Riordan Manufacturing – Accounting Cycle Description Introduction Riordan Manufacturing, Inc. is an industry leader in the field of plastic injection molding. Using cutting edge art design capabilities, this Fortune 1000 Enterprise Company maintains facilities in San Jose, California, Albany, Georgia, Pontiac, Michigan and Hangzhou, China, and has annual earnings of $46 million. A company does not attain and maintain this type of success by accident. Part of Riordan’s success is due to its conversion accounting cycle.
This paper will initially identify the five accounting cycles and explain how Riordan uses the conversion accounting cycle. Next, the strengths and weaknesses of the internal controls related to the conversion cycle will be examined. Additionally, how the conversion cycle would be integrated into an enterprise-wide accounting information system will be explained. Next, the various types of information systems that will be needed to achieve this integration will be compared and contrasted. Finally, how accounting information flows through Riordan organization will be discussed. The Five Cycles
The flow of information is extremely important in business when an organization uses an accounting information system. Information that is accumulated can be segregated into cycles. According to Loflin, the five cycles a business may use are the revenue cycle, the expenditure cycle, the financing cycle, the fixed asset cycle, and the conversion cycle (2008). In each of these cycles many transactions are effected. First, the revenue cycle encompasses transactions in sales, accounts receivable and cash payments. The areas that may be affected are customer orders, invoices and deposit slips.
Second, the expenditure cycle involves transactions, which are needed to acquire material and overhead for the conversion process of the organization. Some areas involved in the expenditure cycle are requesting inventory, receiving inventory, and recording payment for inventory. Next the financing cycle involves long-term debt and repayment of that debt, stock and dividend transactions, and cash management. Next, the fixed asset cycle assists in verifying a businesses long-term growth by monitoring fixed assets acquisitions, depreciation, and disposals of fixed assets.
Lastly, the conversion cycle involves converting labor and raw materials into finished goods as well as the implementation of the cost accounting function. The data provided from these five cycles give management important information to assist in the decision-making process. The Conversion Cycle The conversion cycle, which is often called the production cycle, is used in a variety of ways at Riordan Manufacturing. “The goal of a production cycle is to convert raw materials into finished goods as efficiently as possible” (Bagranoff, Simkin & Strand, 2008, p. 147). The conversion cycle is initiated when raw materials are ordered.
To assist in tracking materials ordered and arrival times, Riordan uses a scheduled orders receiving report, which is submitted weekly. Additionally, a raw materials usage form is used to determine the quantity of subassemblies and final products completed daily. Furthermore, the sales department completes orders and enters them into the customer shipping and billing system. Next orders are tracked from the time they are shipped until final destination arrival. The inventory system is updated daily. At year end a physical inventory is conducted to compare discrepancies.
The cycle is complete when the finished goods are transferred to storage. Strengths and Weaknesses Riordan Manufacturing is a word wide manufacturing company. There are several internal controls in place to aid in the production cycle. Controls such as “scorecards”, post project reviews, auditing, and an inventory management and control process (Apollo Group, 2006). The strength of having these processes in place is that there are checks and balances that keep track of everything from the amount of materials delivered to each person involved with every step until the finished product is delivered to the customer.
Another strong point is the “score cards”. These score cards involve everyone and clearly lay out the goals for each person along with charts to show how the goals are progressing. The weakness to having these processes in place is that there are so many steps and so many people involved that if one person makes a mistake it will start a chain reaction that could have catastrophic consequences. Integration of the Cycle To integrate the production cycle into an enterprise wide accounting information system it would be necessary to implement an enterprise resource planning system (ERP).
ERP is one of the new technologies that has influenced the accounting information system (infor, 2006). ERP systems integrate all data and processes of an organization into one application. A typical ERP system uses multiple components of computer software and hardware to achieve the integration. Among other things, ERP software combines the data of formerly separate applications, which has become helpful in the synchronization of multiple systems. Further, it also standardizes and reduces the quantity software specialties required within larger organizations, such as Riordan Manufacturing (infor, 2006).
One of the major reasons companies implement ERP is its capability of integrating financial information. An ERP system allows all the paper work necessary to monitor deliveries of materials to the plants and final deliveries to the customers with one process allowing less chance for mistakes. This would allow the production cycle to be streamlined for the four branches of Riordan Manufacturing eliminating unnecessary, repetitive paperwork. International Systems The conversion process utilizes specific information systems to achieve successful integration.
First there is the production schedule, which indicates the quantity of raw materials on hand and whether or not products need to be ordered. Included in the production schedule is the inventory file that keeps record of usage of product through inventory status reports. Inventory is audited through inventory reconciliation reports. From the production schedule, material is requested through material requisition forms. Then a labor schedule is created according to the amount of work that is needed according to supply and demand. This information comes from personnel files.
Lastly, the cost accounting process which links cost from the whole production process together is integrated. Flow of Accounting Information For the conversion process for Riordan a cost accounting system is essential to the accuracy of material and production cost. The three areas that cost accounting focuses on are Resource Usage and Cost Reports, Production Status Reports, and Miscellaneous Management Reports. Cost accounting is used to differentiate between actual and budgeted cost of production. This type of accounting will generate reports for job cost, process cost, and activity based costing.
Job costing information deals directly with the labor, raw materials, and overhead cost of large-scale or custom products. Activity based costing comes from the study of the business process which tells how and where money has been spent and how spending can be decreased or the effectiveness of increased spending in certain areas. Process costing systems deal with cost of products on a smaller scale than job costing, such as bottled water, or gum products. Conclusion As has been evidenced in this paper, a company does not attain and maintain this type of success by accident.
An integral part of Riordan’s success is due to its conversion accounting cycle. This paper initially identified the five accounting cycles and explained Riordan uses the conversion accounting cycle. Next, the strengths and weaknesses of the internal controls related to the conversion cycle were examined. Additionally, how the conversion cycle would be integrated into an enterprise-wide accounting information system was explained. Next, the various types of information systems that will be needed to achieve this integration were compared and contrasted. Finally, how accounting information flows through this organization was discussed.
Reference Apollo Group, (2006). Inventory Management and Control at Riordan Manufacturing. Retrieved August 6, 2008, from Riordan Manufacturing Intranet Web site: https://ecampus. phoenix. edu/secure/aapd/CIST/VOP/Business/Riordan/RioMfgHome002. htm Bagranoff, N. A. , Simkin, M. G. , & Strand, C.. Core Concepts of Accounting Information Systems (10th ed. ) Wiley, 2008 New York, NY Infor, (2006). Infor ERP SyteLine. Retrieved August 6, 2008, from Infor ERP SyteLine Web site: http://www. copleycg. com/products_pdf/SyteLine%20Data%20Collection. pdf Loflin, Mack. (2008). Week Two, Read Me First Class Discussion. Retrieved