Integrated Accounting Cycle in Riordan Manufacturing - Essay Example

Integrated Accounting Cycle Final Report Riordan Manufacturing: Overview Riordan has target revenue of $50 million in two years. Corollary to such increase in revenue is a corresponding efficient application of information system (IS) in the accounting process. Increasing the sales volume entails numerous activities such as increase in sales force promotion, discounts, trade shows, etc. These activities must be reflected in the Accounting Information System (AIS) and the internal controls (i.e. policies and procedures to protect the assets). One weakness in the internal controls is the inefficient communication among the corporate office and the other departments. Each of the departments uses an independent and separate system which is in multiple formats and incompatible with the other. Thus, transmitted data files must be re-keyed. Other files are transmitted as hard copy. While the Michigan and Georgia plants have their own incompatible systems, San Jose has a specialized system for its own operation. Michigan’s (its systems developer is already out of business) income statements and balance sheets take 15-20 days to close every month due to the inefficient system, making it difficult for the company to comply with the required government reporting. Accounting Cycle and Revenue Cycle The accounting process involves a chain of activities that begins with a transaction and ends in closing of books. There being a repetition of the process every month, an accounting cycle is created. The accounting cycle has five types, namely: a) revenue cycle (includes the sales orders and the cash receipts), b) expenditure cycle (encompasses inventory and purchasing, accounts payable, payroll, and cash payments), c) conversion or production cycle (handles the production and cost accounting), d) financing cycle (involves borrowing and repaying, issuing stock, dividends, and cash management), and e) fixed assets cycle (includes the asset acquisition, depreciation, and disposal) (Wiki Answers). Information system can be utilized in an accounting cycle to improve accounting processes. The revenue cycle of Riordan Manufacturing, designer of plastic injection moldings, will exemplify the role of IS in the system development of an accounting cycle. An electronic source is used by Riordan in recording sales which data include date of order, unit and dollar volume of the product, and sales by customer. Date of order contains the order, delivery and payment date by order. Sales by customer contains the price paid, cost, margin and discounts. The accounting cycle is a crucial aspect of financial activities and is the basis of the revenue cycle. Executives can fully plan financial activities basing upon the revenue cycle. Thus, the revenue cycle of each department or division must be integrated with each other and to the overall accounting cycle of the company in order to have a total view of the whole process. Benefits can flow from the integration such as compliance with reporting requirements, improved compensation, reduction in payer rejects, etc. Thus, the AIS must incorporate all the unique requirements of the revenue cycles of the plants and divisions in order to reflect the total generated revenues through production. The AIS should include the personnel, the monetary process and the technology. An inefficient IS could disrupt the revenue cycle and affect the total cash flow of the company (Avisena, 2009). Information Systems At present, using an inefficient IS would affect not only the production process but also the sales and collection, timely compensation of personnel, inventory and planning. Thus, the planning team must carefully consider which system it would adapt for the company’s specific requirements. For Riordan, the Transaction Processing Systems (TPS) could provide its needs to move orders through the system on a project basis because TPS gathers, accumulates, adapts and recovers all the transactions of a project. The Decision Support Systems (DSS) can support the business and organizational decision-making activities by accumulating raw data, individual knowledge, documents and business representations. This will help the planners identify and find solution to problems, and ultimately adapt the appropriate decision. The Management Information System (MIS) is a section of the total domestic controls that covers the submission of workforce, documents, expertise and events by accountants. MIS is useful in solving business problems (e.g. estimating a product, service or policy) and can be utilized to study other information systems and apply the functional activities within the business. Unified System for Riordan In Riordan, data transference from the customer in offsite locations to the production, invoicing, etc. pass a rather semi-automated system wherein manual intervention occurs along the process. Human intervention, especially in voluminous documents poses a danger for the commission of error. The same thing occurs in the corporate office in California wherein invoices from the off-site locations are again re-keyed for conversion. These invoices can be inputted at the first instance in off-site locations and only the electronic data are transmitted from office to office. In the same manner, the payment process follows the same route and procedure. The hard-copy of the invoices can then be transmitted for verification purposes only at the corporate office. Another option is to use electronic invoices that can be printed as well as transmitted electronically. In this way, no hard copy documents will be transported from one location to another. The primary requirements in the development of the information system are the hardware and software. The hardware will include the computer monitor, central processing unit, peripherals and cables and accessories. The software refers to the system applications and programs created specifically for the envisioned AIS. The hardware, computers and servers of the sites of Riordan are not working together due to lack of integrated and compatible software. For the integration of the accounting system within a unit or location, the various computer systems will be interconnected through the land area network or LAN. In this way, the data can be processed and transmitted from one office to another electronically. This process will ensure that the same data is transmitted from the source to the recipient without human intervention along the way. Thus, there will be a uniformity of data all throughout the system. This system of networking is called intranet and a firewall protects the whole system from outside unauthorized intrusion. The intranet environment can be custom-made to suit the business requirements (Kayne, 2009) of Riordan. Using intranet, sending request for requisition to the accounting department can conserve time and resources as well as money for Riordan (Kayne, 2009). Passwords can protect specific pages from access by unauthorized employees (Kayne, 2009). Riordan can interconnect with the other plants and off-site locations through extranet. Extranet is a private Internet which system is laid out over the Internet. However, access by the general public is prohibited. It uses Internet protocols and connections, as well as a telecommunication system. This will boost production and communication among the various offices of Riordan. Riordan may open the firewall to allow access of certain data by the customers, suppliers or vendors. The benefits offered by the use of extranet are as follows: a) increased productivity (automatic placement of order when inventory falls to a certain level), b) reduction in margin of error, c) flexibility (partners and clients can transact at a convenient time), d) timely and accurate information (immediate update of information such as price), e) shorter marketing time (specifications are made available to partners or clients faster), f) lesser inventory (connecting inventory system with the supplier enables a company to order only when needed, thus, avoiding over-stocking), and g) establishing loyal customers (providing accurate data makes transaction for customers easy and keeps them satisfied and loyal) (The Benefits, 2009). Role of Units in Accounting Function Internal control of the information is defined by the different duties of the departments. Each department can comply with the required internal control through performance of the following: Purchasing department – a) allowed to access the purchasing module and modify purchase orders, post purchase orders once order is complete and confirmed with vendor; and b) allowed access to view vendor data without making changes, provide contact information; Receiving department – a) allowed access to the receiving section of the purchasing module, can record partial shipments and post each receipt, and b) allowed access to view vendor data, no data modification, provide contact information; Accounts Payable – a) allowed access to enter invoices into accounts payable module and apply against appropriate purchase orders in the purchasing module, b) allowed access to view purchase orders, no data modification, c) allowed access to create and modify vendor data, and d) allowed access to print checks in accounts payable module. Sales – a) allowed access to sales module, can enter and modify sales orders, post sales orders once the order is complete and confirmed with customer, and b) allowed access to view customer data but not to make changes, provide contact information. Shipping – a) allowed access to the shipping section of the sales module, allowed to record partial shipments and post each shipment, and b) allowed access to view customer data, no data modification, provide contact information. Accounts Receivable – a) allowed access to accounts receivable module to issue invoice and apply against appropriate sales orders in the sales module, b) allowed access to view sales orders, no data modification, c) allowed access to create and modify customer data, and d) allowed access to apply payments from customers accounts receivable module. Finance – a) allowed access to finance module to record deposits into bank from customers and record cleared checks to vendors. b) allowed access to journal entry module to make monthly journal entries and reconcile GL accounts, and c) allowed access to run financial reports for management. Management – a) allowed access to run reports as needed, but not access to make changes in the system. Conclusion With the functions of the units of Riordan enumerated, control is maintained and error is lessened. Some units may only view data, modify only specific data, or add information for the same database. All of these functions shall be integrated in the AIS of Riordan together with the TPS, DSS and MIS if compatible. During the development phase of the system, concerned units and departments must brainstorm with the system and application developer their tasks and functions. Such units and departments must also participate in the pilot-testing of the system to assess its efficacy and accuracy. In the end, there will only be one accounting system that would govern the revenue cycle of Riordan. There will be fast transfer of huge data regardless of geographic location, zero or less error with less human intervention, uniformity in data transferred, immediate access of unit regardless of location, more transaction processed, increased sales and higher revenue for Riordan. References Avisena. (2009). Collect more on a demand revenue cycle management. Retrieved June 4, 2009, from http://www.avisena.com/collectmore/ Kayne, R. (2009). What is an Intranet? WiseGeek. 14 June 2009 Retrieved June 19, 2009, from http://www.wisegeek.com/what-is-an-intranet.htm The Benefits of an Extranet. (2009). AllBusiness. Retrieved June 18, 2009, from http://www.allbusiness.com/technology/computer-networking/1283-1.html Wiki Answers. (2009). 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