Riordan Manufacturing Revenue Cycle

Riordan Manufacturing Revenue Cycle

Accounting information systems provide the tools to operate and maintain important data related to an organization and interpret the information to develop quality financial reports. The revenue cycle of Riordan Manufacturing reflects sales and the components associated with sales such as inventory, freight, cost of goods sold and accounts receivable, yet this information is not readily available to each facility. Because the forecast for the company is positive and production and wages are expected to increase having source documents available within each branch of the company would improve the efficiency of the organization. Developing a plan to integrate an accounting information system for the revenue cycle of Riordan Manufacturing can be accomplished by establishing the functions of each accounting cycle in relation to the organization, examining the systems already in place, knowing the monetary resources available, and identifying the systems needed to operate a cohesive environment.

The five accounting cycles that a business may use to operate different functions within the company play an important role in the decision making process. These cycles are the revenue cycle, the expenditure cycle, the financing cycle, the fixed asset cycle, and the conversion cycle (University Of Phoenix, 2007).. The revenue cycle portrays transaction such as accounts receivable accounts payable. Sales, inventory, and cost of goods sold (COG) transaction are made in the revenue cycle which helps ensure that a company is providing quality service and or product to their customers. The expenditure cycle is used by companies with the focal point is towards purchases, inventory payment responsibility such as payroll, and payroll deduction types. “Expense accounts such as labor, vacation, utilities, rent, and others; inventory accounts; and liability accounts, such as accounts payable, taxes payable, wages payable, and cash,” stated in Week 1 read me first, (2007). Keeping track of these types of expenses help the employer to obtain personnel information. The financing cycle is the long-term debt, company stock, dividends and payments made out for debt that the company obtains. Fixed asset involves long-term growth of the company that manages fixed asset acquisitions and disposal of fixed assets and the depreciation paid (University Of Phoenix, 2007). The last cycle being conversion cycle deals with costing of product and service along with the function of accounting involved to complete these tasks (University Of Phoenix, 2007).

Riordan Manufacturing uses the revenue cycle to capture transactions including sales orders received, accounts receivable, and cash payments. The revenue cycle consists of inter-dependent control points that must be completed successfully in order to insure timely customer payments at the lowest possible cost. Riordan Manufacturing is an industry leader in the sale of plastic injection molding. Sales include customer orders domestically and internationally with a joint venture in the People’s Republic of China. Riordan uses the revenue cycle to keep track of customer orders, packing slips, bills of lading, invoices, customer statements, receipts for the sale of goods sold, and deposit slips, in their accounting information system.

Riordan Manufacturing’s revenue cycle goal is to achieve a smoother, more consistent, information flow. Quality control in the early stages helps produce a better outcome. The revenue cycle begins with the customer, progresses through production and the sale, which leads to payment processing or rebilling and accounts receivable follow-up. Establishing quality control points help insure a smoother flow, increase the focus on customer satisfaction, and put the company in a better position to collect a reasonable return for their product. Riordan Manufacturing’s accounting information system includes an account for sales, inventory, depreciation, freight, direct cost-of-goods sold, and accounts receivable. Each of these accounts is important to its revenue cycle and increases the information flow. The company also tracks non-traditional information such as quality assurance costs, research, and development.

At this time, Riordan Manufacturing has three operating entities in Georgia, Michigan and California. Riordan also has a joint venture in China. Each operating entity keeps independent financials including a general ledger, accounts payable and receivable, order entry, procurement, sales and purchasing history, invoicing and shipping, payroll, and financial reporting. The advantage of having each unit run as its own business is that each unit knows its customers and its relationship with its customers. They are able to establish personal contact with both customers and vendors, report on payments and receivables from these customers, and follow the accounting through to the general ledger. Payroll is handled locally which increases the understanding of shifts, over time, and labor hour accounting. Advantages of local order entry is the fact that the individual unit knows the product or products that it produces and is able to help the customer with the knowledge of the manufacturing process and how it affects the accounting process. Keeping the invoicing and shipping localized is advantageous in that it keeps it cohesive and easy to find errors. The financials will come together from individual manufacturing divisions to form a reliable source of accurate financial reporting; therefore, the strengths of the internal controls is high due to the localized business process and accounting functions.

The consolidation and reporting of information in Riordan’s financial statements is weak even though each entity’s internal controls are strong in their respective business operations. Only the corporate office in San Jose, CA has an integrated ERP system and consolidating financial data is laborious and time consuming. Data regarding the revenue cycle is generated from different accounting systems programmed in different software languages. Information is presented in data files and hardcopy reports that use a different general ledger account structure for each division. The disparity of information requires manual input or data conversion in order to consolidate the information for the financial statements leading to potential opportunities for errors and omissions. The Michigan facility is using an AIS purchased from a company that is no longer in business resulting in expensive, labor-intensive additional monthly costs to audit the consolidated financial information.

Differences in internal processes and AIS structure complicate compliance with government regulation, specifically the 2002 Sarbanes-Oxley Act (SOX). By