1. © 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson. 15-1 chapter 15 The conversion cycle Learning objectives – To learn what the conversion cycle business activities are. – To learn how to flow chart the conversion cycle business activities. – To understand the processing of conversion cycle transactions using a computer. – To know the control practices and procedures required in the conversion cycle.

2. © 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson. 15-2 key terms direct labour cost direct material cost job order costing just-in-time inventory system material requirements planning overhead cost process costing work in process

3. © 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson. 15-3 Conversion cycle business activities Transactions in the conversion process: acquisition of materials acquisition of labour transfer of materials, labour and overheads into production transfer of finished goods to inventory sale of inventory

4. © 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson. 15-4 Major groups in the conversion cycle 1.Inventory 2.Payroll 3.Cost accounting

5. © 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson. 15-5 Inventory Main activity is to keep records of inventory levels: –raw materials –finished goods Valuation methods used: –periodic inventory method –perpetual inventory method

6. © 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson. 15-6 Inventory processing

7. © 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson. 15-7 Payroll system Records labour transactions Payroll system interfaces with conversion cycle providing information on labour transactions

8. © 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson. 15-8 Cost accounting Records transactions of conversion cycle classifying three major elements: 1.Direct material costs 2.Direct labour costs 3.Overhead costs These are recorded in a ‘Work in process account’

9. © 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson. 15-9 Non-accounting systems Systems necessary to the conversion cycle: Product design Production planning and scheduling systems Material requirements planning Just-in-time systems Computer-aided manufacturing

10. © 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson. 15-10 Internal control procedures for the conversion cycle Material requisitions properly authorised Approved production schedules Finished goods transferred to storeperson’s care Inventory records checked for accuracy Physically verify stocks to check for losses and accuracy of records Investigate differences in physical and accounting records and take appropriate action Monitor defective production Investigate customer complaints