ENTERPRISE INFORMATION SYSTEMS
A PATTERN BASED APPROACH
Chapter 13
The Financing Business Process
McGraw-Hill/Irwin
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Learning Objectives
1. Identify the activities and documents common
to most financing business processes
2. Explain the various components of the REA
ontology in the financing process
3. Create a REA business process level model
for an enterprise’s financing process
4. Identify common information needs that exist
within the financing process
5. Create database queries to retrieve financing
process information from a relational database
13-2
Financing Cycle in the Value System
13-3
Financing Cycle in the Value Chain
13-4
Financing Cycle
Business Process Level
13-5
Financing Cycle Resources
• Cash
– Is the resource acquired
– Is the resource given up
– Type level entity – represents accounts in which
cash and cash instruments are stored
13-6
Financing Cycle Events
• Cash Requisition
– Is an instigation event whereby a request is made
to obtain additional cash from external sources,
usually on the basis of a cash flow budget
– Is usually symbolized by a cash requisition number
that identifies a requisition document that includes
the date/time of requisition and information about
the resources and agents involved in the event
13-7
Cash Requisition Document
13-8
Relational Tables Encompassing
Cash Requisition Event
13-9
Financing Cycle Events
• Financing Agreement - Debt
– Is a mutual commitment event that obligates
the external creditor to provide a certain
amount of cash to the enterprise and obligates
the enterprise to provide a certain amount of
cash in a specified time to the external creditor.
– May be called Loan Agreement, Mortgage,
Promissory Note, Bond, etc.
13-10
Debt Financing Agreement:
Promissory Note
13-11
Debt Financing Agreement:
Bond Certificate
13-12
Financing Cycle Events
• Financing Agreement – Equity
– Is a Commitment Event that obligates the
external investor to provide a certain amount of
cash to the enterprise. Implicitly obligates the
enterprise to provide cash in exchange to the
investor; however, amount and timing are not
specific nor guaranteed
• Dividend Declaration – Equity
– Is a Commitment Event that obligates the
enterprise to provide cash or other resource to
the external investor; amount and timing are
specific and are a legal obligation
13-13
Equity Financing Agreement:
Stock Certificate
13-14
Relational Tables Encompassing Debt
and Equity Financing Agreements
13-15
Relational Tables Encompassing Debt
and Equity Financing Agreements
13-16
Financing Cycle Events
• Cash Receipt Event
– An economic increment event that represents
the receipt of cash from an external investor or
creditor in fulfillment of a debt or equity
financing agreement
– Typically represented by a deposit slip; data
captured as to date, amount, cash account into
which it is deposited, agent from whom it was
received, which financing agreement it fulfilled
13-17
Relational Tables Encompassing
Cash Receipt Event
13-18
Financing Cycle Events
• Cash Disbursement
– An economic decrement event that represents
the payment of cash by the enterprise to
investors or creditors in fulfillment of a debt
financing agreement or an equity dividend
declaration (or stock re-purchase)
– Is usually symbolized by a check or
disbursement voucher; data captured as to
date, amount, cash account from which it is
dispersed, agent to whom it was dispersed,
which commitment it fulfilled
Relational Tables Encompassing
Cash Disbursement Event
13-20
Relational Tables Encompassing
Cash Disbursement Event
13-21
Financing Cycle Agents
• External Agents
– Investors for Equity financing
– Creditors for Debt financing
• Internal Agents
– Cashiers typically process cash receipt events
– Financial Officers (possible also Board of
Directors) approve debt and equity financing
agreements
– Financing Clerks (or accounts payable clerks or
cashiers) typically process cash disbursements
13-22
Financing Cycle Relationships
• Duality
– Cash is exchanged for cash; duality represents the
timing difference between the related cash inflows and
outflows
• Fulfillment
– Financing agreement (debt or equity) fulfills cash
requisition event
– Cash receipt fulfills financing agreement (debt or equity)
– Cash disbursement fulfills debt financing agreement or
equity dividend declaration (or stock repurchase)
13-23
Financing Cycle Relationships
• Proposition
– Cash requisition proposes to increase cash to meet
financing needs
• Reservation
– Debt Financing agreement reserves cash to be
received and also reserves cash to be disbursed (with
different timing patterns)
– Equity Financing agreement reserves cash to be
received
– Equity Dividend Declaration reserves cash to be
disbursed
• Stock-flow
– Cash resource is increased by cash receipts
– Cash resource is decreased by cash disbursements
13-24
Financing Cycle Relationships
• Participation relationships
– See agent descriptions for events in which each type
of agent participates
• Reciprocal
– Between Equity Financing Agreement Commitment
Event and Dividend Declaration Commitment Event
• Dividend declaration event (or stock repurchase
agreement) specifies the obligation of the enterprise to
pay cash to the investors that was implicitly a
commitment in the equity financing agreement
13-25
Financing Cycle Resource Queries
• Cash is the most common resource in
the financing process
• See cash query examples in chapters
8-12
13-26
Financing Cycle Event Queries
• What are details about each event instance?
• What are details about a specific event?
– E.g. what dollar amount was requested on cash
requisition 3
– E.g. which loans bear interest rates > 9% and what are
the dollar amounts of those loans
• What is summarized information for events for a
specific time period?
– E.g. how many shares of common stock have been
issued as of May 31, 2010
– E.g. how many cash receipts occurred in May 2010
• What is summarized information for events that
meet specific criteria for a time period?
13-27
How many shares of common stock
were issued as of 5/31/2010?
EquityFinancingAgreement
StockID IssueDate
Type
NumberShares ParValue
E1
5/1/2010 Common
50000
$4.00
E2
5/1/2010 Common
50000
$4.00
Amount
CashReqID InvestorID OfficerID
$500,000.00 3
I234
E64
$500,000.00 3
I235
E64
13-28
Financing Cycle Agent Queries
• Detailed status information at one or more points
in time for each agent
– Or for those who meet specific criteria
• Summarized status information at one or more
points in time for each agent
– Or for those who meet specific criteria
• E.g. what are the names and addresses of the
investors who have been rated as excellent?
• E.g. which financial officer has the highest limit
for which to authorize debt?
13-29
Which financial officer has the highest
limit for which to authorize debt?
FinancialOfficer
OfficerID
AuthorizedDebtLimit
E64
$2,500,000.00
13-30
Financing Cycle Duality and
Fulfillment Queries
• Which cash receipts and cash
disbursements correspond to each other?
• Which commitment events have not yet
been fulfilled or have been only partially
filled?
• Which commitment events have been
completely filled?
• E.g. what is the outstanding principal
balance of a specific debt financing
agreement as of a specific date?
13-31
Outstanding principal balance of debt
financing agreement L1 as of May 1, 2010
CashReceipt
CashReceiptID
RA14
RA15
RA16
Date
DollarAmount CashAccountID
5/1/2009
$450,000.00 Ca123501
5/1/2010
$500,000.00 Ca123501
5/1/2010
$500,000.00 Ca123501
DebtFinancingAgreement
LoanID
LoanDate MaturityDate InterestRate
L1
5/1/2009
4/30/2029
0
ExtAgentID
CashierID
V41
E111
I234
E111
I235
E111
FulfillmentCashReceiptFinancing
FinancingAgreementID
CashReceiptID
E1
RA15
E2
RA16
L1
RA14
Amount
CashReqID CreditorID OfficerID
$450,000.00 3
V41
E64
EquityFinancingAgreement
StockID IssueDate
Type
NumberShares ParValue
E1
5/1/2010 Common
50000
$4.00
E2
5/1/2010 Common
50000
$4.00
Amount
CashReqID InvestorID OfficerID
$500,000.00 3
I234
E64
$500,000.00 3
I235
E64
13-32
Outstanding principal balance of debt
financing agreement L1 as of May 1, 2010
13-33
Outstanding principal balance of debt
financing agreement L1 as of May 1, 2010
13-34
Financing Cycle Stockflow Queries
• Which resource was affected by an
economic event?
– E.g. which cash account was decreased by a
cash disbursement or by a cash receipt
• By what amount was a resource affected
by an economic event?
– E.g. what total dollar amount of cash
disbursements or cash receipts were made
from a specific cash account
13-35
Dollar amount of cash disbursements made from cash
accounts held at 1st Local Bank through May 31, 2010
13-36
Financing Cycle Reservation Queries
• What dollar amount is a financing
agreement committing to acquire for a
specific cash account?
• From which cash accounts will any
dividend declarations that occurred during
a specific time period be paid?
• What is the dollar value of cash reserved
by a dividend declaration?
• On what dates is a financing agreement
committing to acquire cash?
13-37
Total dollar amount reserved for cash account
Ca123501 by financing agreements during May 2010
CashResource
CashAccountID AccountType
Location
Ca123501
Checking
1st Local Bank
DebtFinancingAgreement
LoanID
LoanDate MaturityDate InterestRate
L1
5/1/2009
4/30/2029
0
ReservationFinanceAgreementCashAcct
FinanceAgreementID CashAccountID
E1
Ca123501
E2
Ca123501
L1
Ca123501
AmountReserved
$500,000.00
$500,000.00
$450,000.00
Amount
CashReqID CreditorID OfficerID
$450,000.00 3
V41
E64
EquityFinancingAgreement
StockID IssueDate
Type
NumberShares ParValue
E1
5/1/2010 Common
50000
$4.00
E2
5/1/2010 Common
50000
$4.00
Amount
CashReqID InvestorID OfficerID
$500,000.00 3
I234
E64
$500,000.00 3
I235
E64
13-38
Total dollar amount reserved for cash account
Ca123501 by financing agreements during May 2010
13-39
Total dollar amount reserved for cash account
Ca123501 by financing agreements during May 2010
13-40
Financing Cycle Participation Queries
• Which financial officer authorized a cash
requisition?
• How many debt financing agreements has
a financial officer approved?
• How much cash has been disbursed to a
specific creditor?
• How many shares has a specific investor
purchased?
• Which cashier processed a specific cash
receipt?
13-41
List name and address of investors to which the
most shares of common stock have been issued
EquityFinancingAgreement
StockID IssueDate
Type
NumberShares ParValue
E1
5/1/2010 Common
50000
$4.00
E2
5/1/2010 Common
50000
$4.00
InvestorCreditor
CreditorID
Name
V41
First Chance Bank
I234
CREF
I235
Schwarb
Amount
CashReqID InvestorID OfficerID
$500,000.00 3
I234
E64
$500,000.00 3
I235
E64
Address
Telephone
43221 Financial Institute Way 555-5576
1 Retirement Dr.
555-9988
852 Mutual Manor Ct.
555-7312
PerformanceRating
Excellent
Excellent
Excellent
13-42
List name and address of investors to which the
most shares of common stock have been issued
13-43
Summary
• We discussed the financing process and how it fits in at the value
system and value chain levels
• We discussed the extended REA pattern at the business process
level
• We examined documents typically used to represent events and
discussed related resources and agents
• We examined examples of relational database tables for the
financing cycle and discussed data input into those tables
• We systematically discussed types of queries for the financing
process to support decision-makers in various functional areas
• We provided selected examples of queries of various types
13-44
ENTERPRISE INFORMATION SYSTEMS
A PATTERN BASED APPROACH
Chapter 13
End of Chapter
McGraw-Hill/Irwin
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.