after placing an order, for the item to arrive. The unit of
measure of a “planning period”
can be selected in hours, days, weeks, months, and years. It must however be
ubiquitous for the run. Re-ordering takes place when the quantity on hand reaches
“reorder level” in this case quantity equals 1 unit. This time phased EOQ
ordering method of inventory insures inventory availability by minimizing cost
of inventory on hand and the cost resulting from out of stock situations.
In
the example below we show the quantity of four units on hand.
1)
There are no requirements for the first period thus we still have four on
hand for the second period.
2)
There is a requirement of
three however in the second period. We will use 3 leaving 1 on hand at the end
of the 1st period. One is enough to meet the minimum quantity on
stock. We observe a requirement of 4 in the 3rd period. Since it
takes one planning period to get delivery of the product, we need to place an
order of 4 in period 2 (2 EOQs) to
arrive in period 3.
3)
The “scheduled Receipts” row shows the order of 4 arriving just in
time in the third period. We have 1 left from previously for a total of 5. We
cover the requirement of three and have 2 left. We have one more than we
need as a result of the EOQ constrain. There are no requirements in period 4
thus nothing changes. The 2 units left from previous periods will be available.
4)
There are no requirements in period 4. There are no expected deliveries
since nothing was ordered the previous period.
5)
Look at period five. Again
no requirements and no scheduled receipts. We still have an extra unit in stock
for a total of 2 units. There is a
requirement for 3 for the next period (6). Since it takes one period to receive
we only need to order 2 units (one EOQ) in period 5 to arrive jus in time in the
next period for the expected requirement of 3 units.
6)
In period 6 we have 2 left from period 5 and 2 receive from
the order in period 5. The total of 4 meets the requirement of 3 and leaves us
with one meeting the minimum stock requirement at the end of period 6.
7)
In
period 7 we have a requirement of 3. We have 1 on hand, from period 6.
We only need to order 3 but our EOQ is in multiples of 2 so we order 2
lots, a total of 4. Again, since
the “Lead time” is equal to 1 period the 4 arrive just in time in period 7.
After the scheduled receipt of 4+1 on hand less requirement of 3 in
period 7 we have left 2 on hand. The EOQ restriction resulted in quantity of 1
extra.
8)
There
is no requirement in period 8 thus we carry one unit over the minimum
requirement for an extra period.
9)
We
notice that In period 9 we have a requirement of 3. The 2 left on hand from
period 8 are not enough to cover the requirement and have one left over so we
order 2. They arrive just in time in period 9. We use the three and have one
left over for period 10.
10)
There
are no requirements in period 10 but there is a requirement of 4 in period 11.
We order 4 in period 10. With “lead Time =1 they arrive in period 11.
11)
We
have 1 from period 10 plus 4 “scheduled receipts” we satisfy the requirement
and have one left over. Since the left over is not enough to cover requirement
of period 12 and leave one for stock we order 2.
12) We only need one to satisfy the requirement of period 12, and have 2 left over. We place no orders in period 12 for we reached the end of the planning period. We could run MRP again if we had a new Master schedule for the period following.
Appendix 2
COMPUTER SYSTEMS
I INTRODUCTION BACKGROUND TO COMPUTERS:
In 1833 Charles Babbage an English mathematician, designed the first programmable computer. Although never completed, his computer was designed as a purely mechanical system making use of brass gears and cogs. Programs were coded and punched onto large, thick cards strung together like the cards that tell an automatic loom what pattern to weave. Babbage planned to use the power of a steam engine to turn the wheels of this computer, the "Analytical Engine" and then have it step through a program.
A The mechanical Era: Machines designed to overcome the tedium and accompanying inaccuracies of repetitive hand calculations first appeared in Europe in the late 1600's & early 1700's. In 1671 a German mathematician constructed a calculator to perform multiplications and divisions. Pascal's machine was a mechanical counter used to perform additions and subtractions automatically. Charles Babbage designed the first computer the "Difference Engine" in 1823 and the "Analytical Engine" in 1831.
Commercial mechanical calculators appeared in 1820. Punched card tabulating machines were used for the 1890 United States census. Hollerth's punched card company and Babbage's organization were merged and in 1891 along with other acquisitions were combined to form a new company named International Business Machines. After Babbage,
no significant inventions were made in this field, until in 1937 when Harvard began work on the Mark I.
B The Electronic Era: The first electronic computer was the ENIAC (Electronic Numerical Integrator and Automatic Computer). This was built in 1946 at the University of Pennsylvania. It filled a space the size of a two bedroom home. The electrical power it used would supply about 150 homes today. Most of the power was used to heat the 80,000 vacuum tubes used in it's electronic circuits. ENIAC's memory could hold 20 numbers of 10-digits each. One rack of vacuum tubes, could store one digit of a number. It could process about 300 multiplications per second.
The ENIAC programs were created by connecting hundreds of wires from one electric plug to another, then the ENIAC [[programs ;data?]] were punched into cards and entered into the computer through an input device called a card reader. The first programs were nothing but lists of 1's and 0's, a binary code.
In 1945 Dr. von Neuman proposed a new computer capable of modifying its own instructions. The EDVAC (Electronic Discrete Variable Computer) was developed and led to the IAS computer which can be referred to as the first generation computer. The IAS computer included an arithmetic control unit, main memory and I/O equipment.
From 1955 to 1964, IBM developed the 704 vacuum tube computer. UNIVAC brought in the LARC and then later IBM developed the 7030. The 7030 introduced new techniques for increasing the effective control speed of the computer system by increasing the number of operations carried out concurrently. Thus the concept of multi-programming was introduced; a machine capable of concurrent execution of more than one program. This concept refereed to as "time sharing" allowed many user programs to execute concurrently in an interactive real-time manner.
The existence of many concurrent process' required the equivalent of a traffic policeman to exercise overall control, supervise the allocation of system resources, schedule operations, prevent interference between programs, etc. Programs called operating systems were developed to act as the interface between the operator and the machine. IBM developed the "Executive" and Burroghs the "Master Control" program, and others called their versions simply "OS" for Operating System. The wide spread use of operating systems is a characteristic of third generation computers.
II NATURE OF COMPUTERS:
The human brain is an admirable calculator and the paramount instrument for manipulating abstract concepts. However when it comes to a very large number of repetitive calculations, it is slow and prone to error. Through the years a variety of computational aids were introduced to simplify and speed up the tedious manual computations. At first there was the abacus, later came the slide rule, and finally mechanical calculators. The electric calculator and home computers have revolutionized man's computing capability. A brief history of the start of the "Computer Age" follows:
In [[1974??]] , a project was started by the French government under the direction G.F. Prony, to compute entirely by hand, an enormous set of mathematical tables. Among the tables constructed were the logarithms of the natural numbers from 1 to 200,000 calculated to 19 decimal places. Comparable tables were constructed for the natural sines and tangents & their logarithms. The entire project took about 2 years to complete and employed from 10 to 100 people. To minimize errors each calculated number was recorded on paper and compared to the results of the same calculation performed by an independent person. To compare the calculated results pencil and paper were basic requirements for recording and storing information.
Paper was also the medium for storing the list of instructions that is, the "algorithm" that was followed in carrying out the calculations, as well as recording the data to be used, during the calculations. Intermediate results and ultimately, the final results were recorded on paper. The computational process took place in the brains of the people doing the work(the processor).
One can distinguish two major functions performed by the human brain. The control function, which interprets the instructions and ensures that they are performed in the correct sequence; and the execution function, which carries out specific calculations such as adding and multiplying.
Charles Babbage based his computing machine, the Difference Engine on this concept. The major components of this computing machine were designed to mimic the operations of the human calculators. The Memory Unit which stored the instructions on the punch cards, corresponded to the paper used by the human calculator to record the answers and to list the instructions used. It included a Control Unit which interpreted and sequenced instructions, and finally the Arithmetic Logic Unit which executes instructions.
The function of these latter two units, Control and Logic, have since been combined into the Central Processing Unit or the CPU which corresponds roughly to the human brain when used as a calculator. A significant difference lies in the way the brain and the computer process information. Humans employ natural languages with a wide range of symbols and represent numbers as decimals using the base 10 form. Computers store and process information in binary form based on 0 or base 2. To provide a communication between human language and computer language a means of conversion referred to as the Input/Output unit is provided.
III MICROPROCESSORS AND MICROCOMPUTERS:
Integrated circuits were developed in the late 1960's and became the dominant technology for manufacturing computer components. Integrated Circuit Technology(IC) is a technique for fabricating a logic circuit from a single piece of semiconductor material. ICs can be classified on the basis of the number of logic gates per chip. Started in the 1970's for use in computer main memories, IC's progressed to medium and large scale integration(LSI) and later to very large scale integration(VLSI) or high gate densities. LSI and VLSI made it possible to fabricate a CPU or even entire computers on a single IC called a microprocessor.
By 1973, a complete CPU was built on one silicon chip, (INTEL 8008 and shortly later the 8080) and the concept of microcomputers began. The Intel 8080 was the microprocessor used for the first IBM PC. Other companies like Motorola competed with a different architecture microprocessor known as the 6500 series which was later adopted by Apple, Commodore, and other computer makers .
The Microcomputer was a Landmark development based on LSI technology. This technology made it possible to reduce an entire computer to one design component, which includes all associated support, and control logic used to interface with memory and I/O devices.
Apple was the main player at first with the Apple II personal computer and was instrumental in bringing the microcomputer into the main stream of small business computing.
IBM was a late comer in the small computer field, but its entry into the market set off the explosion of the microcomputer as the instrument of choice for many small and medium size business needs. IBM was known for mainframe computers of proprietary design. Since the microcomputer market was not initially taken seriously by IBM, it had no proprietary microprocessor nor associated components and drives for its Personal Computer(PC). It turned to Intel for the 8080 microprocessor, to Western digital for controllers, and to Microsoft, which was a small software development company, for its operating system. A negotiation to utilize CPM as the operating system, which was the de-facto standard at the time, failed.
With the entry of IBM into the microcomputer arena the field began to develop rapidly and a cycle of user demand and technology forcing marked the first 10 years of the growing industry. The microcomputer entered the business world on several fronts--traditional accounting markets, office systems marked by rapid advances in word processing and in engineering and design on the operations level. Throughout this era advancements by IBM spearheaded the path for the industry.
In 1982 The PC appears in stores, and is successful beyond even IBM's expectations. Since IBM had produced the PC by acquiring the CPU and other components from other vendors, the only proprietary part of the PC was the program written by IBM to communicate with its internal and external resources the BIOS (basic Input Output System). This resultant open architecture, opened the door to others to build their own microcomputer without violating any hardware patents. The only function needed to be duplicated was the BIOS. Third party software vendors i.e. Phoenix Award and others began this task, and successfully duplicated the programs needed for Input/Output. PC compatible vendors began building PCs to compete with IBM.
In 1983 the first hard disk was introduced with an extended version of the PC called XT. It became a very popular system for both business and home use. In 1984 a new system was introduced. The Advanced Technology computer or AT for short. The introduction of the AT pointed the way towards the new generation of PC's.
In 1987 the Intel 80386 micro-processor provided the primary elements for advanced personal computers. The 386 microprocessor combined a central processing unit, a memory unit and a bus interface on a single chip. In addition, the 386 micro-processor allows for the simultaneous running of multiple operating systems.
In 1990 the Intel 80486, or 486 was introduced. This new microprocessor included a floating point arithmetic unit and 8K static RAM cache memory. The 80386 memory management and paging unit, enhanced by the 80387 math co-processor and cache control was included in one single VLSI chip.
IV TODAYS COMPUTERS:
A desktop 486 system today has more computing power than a large mainframe had a few years ago. The computer industry continues to demonstrate an unmatched ability to churn out steady increases in performance at steadily declining costs. Advances in VLSI technology have played a leading role.
VLSI manufacturers have made phenomenal improvements in the ultracomplicated process used to make memory chips, microprocessors, and chipsets. These chips are made with machines that etch nearly invisible wires onto slivers of ultrapure silicon- a processed material, that would retail for $1 billion an acre if it were sold that way. These etched wires form transistors, that packed tightly together on a microprocessor let computers make up to 20 million calculations per second.
When work was begun on the 386 microprocessor in 1985 the minimum width of the wire on a chip was 1.5 microns. A human hair is about 100 microns wide. Later the width was reduced to 1 micron. The smaller the wires on the chip the more transistors can be packed in it. In 20 years the number of transistors has jumped from 2300 to 1.2 million increasing the processing power of a desktop computer more that 500%.
A 486 computer today can search through the entire encyclopedia in less than four seconds. If the automobile industry had progressed the same way since 1960, today's Cadillac would cruise 1 million miles per hour and get 500,000 miles per gallon.
basically manages the computer and its peripherals and the application pA Processing system: Todays microcomputer system is made up of the Hardware consisting of all the electronics including the I/O units and, the Software that contains the instructions that runs the computer. There are four key parts to the processing system hardware(exclusive of peripheral devices), the processor, the memory, the input/output(I/O) function, and disk storage. The software can be divided to two major categories, the "operating system" whichrograms or the specialized tasks the user wants to carry out i.e. accounting.
1 The Processor: The processor is the "brain" of the computer. It is the processor that has the ability to carry out our instructions to the computer. The processor knows how to add and subtract and to carry out simple logical operations. In the IBM PC, the processor is usually called a micro-processor. The PC family is powered by Intel 8085, 8086, 80286, 80386 and 80486 micro-processors.
2 Memory: The memory is the computer's work area. A computer's memory is nothing like human memory, so the term can be misleading. Memory is the computer's work place, similar to the workbench of a carpenter, or the playing field of a sports team. The computer's memory is where all activity takes place. The analogy with a workbench is a good example, because it helps us understand when the amount of memory is important and when it is not. Like the size of a workbench, the size of a computer's memory sets a practical limit on the kinds of work that can be undertaken. A handyman's skills and other factors are the most important things that determine what he can and can't do, but the size of the work place matters as well. This is true with our computers. That's why computers are rated by the amount of memory they have, usually in kilobytes or megabytes. For example, a fully-loaded IBM PC-XT has 640 kilobytes of memory.
3 The BIOS: Basic Input/Output, or I/O, are what the computer uses to take in or send out data. It includes input that we type on the keyboard and output that the computer shows on the display screen or prints on the I/O peripheral devices. I/O devices (or peripherals), are important and critical to the successful operation of the computer. The BIOS or Basic Input Output Service, was first developed and copyrighted by IBM for the first original PC. The BIOS is a set of programs dedicated to serve the computers needs to communicate with the outside world, i.e. printers, monitors, keyboards, etc. The first clone manufacturers developed their own set of programs to make up their BIOS. While honoring the IBM copyright, they produced a BIOS that emulated the original IBM version.
4 Disk Storage: Disk storage is the computer's reference library, filing cabinet, and tool box all rolled into one. Disk storage is where the computer keeps its data when not in use in the computer's memory. Data can be stored in many forms of disk media, including the optical disk (CD-ROM), however standard disk media such as the floppy and hard disk are the most practical and important ways of storing data.
B. Typical PC Hardware:
1 SYSTEM or CPU UNIT - the heart of the microcomputer system. It contains the microprocessor and memory.
2 KEYBOARD - lets you enter data and commands into the computer.
3 MONITOR - is a visual display device the computer uses to communicate information to the user.
4 DISKETTE DRIVE - usually a 5 1/4" or a 3 1/2" floppy diskette that is installed in the system unit cabinet. It is used to store, programs, and data for use by the system memory.
5 FIXED DISK DRIVE - a disk unit that is not removable and is installed along with a diskette drive. It has the ability to store large amounts of data.
6 PRINTER - is the output device for producing 'hard-copy' of data.
7 OTHER DEVICES - other devices used for input/output or storage, such as mouse, joysticks, plotters, telecommunications, etc. These devices usually require additional software.
8 Software: Software is a term used to describe the Programs. Programs are a set of instructions that tell the computer what to do, and are the interface between you and the computer
C. INTRODUCTION TO the Disk Operating System --DOS:
Several types of operating systems have been proposed for the microcomputer. Many of
these are still around and continue to evolve. UNIX and now OS-2 are strong contenders and
may eventually develop into the next generation systems. However for now DOS is the most
popular for IBM and compatible computers. The IBM version of DOS is called PC-DOS, the
Microsoft version is called MS-DOS. From the users point of view, there is no difference,
yet you can not mix the system files of one with the other.
1 CONCEPTS OF AN OPERATING SYSTEM: The basic definition
of a computer operating system is that it is a system resource manager. This includes the management of the hardware as well as the other types of software or applications the computer system may use. For this reason the user of a computer system should be familiar with the techniques of communicating with the operating system in order to fully control his computer.
Computer systems are categorized by their ability to handle volumes of data and at a particular speed. Currently these categories, in decreasing power include the supercomputer, large mainframe computers, minicomputers, and microcomputers. Each category, depending upon manufacturer, may have a unique operating system. Regardless of the type of operating system there are fundamental tasks which all operating systems accomplish. Once the user has mastered the command structure language it is usually not too difficult to learn the more advanced techniques of other operating systems to 'fine-tune' the computer system operation.
2. EVOLUTION OF MICROCOMPUTER OPERATING SYSTEMS: Initially, the microcomputer was thought of as a limited computer dedicated to serving the communications industry. With the technology of the late 1960's and early 1970's it was limited in its ability to process any large quantity of data at an acceptable speed. These early machines were thought of as 'gaming machines' in which video games were developed for home use with a limited 'programmable' feature. Due to their limitations business applications were not planned for use with this technology.
As the technology developed faster speeds and greater storage capacities these microcomputers approached a marketability as a 'business support tool'. The first generally accepted operating system was marketed by Digital Research, Inc. as the Control Program for microcomputers. commonly known as CP/M. It wasn't until IBM entered the microcomputer market in the 1980's that a serious competitor for the microcomputer operating system market developed.
Microsoft, Inc. acquired the rights to a microcomputer operating system which IBM adopted as its standard for its new line of Personal computers. With some modifications Microsoft's Disk operating System (MS-DOS) for Microcomputers became IBM's Personal Disk operating system (PC-DOS)
As the computer hardware technology evolved into faster processing speeds with high data storage capacities the need for sophisticated operating system became evident. The earlier CP/M system became obsolete with the new computers and was upgraded to the CP/M-86 by Digital Research.
Intel. Inc., one of the leaders in the development and production of microcomputer chips, began producing a product line known as the 8086 family. This included the designs of the 8086,80186 and, solving problems between the older microcomputers and the new technologies. Advances in these new chip designs have provided the ability to handle more tasks, using greater memory capacities, and at a faster speed.
As the technology of the microcomputer evolved into a highly sophisticated business data processing tool, compatibility between the various manufacturers and product lines remained a problem. Between the early machines with their CP/M operating system and the later machines with the MS-DOS operating system there has not been a true compatibly. This resulted in businesses and individuals having to 'retool' (or re-purchase) their computing equipment and software when moving from an early microcomputer to one of more recent vintage.
With the introduction of the IBM/PC family of computers and its wide acceptance by business and individuals this 'retooling' has not been as great a problem ,since MS-DOS and the IBM/PC family have been adopted as the so called industry standard.
Recently, with the announcement of the 386 type machines a major change has been seen. This newer equipment can operate faster with larger memory capacities, and accomplish multiple tasks, which the older equipment was not capable of doing. This has resulted in a need for a more sophisticated operating system, while still retaining the compatibility of the earlier hardware and software features. To address this problem Bell Laboratories has been working on a product known as UNIX, with XENIX being the Microsoft,INC version. Many of MS-DOS concepts are built into these operating system, i.e. the sub-directory features. The net result of this compatibility between the two operating systems is that the typical user will not have a great deal of difficulty in converting his/her knowledge or use from an MS-DOS environment to that of a UNIX (XENIX) environment.
With each enhancement or version of DOS the required memory allocation for the operating system itself increased. This resulted in a reduction of the available 'free memory' for the User or application software. Therefore, the system memory sizes have had to grow along with each version of the operating system.
D. DISK MANAGEMENT:
One can conceivably sit at the keyboard and type in a set of instructions and formulas to be run each time they sat at their machine. Likewise they could type in all of the old data the machine is to manipulate along with new data i.e. account updates, to be included. However it is far easier to have all of this information stored on a device that could automatically read the instructions directly into the machine at startup, and only new instructions or changes would need to be entered from the keyboard. Early systems met this need through devices such as punch cards and magnetic tapes. Today, while tape is still used for permanent or mass storage, a rotating disk system is the medium of choice. Various forms of disks are now on the market, including the various forms of the floppy disk (also referred to as a diskette), the hard disk, optical disks, and other variations. It is this diskette (disk) system that is the heart of a computers' operating system.
1 ANATOMY OF A DISK: A disk is a round platter that can store magnetic spots or fields which are used to represent data characters. The spots are called BITS and their grouping to form the characters is called a BYTE. The bytes are arranged on the platter surface in a series of concentric circles known as a tracks. The tracks are spaced on the platter surface so that a read/write mechanism can detect (or place the spots) to be copied to or from the main memory of the computer (RAM).
It is this action of reading or writing the magnetic spots and copying them to/from the main computer memory that is the total function of a disk storage unit. Since the read/write heads are moveable over the surface of the platter, plus the spinning action of the platter, means that data is placed in a random fashion on the disk unit. However, this must be done with some management plan or the data will be lost to any future use.
2 TERMS ASSOCIATED WITH DISK UNITS:
Platter is the single, circular object that is coated with a material which will retain a magnetic field for data storage. it may be made out of a rigid mylar material (floppy diskette) or be a coated metal (hard disk).
Track is the concentric area on a platter surface that is used to record the bytes of data. The number of tracks on a surface are determined by the technology of the read/write heads in tracks-per-inch (tpi)
Sector is the addressable division of the track into manageable units for the storage of data. The number of sectors will vary depending upon the type of disk (floppy/hard) and the technology of the disk unit.
Read/Write Head is the hardware component that is placed over a single track for writing or reading data. Each surface of a platter may have its own read/write head mechanism.
Cylinder is the alignment of all read/write heads over a specific track on each platter surface of a hard disk, multi-platter unit.
Seek Time is the amount of time it takes for the read/write heads to be positioned over the appropriate track.
Latency (Rotational Delay) is the amount of time it takes for the record area on the disk to come under the read/write heads.
3 DISK PREPARATION: In order for a disk to accept any particular DOS files it must be prepared in a style that can be identified with the particular Disk Operating system. This is termed FORMATTING the disk and is the management system for keeping track of where the random bits of data are placed.
Formatting a disk involves the placement of control codes onto the disk tracks. Mapping the disk as to the placement of the various types of Control files is also done at this time. In MS-DOS and PC-DOS there are three major control areas in the format MAPPING routines; Boot, File Allocation Table (FAT), and the Data area.
BOOT is a single sector of 512 bytes which contains the initial loading instructions and commands of DOS. Since DOS must be loaded before any other functions can occur this BOOT section is the first sector of the first TRACK on a system (or bootable) disk. Without this file as the first file - the disk is non-system disk.
FILE ALLOCATION TABLE (FAT) is the major control file for the placement of data within the DATA portion of the disk. It keeps track of the free areas of the disk and manages the placement of data onto those free areas.
DATA AREA is where all files are located on the disk, as managed by the FAT.
4. DISK CAPACITIES COMPARISON: There are several types of disks designed for the microcomputer in common usage today. These are rated both by their physical dimensions and by their storage capacity in bytes. A comparison of some of these is helpful to understanding their functions.
Surfaces Tracks Sectors Bytes Total
Disk Type Per disk Per Surface Per track Per Sector Capacity
Computation: A B C D = X
Floppy 360KB 2 40 9 512 368,640
Floppy 1.2MB 2 80 15 512 1,228,800
Floppy 1.4 MB 2 80 18 512
Fixed 10MB 4 305 17 512
VII 10,618,880
Fixed 20MB 4 615 17 512 21.411,840
5. RELATIVE ACCESS TIME COMPARISON: The Average Access Time is a rating used in comparing relative disk speeds. It is computed by the Average Latency times multiplied by the Average Seek Time.
Disk Type Rotational Speed Average Access
Floppy 300 rpm 1/6th of a second
Fixed 3600 rpm 1/25th of a second
VIII STARTUP AND OPERATION OF THE MICROCOMPUTER:
The term booting refers to bringing the microcomputer system to a status ready to accept commands from the keyboard. There are two kinds of booting; a cold boot and a warm boot.
COLD BOOT is the process of powering up the computer by turning on the main power switch to the processor. This action begins what is known as the Power On Self Test (POST) for most IBM/PC computers and compatibles. The function of the POST is to run a system diagnostic test to check on the operational status of the major electronic components of the computer system. This is accomplished by a special memory chip known as the ROM-BIOS or BIOS.
Once the POST has been completed the system will then automatically attempt to read from the system disk drive the file which contains the disk Operating System startup routines.
If the system disk does not contain the appropriate startup file the booting process will terminate with some appropriate error message. If the disk is readable and contains the appropriate DOS files, the command file processor is loaded into the main memory (RAM). The system date and time is then requested of the user. Following the date and time the system prompt (usually a right pointing carat) will be displayed.
WARM BOOT is accomplished by resetting the system from any powered up situation. This is done with a system diskette in the system drive or from a hard disk by simultaneously pressing the three keys CTRL+ALT+DEL. The command file processor will be loaded into RAM and all basic system features reset to their default condition.
A. THE DOS PROMPT: A disk operating system command is usually keyed in following the system prompt: A>
B. DISK COMMANDS: There is a group of commands that performs routines or functions in the management of data on the various disks or diskettes. These commands are divided into internal and external depending on whether they are resident in the startup system or need a DOS disk or file to be present for them to be called up from the keyboard.
The rules for entering commands are referred to as the SYNTAX of the command. These involve a variety of parts:
Parameters are any further specification in a command beyond the command itself. The parameter may, for example tell DOS which drive you want to use. Delimiters separate the command from any descriptors (parameters) of the command. Always leave a space between the command and the first parameter. Other delimiters which can be used are the comma (,), semicolon (;), or equal sign (=). Default values are those parameters which are obvious or most common in a particular situation. The command will assume this 'default' value unless a different parameter is indicated by the user.
A DOS command can only accept a maximum of 63 characters. Therefore, it is important to plan your activities with DOS so that this 63 character command limitation will not be exceeded.
C. STARTUP COMMANDS: Some common commands in preparing a system for operation include:
FDISK Command
Purpose: To prepare a fixed disk for use with DOS.
Type: External
Syntax: FDISK
This command will initiate a series of menu-driven tasks that will allow the user to ...
* identify the specific fixed drive
* Partition the fixed disk
* Change the Active partition
* Delete the DOS partition
* Display the partition data
FORMAT Command
Purpose: Initializes the disk to accept DOS information and files.
Type: External
Syntax: FORMAT [d:] [/s] [/v] [/b] [/1] [/8] [/4]
D: ... A valid disk drive name/letter.
/S ... Places a copy of the operating system onto the disk.
/v ... Write a volume label onto disk.
CHECK DISK command.
Purpose: Checks the directory and file allocation table (FAT) of the disk and reports disk and memory status. Can also repair errors in the directories or FAT.
Type: External
SYNTAX: CHKDSK [d:] [filename[.ext]] [/f[/v]
Parameters: d: ... is the disk drive to analyze.
filename.ext ... is a valid DOS file name to analyze.
/f ... fixes the file allocation table and other problems if errors are found.
/v ... shows CHKDSK progresses and more detailed information about the errors it finds.
SYS Command
Purpose: Transfers the operating system file from the default drive to the specified drive.
Type: External
Syntax: Sys d:
Parameters: d: ... target disk for the transfer.
SECTION THREE
1. Networking Concepts
Models of Network computing
Centralized Computing
Distributed Computing
Collaborative Computing
Network Models
Networking configuration
Client Server and Peer-to-peer Networking
Local and (LAN) and Wide (WAN) Area Netrworks
Internets and Intranets
2. Networking Standards
The ISO Reference Model
The IEEE Family
NDIS and ODI
3. Transmission Media
Cable Media
Wireless Media
4. Network Topologies and Architectures
Access methods
Network Topologies
Network Architecture
5. Network Adapter cards
6. Connectivity DEvices
Modems
Repeaters
Hubs
Bridges
Routing
Gateways
7. Transport Protocols
TCP/IP
NetBEUI
IPX/SPX
Netbios
8. Connection Services
Public Telephones
Packet routing
10. Network Administration