The Accounting Cycle and Its Five Components in Business Activities

The accounting cycle consists of five components: revenue, expenditures, financing, conversion, and fixed assets (Bagranoff, Simkin, & Strand, 2008). There are many business activities within a company that will take place in each of these cycles. The revenue cycle incorporates sales and cash receipts. Expenditures are the decrease in cash assets to acquire goods or services necessary to operate. The conversion cycle is a continual process that uses information from the expenditure cycle to expense the company’s items produced (Marshall & Steinbart, 2006). The acquisition of external financing made to investors or lenders will stay within the financing cycle of accounting. Many companies will use financing to purchase fixed assets, which would relate these types of transactions to the company’s financing cycle as well.

Riordan Manufacturing adds the revenue earned from goods sold and actual cash received by a company in the asset section of its balance sheet, which will also be in the income statement. It also incorporates expenditure numbers into its Liability section of its balance sheet. Such expenditures include accounts payable and inventory costs. Riordan also ensures consistency of operations and quality control with a common set of procedures that have been developed for management to keep track of its raw materials and finished goods inventories through its conversion cycle (UOPX, 2013). The company has a bank line of credit, long-term debt, and common stock issued, which would fall under its financing cycle. Riordan’s income statement provides a depreciation expense, which means the company holds at least one fixed asset.

The Financing Cycle Like many other companies, Riordan may need external financing to fund some of its business operations. The financing cycle will report and record information in relation to debt and stock transactions for Riordan Manufacturing (Marshall & Steinbart, 2006). The company holds a bank line of credit, long-term debt, and common stock issued and outstanding. These items prove that Riordan relies on the financing cycle of accounting in a small manner. At the same time the company’s retained earnings was over three million dollars at the end of 2011, showing creditors and investors the company is reliable and trustworthy in paying back its debt.

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Without the help of financing, Riordan may or may not be in the financial position it is in from when the company first opened. Financing helps companies expand business operations to increase sales and revenue because of a high demand. It will show as a liability, but in the long run it will produce more of a profit. Creditors and investors can see by looking at the balance sheet that the company tripled its retained earnings in just one year. This will allow for easy lending and higher stock purchases if the company can keep up the good work. Internal Controls Strengths and Weaknesses

Riordan seems to have well-established internal controls when it comes to financing. Under the liabilities and shareholder’s equity section of Riordan’s consolidated balance sheet, in 2011 Riordan’s long-term debt was $9,500,741, which is substantially higher than it was in 2010 ($1,006,955). Additionally, Riordan’s bank line of credit dropped from $295,685 in 2010 to $114,759 in 2011. Even with the increase in long-term debt and the decrease in the bank line of credit, Riordan managed to increase cash and its total current assets.

To manage an increase in current assets and still have an increase in liabilities must mean that Riordan has very good internal controls set in place. While 3increasing liabilities might seem like a weakness in internal controls, this appears not to be the case with Riordan. For a company to allow an increase in liabilities, company offices usually to have signoff on any transactions or procedures.

Because there is no loss in revenue and also an increase in other assets (property, plant, equipment, investments, etc.) those in charge of planning strategic moves seem to knowledgeable. If Riordan had insufficient controls set in place, most likely the firm would not be doing as well. Additionally, certain procedures could lead to the higher officials not being involved with decisions that could affect the outcome of the firm and could potential hurt the interest of the employees and, more importantly, the shareholders. Accounting Information System Integration

To incorporate financing into an accounting information system, it would be best to first understand the financing needs of the company. Additionally, budgets are usually a necessity when it comes to understanding a firm’s future financial needs. Thus, a well-established firm, like Riordan, should adopt a system that is fully capable of meeting its needs. If Riordan has multiple offices, it would be extremely wise to limit the financing department to a single location.

From integration of financing into an accounting information system would most likely require a team of employs that focus primarily on the financial needs of the company. If he system operated on a real-time basis, more information would be readily available, and as a result, better decisions could be made and in a more timely manner. Access to this side of the company should also be limited to only those who are the financing department and the officials who are responsible for overlooking it.

Information System for Integration The information system that would fit best for this type of integration is the expert system. The expert system is a computer system that thinks like a human expert. The problem or issue is process by the system and the answer will be related to what a human expert would think when not following procedures. This process will give a team the answer someone would come up with if they did not follow the book. The answer will be based on someone who has worked in the field for a certain period and would know a quick fix to ensure stable conditions for the integration.

When the company starts to work the new financial cycle into the workplace they can have a quick reference for the managers to use. The managers or the ones who are leading the integration should have a more advance knowledge of the cycle, so they can confirm the accuracy of the answer the expert information system gives out. This procedure can cut down the amount of time to determine the key areas of the problem and find a fix if a real human was to install the new system. Having a second opinion can give the managers more options.

Flow of Accounting Information

The financing cycle is the fourth accounting cycle. “The financing cycle will record and report information relating to stock, debt, bond and dividend transactions (Thomason, 2013).” Riordan’s financial cycle gets funds from the revenue cycle and provides these funds to the expenditure cycles. This cycle also provides data to Riordan’s general ledger reporting system. There are three operating entities of Riordan Manufacturing.

They are located in Georgia, Michigan, and California. Each one has the basic components of: general ledger, account payable, accounts receivable, order entry, procurement, sales and purchasing history, invoicing and shipping, payroll, and financing reporting. For 2011, Riordan Manufacturing has 20,000,000 shares authorized with 15,801,332 issued and outstanding treasury shares. The current portion of long-term debt increased from $474,032 in 2010 to $1,560,959 in 2011. This shows that Riordan has increased its debt. Riordan is planning a project and needed external funds. The company’s research and development is done at the corporate headquarters in San Jose.

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