scr banking gjkj_hjh
TRANSCRIPT
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The bank begins by adding the
amount you're depositing to the
amount that's already in your
account (your existing balance).
Your deposit and new balance areentered into your "passbook" and
into the bank's computer system.
The money you deposited is mixed
in with all the other cash the bank
received that day.
When you and other customers
deposit money in a bank, the bank
puts most of it to work. Part of themoney is set aside and held in
reserve, but much of the rest is
loaned to people who need to
borrow money in order to buy
houses and cars, start or expand
businesses, buy farm equipment
or to plant crops, or do any of the
other things that require people to
borrow money.
Interest - Compounding
When you keep your savings in a
bank, the bank pays you extra
money, which is called interest.
The interest is added to your
account on a regularbasisusually once a month or
once every three months
(quarterly). Compounded interest
means that interest is added to
your balance (usually quarterly),
then the next quarter the interest is
computed on your money
deposited plus the last quarter
interest.
INTANGIBALE ASSSETS
CAN BE TREATED IN THE
SAME WAY AS FIXEDASSETS.
THEY ARE NEEDED FOR
OPERATION AND ARE
ACQUIRED WITH
ENTERPRISE FUNDS.
EXAMPLE:
PATENTS CAPITALIZED
& MAY BE
EXPENSED
OVER A
PERIOD OF
TIME
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Example: New When you fill in the
blank spaces on one of your
checks, you are telling your bank
how much of your money you want
to transfer and to whom you want
it transferred. You authorize thetransfer by signing y our check.
One reason why checks are so
popular is that people can use a
cancelled check to prove they paid
a bill. In most cases a cancelled
check is as good as a receipt
because it bears the
endorsements of all the persons,
banks, companies, or other
organizations that have handled it.For example if the landlord claims
you didn't pay your rent, all you
need to do is find your cancelled
check and point out that it was
endorsed by your landlord and
your landlord's bank.
Tracing a CheckThrough the
Federal
Reserve's Check
Collection
Network
1. Your Aunt sent you a $20Check for your birthday.
2. You deposit the check in
your savings account at your
bank.
3. Your bank endorses the
check and sends it to its Federal
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Reserve Bank.
4. The Federal Reserve Bank
gives your bank credit for the
check by adding the amount ofthe check to your banks
reserve account or clearing
balance.
5. The Federal Reserve
Transportation system flies the
check to your Aunt's Bank Federal
Reserve Bank.
6. That Federal Reserve Bank
forwards the check to your Aunt's
bank and deducts the
appropriate amount from
that bank's reserve account.
7. Your Aunt's bank deducts
the $20 from your Aunt's checking
account.
Check 21 is a sweeping new
federal law effective October 28,
2004 that takes away your ability
to get back your original paper
checks. Under this law,
consumers could be more likely to
bounce checks and may find
themselves paying higher bankfees. The complicated new law
gives you some rights, but those
rights depend on a variety of
factors, including how the
merchant and the bank decide to
process your check. Visit the
FRB's web site on the new law:
http://www. federalreserve.
gov/paymentsystems/truncation/.
http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/ -
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What is
Electronic
Banking?Electronics and computers have
made banking an around-the-clock
business. You can now do much
of your banking even when your
bank is closed. You no longer
need to plan your schedule around
your banks business hours.
Automated Teller Machines
(ATMs) are computers that are
much like limited-service bank
branches. You can use them to
make a withdrawal, make a
deposit, make a payment, transfer
money from one account to
another, or check your account
balance. In some cases, ATMs of
different banks are linked together
so you can use them when you
travel to a different part of town or
even to another state. All you
need to use an ATM is a plastic
card from your bank and your own
personal password called a PIN
number.
You can also have your employer
electronically deposit your pay
directly to your bank account each
payday. Direct deposit is also
popular among people who
receive Social Security checks or
pension checks because it saves
them the bother of standing in line
at the bank, battling bad weather,
or worrying about being robbed on
the way home from the bank
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Another electronic banking
service is called electronic
funds transfer or EFT. By
using EFT, a bank can transferlarge amounts of money to
another bank by wiring an
electronic message. There is
no need to write a check or
load up an armored car with
cash and there's no long wait
for the money to be moved.
Electronic transfers take only
an instant. An electronic
message instructs a computerto deduct a certain amount 2.
You deposit the check in your
savings account at your bank.
3. Your bank endorses the
check and sends it to its Federal
Reserve Bank.
4. The Federal Reserve Bankgives your bank credit for the
check by adding the amount of
the check to your banks
reserve account or clearing
balance.
5. The Federal Reserve
Transportation system flies the
check to your Aunt's Bank Federal
Reserve Bank.
6. That Federal Reserve Bank
forwards the check to your Aunt's
bank and deducts the
appropriate amount from
that bank's reserve account.
7. Your Aunt's bank deducts
the $20 from your Aunt's checking
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account.
Check 21 is a sweeping new
federal law effective October 28,
2004 that takes away your ability
to get back your original paper
minimum balance) in your NOW
account in order to keep earning
interest. Only non-business
customers may open NOW
accounts, businesses must use
regular checking accounts.
Money market deposit accounts
usually pay a higher rate of
interest and require a higher
minimum balance (usually $2,500).
Certificates of deposit (CDs) are
savings deposits that require a
customer to keep a certain amount
of money in the bank for a fixed
period of time (example: $1,000 for
two years). As a rule the rate if
interest your money earns is
higher if you agree to keep your
money on deposit for a longer
period of time. (That's because
banks can plan on using your
money for a longer period of time.)
Banks do not offer check-writing
privileges on certificates of
deposit.
Finally, banks don't always call
their accounts by the same names.
Often they choose distinctive
names in hopes of attracting
customer. But sometimes there
can be a real difference between
one bank's accounts and
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another's, so shop around.
homebuyers. Most of the loans
went to people who didn't make
enough money to be welcome at
traditional banks.
Credit unions began as a 19th-
century solution to the emergency
needs of people who were unable
to borrow money from traditional
lenders. Before the opening of
credit unions, ordinary citizens hadno place to turn when they faced
unexpected home repairs, medical
expenses, or other emergencies.
Credit unions were started by
people who shared a common
bond such as working at the same
factory, belonging to the same
house of worship, or farming in the
same community. Members
pooled their savings and used the
money to make small loans to one
another.
Although there are still differences
between banks and thrifts, they
now offer many of the same
banking services to their
customers. Most commercial
banks now compete to make carloans, many thrifts have begun to
make commercial loans, and some
credit unions make loans to
homebuyers.
used to be. For starters you
should shop around to find out
which banks offer the most
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competitive services. Some banks
charge a monthly fee if your
account falls below a certain level
and sometimes that fee can be
higher than the interest your
account may earn.
Some states prohibit banks from
charging fees on savings accounts
held by people under 18 or 65 and
over. Find out if your state has
such a law.
Other things you might want to
consider:
Does your bank pay itsdepositors a competitiveinterest rate?
Is the bank in a convenientlocation and are its
business hours convenientto you?
Is your deposit fully insuredby the federal government?
Is the bank a goodcorporate citizen? Does itinvest in yourneighborhood?
Last, but certainly not least, doesyour bank provide courteous and
efficient service? Before you open
an account, ask a few people if
they are happy with their bank. All
banks are not the same. It's up to
you to do some comparison
shopping before you open an
account.
loans, business loans, checking
accounts, savings accounts,certificates of deposit, and credit
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card services. Some people go to
the bank in search of a safe place
to keep their money. Others go to
the bank seeking money for loans
to buy houses or cars, start
businesses, expand farms, or doany of the other things that require
borrowing money.
Where do banks get the money to
lend? They get it from all the
people who open savings and
other types of accounts. Banks
act as a go between the people
who save and people who need to
borrow. If savers didn't put their
money in banks, the banks would
have little or no money to lend.
Your savings are combined with
everyone else's savings to form a
big pool of money. The bank uses
that pool of money to make loans.
The money doesn't belong to the
bank's president, board of
directors, or stockholders. It
belongs to the depositors. That's
why banks have a special
obligation not to take big risks
when they make loans.
How did Banking
Begin?No one knows who started the
world's first bank, but it's safe to
say that banking has it roots in the
early trading civilizations of the
Mediterranean ocean. Without
trade there would have been littleneed to establish banks. Without
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banks there would have been less
money to finance trading ventures.
Imagine for a moment that you are
a merchant in ancient Greece or
Phoenicia. You make your living
by selling to distant ports with
boatloads of olive oil and spices.
You don't grow the olive oil and
spices yourself; you buy them from
growers or other merchants. If all
goes well, you will be paid for your
cargo when you reach your
destination, but before you can
sail, you must have money to outfit
your ship.
You find it by seeking out people
who have money sitting idle. They
agree to put up the money for your
cargo and supplies in exchange for
a share of your profits when you
return from your voyage. . if you
return. The people with the idle
money are among the world's first
lenders and you are among the
world's first borrowers. You
complain that they're demanding
too large a share of your profits.
They reply that your voyage is
perilous and they run a risk of
losing their entire investment.
Lenders and borrowers have
carried on this debate ever since.
Today, most people who want to
borrow money go to banks rather
than to wealthy individuals. But
the basic concepts of borrowing
and lending haven't really
changed. People don't let you
have their money for nothing. It's
risky to lend money. There's no
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guarantee that a lender will get the
money back, even if the borrower
is an old friend. So why lend
money? Why take the risk?
Because lending presents an
opportunity to make even moremoney. People will often take a
financial risk if they believe there is
a good chance of making more
money.
If a bank lends $50,000 to a
borrower, the bank isn't satisfied to
just get its $50,000 back. In order
to make a profit, the bank charges
interest on the loan. Interest is the
price borrowers pay for using
someone else's money. If a loan
seems risky, the lender will charge
more interest to offset the risk. (If
you take a bigger risk, you want a
bigger return). Of course, the
opportunity to earn lots of interest
won't mean much if a borrower
fails to repay a loan. That's whybanks often refuse to make loans
that seem too risky.
Banks also use interest to attract
savers. After all, people who have
extra money don't have to put it in
the bank. They have lots of
choices. But in addition to all of
the different types of accountsbanks offer depositors, the added
advantage is being able to get to
their money quickly.
How is a Bank
Started?
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The process varies from state to
state, but here's a simple version
of what it takes to start a bank.
1. Individuals get together anddecide to start a bank.
2. They file an application withthe federal and state bankingauthorities. In Indiana, it's theIndiana Department ofFinancial Institutions.
3. People at the state bankingauthority review theapplication. They look closelyat the financial condition andthe character of the applicants.
4. After reviewing the application,
the federal and state banking
authorities will either approve
or deny it.
\living by selling to distant ports
with boatloads of olive oil and
spices. You don't grow the olive
oil and spices yourself; you buy
them from growers or other
merchants. If all goes well, you
will be paid for your cargo when
you reach your destination, but
before you can sail, you must havemoney to outfit your ship.
You find it by seeking out people
who have money sitting idle. They
agree to put up the money for your
cargo and supplies in exchange for
a share of your profits when you
return from your voyage. . if you
return. The people with the idlemoney are among the world's first
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lenders and you are among the
world's first borrowers. You
complain that they're demanding
too large a share of your profits.
They reply that your voyage is
perilous and they run a risk oflosing their entire investment.
Lenders and borrowers have
carried on this debate ever since.
Today, most people who want to
borrow money go to banks rather
than to wealthy individuals. But
the basic concepts of borrowing
and lending haven't really
changed. People don't let you
have their money for nothing. It's
risky to lend money. There's no
guarantee that a lender will get the
money back, even if the borrower
is an old friend. So why lend
money? Why take the risk?
Because lending presents an
opportunity to make even more
money. People will often take afinancial risk if they believe there is
a good chance of making more
money.
If a bank lends $50,000 to a
borrower, the bank isn't satisfied to
just get its $50,000 back. In order
to make a profit, the bank charges
interest on the loan. Interest is theprice borrowers pay for using
someone else's money. If a loan
seems risky, the lender will charge
more interest to offset the risk. (If
you take a bigger risk, you want a
bigger return). Of course, the
opportunity to earn lots of interest
won't mean much if a borrower
fails to repay a loan. That's why
banks often refuse to make loans
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that seem too risky.
SOURCES
PROPRIETORS CAPITAL ORIGINAL
AMOUNT
INVESTED IN
ENTERPRISE
Profit before Taxes
Depreciation STOCK-COMMON/
PREFERRED
AMOUNT
INVESTED BY
SHAREHOLDERS
Increase in A/C Payable COST OF PROTOTYPE
DEVELOPMENT &
STUDIES FOR IMPROVED
PRODUCTIO, EFFICIENCY
& PROCESS
DEVELOPMENT (COULD
ALSO BE EXPENSED)
Increase in Bank Loan RETAINED EARNINGS EARNINGS
RETAINED
AFTER
DISTRIBUTION
OF DIVIDENDS
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ACCURED EXPENSES PORTION OF
SALARIES DUE
BUT NOT YET
PAID
Total Sources
ACCRUED TAXES PORTION OF
TAXES DUE
BUT NOT YET
PAID
APPLICATIONS SHORT-TERM LOANS LOANS TO BE
REPAID IN
LESS THAN
ONE YEAR
Expenditures for plant/equipment
Repayment of Long-term
Debt
LONG-TERM LOAN
(current portion)
PORTION OF
LOAN TERM
DEBT DUE FOR
PAYMENT
WITHIN ONEYEAR
Increase in A/C
Receivable
Increase in Inventories
Taxes
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Dividends
Total Applications
Increase (decrease) in
Cash
RESEARCH AND
DEVELOPMENT
(DEFERRED REVENUE EXPENDITURE)
GOODWILL
PATENTS, CPOYRIGHTS
PRE-OPERATING EXPENSES
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BUSINESS LOSS
* NONPHYSICAL POOSESSIONS OF AN ENTERPRISE EXPECTED TO YIELOVER A PERIOD OF YEARS
PETTY CASH
MONEY IN BANK
RAW MATERAIL
SPARE PARTS & CONSUMABLES
WORK-IN-PROCESS FINISHED PRODUCT (UNSOLD)
GOODS & SERVICES SOLD BUT NOT YET PAID FOR
NOTES & DEPOSITS DRAWING INTEREST, ETC
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INSURANCE PREMIUMS LICENSE FEES
RENT
INTEREST ACCRUED
BUT NOT DUE
Current Assets
Cash/ Bank Balance
Accounts Receivable
Inventories
Total Current Assets
Current Liabilities
Short-term Loans
Accounts Payable
Total Current Liabilities
Net Current Assets
Total Assets
Long-term Liabilities
Long-term Loan
Debenture
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Deposits
EQUITY & LIABILITIES
Equity
Equity Share Capital
Preference Share Capital
Retained Earning
Total Equity
LIABILITIES
Equity
Capital Stock
Retained Earnings
Total Equity
Long-term Liabilities
Long-term Debt
Current Liabilities
Short-term Loans
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Accounts Payable
Total Current Liabilities
TOTAL LIABILITIES & EQUIY
CONSISTENCY
ONCE A METHOD OR POLICY IS ADOPTED, SUBSEQUENTTRANSACTIONS WILL BE TREATED IN THE SAME WAY;
OTHERWISE, CHANGES SHOULD BE EXPLAINED
8) COSERVATISM
TO AVOID OVERSTATEMENT, WHENEVER THERE ISCHOICE IN VALUING ASSETS OR LIABILITIES THE MORE
CONSERVATIVE VALUE WILL BE USED
9) MATERIALITY
TRIVIALITIES ARE IGNORED. PERSONAL JUDGEMENT ANDCOMMON SENSE DETERMINE WHETHER AN ITEM IS TRVIAL OR
NOT
The Going Concern Concept
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ACCOUNTING IS BASED ON ASSUMPTION THAT THE
ENTERPRISE WILL OPERATE INDEFINITELY
4) The Cost Concept
FIXED ASSETS ARE ACCOUNTED FOR AT ACQUISITION COST
RATHER THAN VALUE THEY COULD BE SOLD FOR
5) The Dual Aspect Concept
EVERY (EVENT) TRANSACTION RECORDED AFFECTS AT LEAST
TWO ITEMS IN A FINANCIAL STATEMENT
6) The Accrual Concept
INCOME AND EXPENSES ARISING FROM TRANSACTIONS ARE
RECORDED IN THE PERIOD IN WHICH THEY OCCUR RATHER
THAN THE PERIOD IN WHICH PAYMENT IS MADE. SEEKS TO
MATCH COSTS WITH REVENUES
The raw material has to be cut to size. This is done with a variety of tools.
The most common way to cut material is by Shearing (metalworking);
Special band saws designed for cutting metal have hardened blades and a feed
mechanism for even cutting. Abrasive cut-off saws, also known as chop saws, are similar to
miter saws but with a steel cutting abrasive disk. Cutting torches can cut very large sections
of steel with little effort.
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Burn tables are CNC cutting torches, usually natural gas powered. Plasma and laser
cutting tables, and Water jet cutters, are also common. Plate steel is loaded on a table and the
parts are cut out as programmed. The support table is made of a grid of bars that can be
replaced. Some very expensive burn tables also include CNC punch capability, with a
carousel of different punches and taps. Fabrication of structural steel by plasma and laser
cutting introduces robots to move the cutting head in three dimensions around the material to
be cut.
the maximum output rate a process can achieve under ideal conditions (Krajewski and Ritzman,
2003). The company believes that the CSI effectively communicates how well a process meets
customer specifications, and it provides more useful feedback to the production system. For
instance, a 65% of CSI in cutter operation was measured over a two-month period, which indicates
that only 65% of peak capacity was utilized to meet customer needs. In other words, 35% of
machine capacity was either wasted (due to setup, wait for material, maintenance, or breakdown) or
produced items that failed to meet customer specifications. The 65% of CSI was then used as a
baseline to measure the level of improvement made by this project. The goal (performance
outcome) established for this process was 80 percent of CSI, which was considered to be the
standard for world-class practice.
Once the measure and process capability for cutting operations was defined, the project
team proceeded to analyze the root cause of poor CSI performance. A Pareto analysis was nextperformed, and the team discovered that the cutter grinder accounted for 40% of machine
downtime on the cutting machines (Figure 3). The project team interviewed the operators and
found that, due to lack of proper lubrication of the blades, many cutting heads did not attain their
maximum life. Moreover, as the dull blades were removed for re-sharpening, cutter grinders
became idle and thus failed to keep up with theproduction schedule. Apparently, the dullness of the
blades caused substantial downtime at the cutters. Furthermore, a dull blade also resulted in many
defect-prone items including rough finish along the cutter lines and machine crash. In summary, the
root cause of poor CSI was found to be blade inefficiency, since it caused machine downtime and
defective cutter bodies.
Specifically, neither traditional unit cost reduction nor local operations productivity increase
was used to determine the improvement effort. Instead, the impact of the improvement on overall
quality of axle and system throughput was used to select the improvement project.
Figure 2 displays a simplified process flow of the Axle manufacturing. Following the TOC
approach, the project team first searched for the bottleneck by identifying operations associated
with large piles of inventory. Gear cutting operation was suspected to be the bottleneck. The
project team further interviewed the operators of the downstream operation, lapping, and
confirmed that lapping was constantly starving for competed ring set from the cutting operation.
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Accordingly, cutting operation was determined to be the bottleneck and was chosen as the target
for improvement. Incorporating TOC concept into improvement process enabled the project team
to select a project that could increase the plant throughput and bottom-line performance.
(take in Figure 2)
Value analysis was first performed to determine the various activities in the cutter operation
that add both customer and operational value to the process (Table 1). The purpose of value
analysis is to streamline the value chain to reduce all non-value added waste in the system and to
look for ways to enhance high value-added activities. The machine cycle that includes the cutting
operation is both a customer and operational value-added activity. Improving the yield of a high-
value added activity such as blade cutting would increase the overall capacity of the plant.
Increasing the gear cutting capacity would have a positive impact on manufacturing system
throughput. This could be achieved through a reduction of hours required per gear set, which wouldin turn increase the capacity and remove the need for new capacity investments.
(take in Table 1)
After confirming gear cutters as the bottleneck, the project team initially discussed purchasing
additional cutting capacity. The company was using a solvent-cutting device, where the cutting head
was lubricated to increase the shelf life of the cutting blades. Newer technology in this process had
advanced to dry cutting, a significant increase in the life of the blade, thereby increasing the
capacity. However, with the capital constraints facing the plant, it was not feasible to upgrade to thedry cutting process. As suggested by the TOC concept, the team decided to exploit or maximize
the utilization of the current technology rather than make new capital investment in additional
cutting capacity. In other words, the team would proceed to investigate the current performance of
the solvent-based cutting machines and identifying ways to increase quality and throughput without
additional capital expenditures.
The business case for this project was initiated because of the eroding sales revenue, which
went down by 23% in 2000, while fixed expenses went up by as much as 22% within the same year.Management was faced with either shutting down the plant or eliminating the non-value added
processes to increase capacity without incurring new capital expenditures. The Axle facility had
some experience in successfully applying Six Sigma to its process improvement. After receiving
training on TOC, managers decided to combine TOC and Six Sigma to guide their improvement
effort. They felt that the concept of TOC could provide them with a focus on global system
improvement. With careful study and planning, an eight-member project team was formed. The
project team was composed of the plant manager, the controller, two six-sigma certified employees,
and four operators from the plant. One of the authors of this paper and a student team served as
external resources for the project. The team was charged with the responsibility of seeking process
improvement that would result in a minimum of $175,000 savings per year. This was the minimum
standard established by the plant for any major process improvement project. The team started by
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reviewing the process map to determine possible bottlenecks in the process. Extensive interviews
were conducted, and an in-depth observation of the processes was undertaken to identify probable
causes of inefficiencies in the system. After the extensive investigation, the cutting process was
singled out as the likely bottleneck operation. The proposed integrated framework was adopted to
make the improvement. The various stages of the process implementation are discussed below.
Phase 1 of this integrated framework is identical to both strategies, and its purpose is to
identify current constraint(s) that block the improvement of global performance, such as meeting
customer needs or improving system throughput. Accordingly, a specific process is selected for
improvement. Phases 2 and 3 follow the spirit of TOC by exploring the capacity of the selected
process. Phase 2 measures the current performance of the process and identifies the root causes
needed to be corrected for improvement. The two phases of Six Sigma, measure and analyze, are
involved in this step. Once the root causes are confirmed, Phase 3 of the integrated approach
applies conventional Six Sigma strategy by using the key manufacturing, engineering, and statistical
techniques to remove root causes of the problem for making necessary process improvement. The
purpose is to best utilize the current capacity of the process without incurring additional capital
expenditures.
Phase 4 ensures the changes made in previous steps are properly supported by the rest of the
system. For example, managers may need to change policies and obtain buy-in from employees to
implement the changes. Training is often required for a revised process. Phases 5 and 6 are taken
from the TOC process. If the improvement of the selected process is insufficient to satisfy customer
needs or goals, managers have to consider various options (e.g., outsourcing and additional
investment) to raise the capacity of the process. Finally, managers must stay alert to the dynamic
nature of the manufacturing system and constantly monitor occurrence of new constraints.
Overall, when the integrated framework is applied to improve a specific process, these two
techniques seem to complement each other. The integration is made by combining the
management aspect of TOC and the engineering aspect of Six Sigma. Specifically, for firms that
apply Six Sigma, TOC provides a global perspective in identifying the constraints and examining
necessary changes to the rest of the systems. On the other hand, Six Sigma brings in the
perspectives of customer needs, performance measures, and engineering and statistical tools duringthe stages Theory of Constraints (TOC) was developed by Eliyahu M. Goldratt during the 1980s
(McMullen, 1998). The core idea of TOC is that every organization has at least one constraint that
prevents management from achieving the goal of the organization to a larger degree. Constraints
can be physical resources or policies. TOC develops a set of procedures and methodologies to
identify and optimize such constraints. For the purpose of continuous improvement, TOC uses a
systematic approach which consists of five focusing steps (Goldratt and Cox, 1992).
1. Identify the systems constraint(s).
2. Decide how to exploit the systems constraint(s).
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3. Subordinate everything else to the above decision.
4. Elevate the systems constraint(s).
5. If a constraint has been broken, go back to Step 1. Do not allow inertia to cause a
systems constraint.
The implementation of Six Sigma strategy involves a series of steps specifically designed to
facilitate a process of continuous improvement. The strategy takes the key manufacturing,
engineering, and transactional processes of entire process through the five transformational phases
(Plotkin, 1999).
1. Define: Identify customer needs and a project suitable for Six-Sigma effort.
2. Measure: Determine what and how to measure the performance of the selected process.
3. Analyze: Understand and determine the variables that create quality variations.
4. Improve: Identify means to remove causes of defects and modify the process.
5. Control: Maintain the improvement.
The primary objective of the five-step process is to recognize critical customer requirements,
identify and validate the improvement opportunity, and upgrade the business processes. A
large number of companies have boosted their profitability, increased market share, and
improved customer satisfaction through the implementation of Six-Sigma. Companies such
as Allied Signal, General Electric, Sony, Texas Instruments, Bombadier, Crane Co.,
Lockheed Martin, and Caterpillar are beginning to dir
The swot anlysis of the Perpetual Inventory System is as under:
STREGTHS:
Accurate Reporti ng
Companies often experience more accurate financial reporting with a perpetualinventory system. Accountants update the general ledger after each inventorytransaction. This results in a general ledger account that closely mirrors the actual
physical inventory on hand. Owners and managers can then make quality decisionsbased on the accuracy of reporting inventory values. Multiple inventory types also
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benefit from this method, as accountants accurately track each one through thegeneral ledger.
Electronic Management
Perpetual inventory systems often use electronic methods to record transactions. Anexample is the barcode system a clothing retailer uses when selling goods. Each scanrecords data that updates the company's inventory value. Accountants use thisinformation to balance the general ledger. Companies also use the data to order goodsusing a just-in-time system. Electronic ordering helps to prevent stock outs and lostsales.
WEAKNESSES:
Cost
Many perpetual inventory systems are expensive. The cost for these systems istwofold. The technology necessary to make the system work can be a major capitalexpense. Updating the system for new changes to the technology is also costly.Training employees to properly use the system is yet another expense. On theadministrative side, companies must find accountants who can work the system andmanage frequent changes to the general ledger.
Process
Perpetual inventory systems are often time-consuming. Electronic updates to acompany's general ledger may result in a need for account reconciliations.Accountants will often spend copious hours each week or month to reconcileinventory. Persistent errors can also cause further complications. Accountants need tocorrect errors and balance the inventory account prior to closing the company's books.Reporting inaccurate inventory figures can trigger an audit, resulting in potential
problems for the company.
Additional record-keeping Increase workload, increase in staff. Additional costs Staff
costs, costs of computer package to maintain inventory records.
First-In, First-Out (FIFO)is one of the methods commonly used to calculate the value of
inventory on hand at the end of a period and the cost of goods sold during the period. This
method assumes that inventory purchased or manufactured first is sold first and newer
inventory remains unsold. Thus cost of older inventory is assigned to cost of goods sold and
that of newer inventory is assigned to ending inventory. The actual flow of inventory may not
exactly match the first-in, first-out pattern.
First-In, First-Out method can be applied in both the periodic inventory system and the
perpetual inventory system.
http://accountingexplained.com/financial/inventories/http://accountingexplained.com/financial/inventories/periodic-journal-entrieshttp://accountingexplained.com/financial/inventories/perpetual-journal-entrieshttp://accountingexplained.com/financial/inventories/perpetual-journal-entrieshttp://accountingexplained.com/financial/inventories/periodic-journal-entrieshttp://accountingexplained.com/financial/inventories/ -
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Example
Use the following information to calculate the value of inventory on hand on Mar 31 and cost
of goods sold during March in FIFO periodic inventory system and under FIFO perpetual
inventory system.
Mar 1 Beginning Inventory 60 units @ $15.00 per unit
5 Purchase 140 units @ $15.50 per unit
14 Sale 190 units @ $19.00 per unit
27 Purchase 70 units @ $16.00 per unit
29 Sale 30 units @ $19.50 per unit
Solution
FIFO Periodic
Units Available for Sale = 60 + 140 + 70 = 270
Units Sold = 190 + 30 = 220
Units in Ending Inventory = 270 220 = 50
Cost of Goods Sold Units Unit Cost Total
Sales From Mar 1 Inventory 60 $15.00 $900
Sales From Mar 5 Purchase 140 $15.50 $2,170
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Sales From Mar 27 Purchase 20 $16.00 $320
220 $3390
Ending Inventory Units Unit Cost Total
Inventory From Mar 27 Purchase 50 $16.00 $800
FIFO Perpetual
Date
Purchases Sales Balance
Units Unit Cost Total Units Unit Cost Total Units Unit Cost Total
Mar 1 60 $15.00 $900
5 140 $15.50 $2,170 60 $15.00 $900
140 $15.50 $2,170
14 60 $15.00 $900 10 $15.50 $155
130 $15.50 $2,015
Under theperpetual inventory system, an entity continually updates its inventory records to
account for additions to and subtractions from inventory for such activities as received
inventory items, goods sold from stock, and items picked from inventory for use in the
production process. Thus, a perpetual inventory system has the advantages of both providing
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up-to-date inventory balance information and requiring a reduced level of physical inventory
counts. However, the calculated inventory levels derived by a perpetual inventory system
may gradually diverge from actual inventory levels, due to unrecorded transactions or theft,
so you should periodically compare book balances to actual on-hand quantities.
Perpetual inventory is by far the preferred method for tracking inventory, since it can yield
reasonably accurate results on an ongoing basis, if properly managed. The system works best
when coupled with a computer database of inventory quantities and bin locations, which is
updated in real time by the warehouse staff using wireless bar code scanners, or by sales
clerks using point of sale terminals. It is least effective when changes are recorded on
inventory cards, since there is a significant chance that entries will not be made, or will be
made incorrectly.
Balance sheets complete the sequence of accounts, showing the ultimate result of the entriesin the production, distribution and use of income, and accumulation accounts.Balance sheets and accumulation accounts form a group of accounts that are concerned withthe value of assets owned by institutional units or sectors, and their liabilities at particular
points in time and with the evolution of those values over time. Balance sheets measure thevalues of stocks and are compiled at the beginning and end of the accounting period. On theother hand, the accumulation accounts record the changes in the values of assets and
liabilities during the accounting period. They are flow accounts, whose entries depend on theamounts of economic or other activities that take place within a given period of time.In the balance sheets three categories of assets are distinguished:a) non-financial produced assets
b) non-financial non-produced assetsc) financial assets
(i) Periodic stock verification
(ii) Continuous stock verification
(i) Periodic stock verification: It refers to a system where physical stock verification isnormally done periodically, i.e., once or twice in a year. Under this method, value of stock isdetermined by physical counting of the stock on a particular date, usually at the end of theyear.
It is a simple and economical method of stock-taking and is adopted in small concerns. Thistype of verification is good only for the items which do not find place in the perpetualinventory records, e.g., works-in-progress, components and consumable stores at site etc. Butthere are many limitations of this method. Stores may' be closed down for a few days tofacilitate stock-taking. There is possibility of fraud] discrepancy, etc.
(ii) Continuous stock verification: This system comprises of counting and verifying i number
of items at random daily throughout the year so that all items of stores are verified several
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times during the year. Notice of the particular stock to be verified each clay is given to thestore-keeper only on the date of actual verification.
As there is an element of surprise check in this system of stock-taking, effective control overthe items of stores can be exercised. The system does not necessitate the closing down of the
stores to facilitate stock-taking. There is also less possibility of fraud and discrepancy, but themethod is expensive and is adopted by big concerns only.
The actual stock of material should not differ from the recorded stock under normalcircumstances. But-sometimes differences arise due to the following reasons:
(i) Breakage and wastage of materials due to improper handling.
(ii) Shrinkage and evaporation.
In earlier periods, non-continuous, orperiodic inventory systems were more prevalent.Starting in the 1970s digital computers made possible the ability to implement a perpetualinventory system. This has been facilitated by bar coding and lately radio frequencyidentification (RFID) labeling which allows computer systems to quickly read and processinventory information as part of transaction processing.
Perpetual inventory systems can still be vulnerable to errors due to overstatements (phantominventory) or understatements (missing inventory) that can occur as a result of theft, breakage,scanning errors or untracked inventory movements, leading to systematic errors inreplenishment.
The ESA95 recommends the Perpetual Inventory Method (PIM) for the calculation of thestock of Fixed assets whenever direct information is missing (par. 6.04). The calculation ofconsumption of Fixed capital can be based on these stocks of assets. Besides net capital stockwhich appears in the Balance sheets can be derived within a PIM approach. In this paragraphthe basic principles of the PIM will be discussed. Using the PIM, gross capital stock iscalculated as the sum of gross fixed capital formation in Previous years, of which the servicelive is not yet expired. In the simplest case it is assumed that the total investment of a
particular asset does not deteriorate during the expected service life of that asset and isdiscarded as a whole after that period of time.
Becoming a preferred employer involves more than learning the characteristics of such an
organization, howeverit also requires that you understand what top performers want and
value in a relationship with an employer. Interestingly, the answers to both questions are the
same.
To begin with, top-tier employers offer more than competitive pay and benefits. In fact, the
word "competitive" implies that you're simply matching what many other businesses are
providing. Even important additional elements, such as a good environment and open
http://en.wikipedia.org/wiki/Periodic_inventoryhttp://en.wikipedia.org/wiki/RFIDhttp://en.wikipedia.org/wiki/Phantom_inventoryhttp://en.wikipedia.org/wiki/Phantom_inventoryhttp://en.wikipedia.org/w/index.php?title=Missing_inventory&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Missing_inventory&action=edit&redlink=1http://en.wikipedia.org/wiki/Phantom_inventoryhttp://en.wikipedia.org/wiki/Phantom_inventoryhttp://en.wikipedia.org/wiki/RFIDhttp://en.wikipedia.org/wiki/Periodic_inventory -
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communication, won't necessarily make the difference.
Studies show that the most important factor is how people feel about their role in the
business. Employees perform at different levels based on how they're engaged in the
lifeblood activities of the company. When an employer brings in people who are talented,
aligned with the company's values and focused on its goals, the results can be tremendous.
Want to set your company apart from your competitors? Here are some steps that can help
you draw the best people to your business: