Question

The accounting process entails of several different cycles. Each cycle reflects a certain type of business activity. Bookkeepers (Accountants) define each transaction by an activity and track the similar procedure in the recording and disclosure of the related information. Required: Describe the key activities in the revenue, conversion, and expenditure cycles.

Answer 1

There are four basic revenue cycle activities as follows...

• Sales order entry
• Filling customer orders
• Accounts receivable
• Cash collections

Sales order entry contains

1. Taking customer's order
2. Checking customer's credit
3. Checking inventory availability

Filling customer's order consists of

1. picking and packing the order
2. shipping the order

Accounts receivable consists of

1. billing customers and
2. updating accounts receivable

Cash collections involves

1. Handling customer remittances
2. Depositing remittances in bank

The key activities involved in conversion cycle are as follows...

• Product design
• Production planning and control
• Cost accounting

Product design is to create new product to be sold to the customers.The process often involves figuring out what is required, brainstroming possible ideas, creating mock prototypes and then generating the product.

Planning and control are an essential ingredient for success of an operational unit. The benefits of production planning and control are as follows:

• It ensures that optimum utilization of production capacity is achieved, by proper scheduling of the machine items which reduces the idle time as well as over use.
• It ensures that inventory level are maitained at optimum levels at all time i.e., there is no over-stocking or under-stocking.
• It also ensures that production time is kept at optimum level and thereby increasing the turnover time.
• Since it overlooks all aspects of production, quality of final product is always maintained.

The key activities involved in expenditure cycle are as follows...

• Purchasing decisions
• Ordering materials
• Receiving materials
• Invetory and storage
• Payments

Purchasing Decisions:

Businesses need materials and supplies to produce goods and services. The company agent researches products, compares pricing and determines the right product or service.

Ordering Materials:

Pricing goods and services is the next step in the cycle. Terms and conditions , delivery times and return policies are other factors that affect an order. The company agent places the order with the supplier, filling out the proper paperwork or completing the order online.

Receiving Materials:

Once the company receives the ordered materials, the purchasing agent reviews the invoices or packing slips for accuracy. He notes any discrepancies and follows company procedures for processing any product that is damaged or received in error. He documents discrepancies for credits and returns.

Inventory and Storage:

Once received, materials are properly inventoried. Depending on the items and need, materials could be sent immediately to the requesting agent or used in production. Excess materials could be stored on site or shipped to a warehouse . Materials must be stored and secured properly to prevent loss or deterioration.

Payment:

A company completes the expenditure cycle by paying for the materials. It can pay by cash, check, credit card, bank transfers or credit line. Payments could include credits for damaged materials and incomplete orders or discount for early payment.