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14 CHAPTER 1 Introduction to Business Processes

the execution phase the needed processes (e.g., procurement and production)
are triggered. In addition, accounting processes are used to keep track of costs
and revenues and, for external projects, to issue customer invoices. Finally,
throughout the life of the project and at the end of the project an accounting
process called settlement is periodically carried out to assign costs and revenues
to the appropriate parties.

FINANCIAL ACCOUNTING—TRACK FOR
EXTERNAL REPORTING
Financial accounting is concerned with tracking the fi nancial impacts of processes
with the primary goal of meeting legal and regulatory reporting requirements.
Thus, it is externally focused. Common reports include the income statement
or profi t and loss (P&L) statement and the balance sheet. The income state-
ment indicates the organization’s fi nancial condition within a specifi ed period
of time. It identifi es revenues, expenses, and net profi t (or loss) for the period.
In contrast, a balance sheet indicates the fi nancial condition of an organiza-
tion at a given point in time. It identifi es assets, liabilities, and shareholders’
equity. All of these reports must comply with prescribed standards, such as the
generally accepted accounting principles (GAAP) in the United States and
Handelsgesetzbuch (HGB) in Germany. These reports must be submitted to
regulatory agencies at prescribed times, such as annually or quarterly. Finally,
these reports are country specifi c. Therefore, an enterprise that operates in
multiple countries must track fi nancial data separately for each country, using
that country’s prescribed standards.
Various steps in the different processes introduced earlier in this chapter
have an impact on an organization’s fi nancial status. Organizations analyze this
impact using four key processes based in fi nancial accounting: general ledger,
accounts receivable, accounts payable, and asset accounting. The general
ledger process records the impacts of various process steps on a company’s
fi nancial position. The impacts are recorded in a number of accounts in the
general ledger that represent an organization’s income, expenses, assets, and
liabilities. These accounts are used to store accounting-relevant data from
process steps. Accounts payable is associated with the procurement pro-
cess and is used to track money that is owed to vendors. Similarly, accounts
receivable is used to track money owed by customers. Accounts receivable
and accounts payable automate the general ledger entries associated with
the procurement and fulfi llment processes so that the fi nancial impact of these
processes is recorded automatically. Finally, asset accounting is concerned with
tracking fi nancial data related to assets such as machinery and cars.

MANAGEMENT ACCOUNTING—TRACK FOR
INTERNAL REPORTING

Whereas fi nancial accounting is concerned with external reporting that is man-
dated by laws and regulations, management accounting, or controlling, is
concerned with tracking costs and revenues for internal reporting that is intended
to help management control costs and revenues and assess the profi tability of
various products and market segments. Management creates these reports to
support its decision making. Unlike fi nancial accounting reports, management

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