Introduction

Information systems have become essential for helping organizations deal with
changes in global economies and the business enterprise. Information systems provide
firms with communication and analytic tools for conducting trade and managing
businesses on a global scale. Information must be reliable, relevant, timely, complete and
understandable.
The purpose of an information system is to collect, store, and disseminate
information from an organization’s environment and internal operations to support
organizational functions and decision making, communication, coordination, control,
analysis, and visualization.
The study of accounting information systems concerns events affecting an
organization. These events are recognized and reordered by a system of human and
computer resources, processed using accounting methods and objectives, and reported as
information to interested parties. Most organizations use computer-based accounting
information systems, which rely on both manual and computerized processing.
It is a unified structure that employs physical resources and other components to
transform economic data into accounting information, with the objective of satisfying the
information needs of a variety of users. It deals with financial and non- financial
statement.
The Financial accounting systems are accounting information systems of limited
scope. These systems must conform to generally accepted accounting principles for
external reporting, and must implement the steps in the accounting cycle.
The Management Information System is the combination of people, procedures
and machines intended to provide information for management decision making.
Purpose:

The main purpose of this report is to fulfill the course requirement of Accounting
Information System (MIS-441).

Objective of the Report

The objective of this report is to describe the cycle of a company. The main cycles
of any manufacturing company are Revenue, Expenditure and Conversion cycles.
Revenue cycle deals with revenues. Expenditure cycle deals with cash disbursements and
a Conversion cycle is converting raw materials into finished product. The main objective
of the report is to evaluate the revenue, expenditure and conversion cycle of Zaber &
Zubair Fabrics limited.

Scope:

The goal of this report is to evaluate the revenue, expenditure and conversion cycle
of Zaber & Zubair Fabrics limited by preparing Logical (zero-level) DFD and
recommended logical (zero-level) DFD.

Source

The data of this report has been collected from various sources. They are

• We collected the idea of different cycle from the lecture of our instructor.

• We also collected the data of this report from the company’s factory.

• We make an appointment with the operational manager Mr.Rafat Alam and get
the idea about the various processes.

• We also collected the information from the company webpage.

• We also collected the information about AIS through Internet.

Drawback

The drawbacks of this report are sometimes company does not want to give some
information, those are necessary for the report. That’s way it is not possible to make the
report properly. This is the main draw back of this report.

Limitation

Time:

The given time of this report was not enough and for this reason we could not collect
all of the information.

Experience:

As we do not have any experience about this course so it is very difficult for us to
prepare the report without any information.

Information

Report writing requires detailed information. While collecting the information about
these three cycles in some area we found that the information was not sufficient. As we
are new to this topic, so it is necessary that we get the detailed process of all these cycles.

Company Profile

About Zaber and Zubair Fabrics Limited:

Zaber & Zubair Fabrics limited commenced production in March 2000 with a
mission to grow as an internationally recognized home textiles manufacturing company,
by meeting the day to day market requirement and achieving customers’ satisfaction. The
mill is located at Tongi, near to Dhaka, the capital city of Bangladesh. The factory is fully
equipped with standard machinery conforming to the European & American standards
and the products already earned very good reputation in the international market for its
quality and durability. Our expert trained professionals are working for its effective and
efficient management.
Production Capacity:

The mill has a capacity of producing about 3 million meters of finished fabrics or
0.6 million units per month, of various home textile products including bed linens &
window furnishings.

Staff and Workers:

The company is so new, due to the true leadership of the Management, highly
skilled expatriates from various countries and 5,000 dedicated and hard working
employees

Main Products:

With a creative and innovative marketing team there is a continuous development

in the variety of product range. Zaber & Zubair is manufacturing home fashion and
window furnishing textiles including Quilt Cover Sets, Sheet Sets, and Comforter Sets,
Complete Bed in a Bags, Loops Curtain, Tape Curtains, Draperies, and Valances etc.

Resource:

The manufacturing process of Zaber & Zubair is vertically integrated with a

spinning unit of 200,000 spindles, a weaving unit of 600 shuttle less Projectile Sulzer
looms & 300 Auto Looms, a processing unit with 2 Rotary Printing Machines of 12 & 16
color options, with a complete Back Process including a CAD Designing Studio,
Singeing & Designing, a Continuous Bleaching Plant, and a Stitching Unit (Sewing
Floor) of 130,000 square feet along with 2 computerized Comforter Machines.

Investment:

The company has invested around US$ 50 million to set up state of the art
machineries to meet the challenges of the 21st century’s Textile World.

Country of Export:

U.S.A., U.K, France, The Netherlands, Belgium, Germany, Denmark, Sweden,

Spain, Italy and any other European Market.

Income:

Zaber & Zubair was able to reach US$ 12 million in its First Year (2000) of
production. In the Second Year (2001) the turnover was US$ 21.5 million.
 Revenue Cycle
Definition of Revenue Cycle:
The revenue cycle is a recurring set of business and related information
processing operations associated with providing goods and services to customers and
collecting cash payment for those sales. Revenue cycle is dealing with revenues. Revenue
in accounting means any figures or valuations but Revenue in Accounting Information
System (AIS) means the whole process like ordering, receiving, shipping, etc. Revenue
cycle starts with selling the merchandize, shipping and it ends money with receiving
money from the customers. It consists of two business events or transactions: Sales and
Cash receipts. In the sales transaction, customer order for merchandize then the
merchandize is shipped to the customer. In the cash receipts transaction, a check or
currency is received from the customers.

Objectives of Revenue Cycle:

Typical objectives of revenue cycle for any company are the followings:

• To record sales orders accurately.

• To verify the customers are worthy of credit.
• To ship the products.
• To bill the products in a timely and accurate way.
• To record and classify cash receipts accurately.
• To post sales and cash receipts to customers.
• To safeguard products and cash until shipped or deposited.

Shippin Billing
g system
system

Order Cash
entry receipt
syste s
m system

Customers

Figure: A graphical diagram of the transaction in the revenue cycle.

The four basic revenue cycle business activities:

• Sales order entry

• Shipping
• Billing and accounts receivable
• Cash collections

The four major business events in the revenue cycle:

• Orders
• Filling the orders
• Shipping [sales]
• Cash collections

Some threats of revenue cycle are:

• Credit sales to customers with poor credit

• Shipping errors
• Theft of cash and inventory
• Failure to bill customers
• Billing errors
• Loss of data

Some exposures of revenue cycle are:

• Uncollectible sales and losses due to bad debts

• Customer dissatisfaction
• Loss of assets and overstated assets
• Loss of revenue and inventory
• Incorrect records and poor decision making
• Loss of confidential information

Some control procedures of revenue cycle are:

• Credit approval by credit manager and sales function

• Reconciliation of sales order with picking ticket and packing slip
• Restriction of access to inventory and data
• Lockbox arrangement
• Segregation of duties
Functions of Revenue Cycle:

An organization’s revenue cycle includes the functions required to exchange its

products or services with customers. Common functions in a revenue cycle include credit
granting, order taking and processing, shipment of goods, billing, and accounts
receivable.

The Steps of Revenue Cycle for Zaber and Zubair fabric Limited are shown below:

Local Pricing Receive Enter

Obtain order master Manufacturing
buying negotiate sales
LC of goods
house with order
placed buyer

Cash Bill
Assemble
Prepare Adjustment Shipme
collection customer goods for
reports nt shipment

Maintain
A/R
Records Stock lot

Figure: Revenue Cycle of Zaber and Zubair Fabric ltd.

Explanation of the Steps of the Revenue Cycle:

Local Buying House:

In Bangladesh local buying house must be registered under BGMEA. Their main
task is to contact with overseas buyer and get the order from them. By judging the types
of the finished goods they divide the order and place to different factory. After
developing the sample, they contact with the different factory or industry.
Pricing negotiate with buyer:

At first a buyer sends a sample to the company to know whether they can able to
make the sample or not. If Company agrees to produce such samples then they go for
negotiation. They negotiate for a particular product’s price with the buyer. This includes
the rate per piece or dozen of products and this leads to the negotiation.

For example:

S. Company of china sends a sample to the Zaber and Zubair fabric limited to
produce pure wool sheet sets which is called Kashmiri and they will pay $10 per price i.e.
if they need 2000 pieces then they will pay $ 10 * 2000 = $20000.

After producing those samples, buyers must check the sample and give final decision to
the company whether they want to go for it or not. If they satisfied then they will give the
clearance to the company. Now buyer will give Letter of Credit.

Obtain order:

The company obtains order through mail of fax. The buyers can also come to the
company and gives the order.

For example

Fashion Company of Italy sends order through fax for the Sheet set.

Receive Master Letter of Credit (LC):

Master LC is an agreement by a bank to make payment on behalf of a specified

party under specified conditions. In other words, a letter of credit essentially substitutes
the credit of a third party usually a large bank for that of a borrower. LC is promise of
payment in the event that requirements are met.

After getting the order, the customer of the fashion company sends a LC from
GES Bank of Italy for Sheet sets through HSBC, Gulshan Branch. By receiving the LC
the company takes credit from the Bank by producing the LC paper. After receiving the
LC, Sheet sets will start their work according to LC. LC is given for either 45 or 60 days
but not more than 90 days.

For example:

Suppose Fashion Company of Italy gives order to Sheet sets for 2000 pieces of
pure wool sheet sets. After receiving the LC Zaber and Zubair fabric limited will start
their work. Suppose that Fashion Company has given LC for 60 days. Within this period
of time Zaber and Zubair fabric limited will have to send their goods to the Fashion
Company.
The chart of LC would be like this:

Fashion GES
Company Bank

Zaber and HSBC

Zubair
Feb. Ltd. Bank

Figure: Process of LC

Enter sales order:

The manager of a company first checks whether the materials are available or not.
If not available they will buy from the market or they might import. If some materials are
found in the warehouse then they will use those goods for this order.

Manufacture of goods according to order:

According to the order, Zaber and Zubair fabric limited gathers raw material and
through processing they convert the raw material into finished goods. To manufacture
they have to go through several steps like processing, stitching, weaving etc. All are
discussed in the conversion cycle.

For example:

If Fashion Company of Italy orders for 2000pics sheet sets then Sheet sets will
have to go through all the steps and ultimately they will convert the raw material into
finished product.

Assemble goods for shipment and final inspection:

After receiving the LC, the company starts buying all the necessary accessories for
the required orders or the products. They have to follow several steps like printing,
stitching etc. When goods are completed then buyer inspection team will come and
choose one or two products. If they said OK then the goods will send for shipment. All
the goods that are produced moved to the shipping dock. The Company managers
maintain a packing list. The quantities of goods picked are noted in the picking list. In
this way Company updates their inventory records.
For example:

The Fashion Company of Italy orders for 2000pics sheet sets then Sheet sets will
follow all the steps necessary to make the product. They have several types of machines
like 5 days machine, 12 days machine, flattening machine, etc. After completing the
product they make a packaging list to maintain inventory records.

Stock Lot:

If the buyer inspection team do not approve the clearance or if buying house finds
any defective sheet sets then they reject those sheet sets. Those rejected goods or sheet
sets are then sold to stock lot.

For example:

If Fashion Company finds that 100-defect sheet sets out of 2000 sheet sets then
they will immediately reject those sheet sets. The Zaber and Zubair fabric limited will
sell these sheet sets to the local traders in Dhaka.

Shipment:

The customer may pick up the ordered goods at the shipping dock. The goods are
shipped by the company’s own delivery vehicles. They also provide parcel service.

For example:

S. Designs Ltd, a company in Chittagong ordered 10000 sheet sets. After

completing the goods or sheet sets Zaber and Zubair fabric limited will send the goods
either their own vehicles or in a parcel service. It will take hardly one day to reach the
product to Chittagong.

1 day
Dhaka Shipment Chittagong

Figure: Shipping Goods.

Bill Customer:

The shipping order record is the input to the billing process. Zaber and Zubair Ltd
use a copy of sales order document where shipping quantities are noted. A sales invoice
Document is sent to the customer as a bill. The bill contains detailed information about
the total volume of the product, per unit cost and shipment cost and the total amount need
to pay. The customer can pay in two ways either in cash sales or in contractual sales.
Retailing establishments, in which case customers pay immediately and are given receipts
in place of invoices, makes cash sales. On the other hand, there are long term contractual
sales, the customers pay periodically on the basis of a series of progress billings.

For example:

Suppose export bill contains 7000 of sheet sets and per unit cost is $12. Then the
total amount is 7000 * 12 = $84000. When the Fashion Company of Italy receives the
goods they have to pay tax for the required bill.

Adjustment:

Defective goods are rejected and the company must make some adjustment in their
record book.

Cash collection:
After receiving the cash from Fashion Company of Italy, Zaber and Zubair fabric
limited will maintain a document, which contains the cash amount and the payer’s name.

For example:

Suppose, Fashion Company of Italy sends $84000 to Zaber and Zubair fabric
limited. Fashion Company first deposits their money to GES Bank. GES Bank will
transfer $84000 to Zaber and Zubair fabric limited account in HSBC Bank. The HSBC
Bank converts this amount into taka by using spot rate and then deposited into Zaber and
Zubair fabric limited accounts.

Maintain Accounts Receivable records:

Every company has to maintain their accounts receivable account. A separate

account receivable record is maintained for each active credit customers. Each billed sale
amount is debited to the account whereas each cash remittance is credited to the account
and outstanding balance appears in the account as long as all sales have not been paid in
full.

For example:

Zaber and Zubair fabric limited made bills $84000 to Fashion company of Italy.
They have to adjust this $84000 into the accounts receivable account. After receiving the
money this account will be closed.

Prepare financial reports:

Customers have been billed and making all the necessary adjustment, the company
will prepare financial report. These are basically made by the accounting department.
Financial reports helps to identify the position of the company.
For example:

Suppose in 2003 Zaber and Zubair fabric limited total net profit was 8 cores and sale
was 28 cores. Based on this information, manager of a company may take further future
decision.

The Existing Revenue Cycle of Zaber and Zubair Fabric Limited:

 Credit data
1.0 Customer
Inventory
data Received Order data
Buying order &
enter sales Customer
House data
Fabric
order Pricing data
company

Fabric Customer
Company
2.0
Received Bank
Credit
Check Master LC

Buying
House 3.0 Stock Lot
Inventory Producing
data goods

Sales data 4.0

Shipment of Customer
Buying ordered
House goods Receivable
data

Billing data 5.0 Customer

Bill
customer Receivable
data

Receivable 6.0
data Collection
of cash

7.0
General Prepare
Ledger data
reports Managers

Fig: The Existing DFD for the Revenue cycle of Zaber and Zubair Fabrics Limited.
Explanation of existing Logical (zero level) DFD of Revenue cycle

Received order and enter sales order:

The data flows from process to Fabric industry means that Fabric industry
receives the order from its customers. The entity customer is double arrow because they
are giving the order and also receiving the order. Under inventory data, company records
all the information about inventory or raw materials. Customer’s lists are recorded under
customer data. Prices of the product are recorded under pricing data. Similarly all the
orders are recorded under order data.

Received master letter of credit:

The data flows from customer to the process, it means customer sends the LC to
the Bank of their country and the sheet set industry receives the money from the Bank of
their country. That is why bank is indicating with double arrow.

Producing goods:

The data flows from buying house to process and it means they receive order from
customers and then produce goods. When buyers team clearance the goods it goes to the
process 4.0 i.e. shipment of goods. If they do not clearance the goods or if buying house
finds any defective goods then they immediately reject those goods. Those reject goods
are sold to stock lot. That is why the arrow goes from process to stock lot entity. Under
inventory data they record all the information of the inventory.

Shipment of ordered goods:

The data flows from process to customer entity because sheet set industry sends
goods to the customer. They keep the shipping information under shipping data. Similarly
they also keep the information receivables and sales under receivables and sales data.

Bill customer:

The data flows from customer to process and it means that after receiving the
goods customer sends bill to the sheet set industry. They record all the information of
billing under billing data.

Collection of cash:

Sheet set industry collects the cash from the bank. Under receivable data they record all
the information about receivables.
Prepare reports:

To prepare financial reports they need general ledger data and other data. The data flows
from process to managers because on the basis of this report managers plans for future
decision.

Recommended Data Flow Diagram of Revenue cycle for Zaber and

Zubair Fabrics Limited
 Registered
data
1.0 Customer
Received
Buying order through
E-mail Order data
House
Fabric Pricing data
company

Febric Customer
Company 2.0
Received Bank
Credit
Check Master LC

Buying
House 3.0 Stock Lot
Inventory Producing
data goods

Sales data 4.0

Shipment of Customer
Buying ordered
House goods Receivable
data

Billing data 5.0 Customer

Bill
customer Receivable
data

Receivable 6.0
data
Collection
of cash credit card
customer

7.0
General
Ledger data Prepare Managers
reports

Fig: Recommended Data Flow Diagram of Revenue cycle for Zaber and Zubair Fabrics
Limited.
Explanation of Recommended Logical DFD of Revenue Cycle

We cannot reduce or eliminate the process of conversion cycle but we can make it
faster, less expensive and less time consuming by applying few systems. These are
mentioned below:

Received order through E-mail:

In the existing logical DFD of the revenue cycle we noticed that the order was
coming through mail or fax. If the process has been changed to online system then it
would be much better. Using online system, a company can receive all their orders
through e-mail.

Because of online system, both buyer and seller can communicate with each other
in online. So if we convert it into e-mail system then the process will be faster and easier
than earlier. It reduces the cost of talking long distance phone calls.

Expert is a knowledge based and computer based information system that fully
supports the making of decisions. It employs specialized computer programs to process
data and rules in order to produce clear-cut decisions affecting problem areas. The
company can increase their production as well as their product quality by using expert
system.

Prepare report:

Normally reports are prepared manually. Using accounting software like peach tree,
financial report can be prepared and it will be faster as well as accurate than previous
system. Here managers can take decision more quickly than earlier system.

Bill customer:

A cash sale transaction online processing system involves the following steps: As
customers present their merchandize at the checkout stands, checkout clerks sweep their
scanners across the bar codes on the merchandize packages. The captured coded data are
entered via the terminals and checked for errors and omissions. Each item of checked
data is translated into the descriptions of the merchandise item and its price and then is
listed on a sales slip. When all merchandise items composing an individual sale have
been entered, the clerk presses a key; then the sales take and total are automatically
computed and printed on the sales slip. The remainder of the transaction is handled in the
same manner as it was by the former manual system.

Cash collection:

The fabric company receives the money from their customer through the credit card.
The internal control system can be greatly strengthened if the following steps are taken:

• Assign other persons not in the cashier's office to process the customer’s records
to maintain the petty-cash fund to open the incoming mail, and to reconcile the
bank account.
• Do not allow the cashier to have access to incoming mail, to the customer’s
records, and to the petty-cash fund.
• Instruct the bank to refuse to accept checks made payable to the firm for deposit
in the petty-cash fund bank account.
 Expenditure Cycle
Definition of expenditure cycle

The Expenditure cycle encompasses two key business events or transactions:

Purchase and cash disbursements. The purchases transaction consists of acquiring
resources or services. In the disbursement transaction, a payment is prepared and
delivered to the supplier. For any manufacturing company, Expenditure cycle is
purchasing the raw material, receiving the raw materials and repays the money. It
consists of those transactions incurred to acquire material and overhead items for the
conversion process of the business.

• Expenditure cycle deals with transactions involved in purchasing goods and

services

• Custodianship of goods and materials purchased

• Cash and credit payments

The key terms of expenditure cycle are:

• Carrying costs

• Economic order quantity

• Materials requisition note

• Maximum stock level

• Minimum stock level

• Ordering costs

• Payment voucher

• Purchase requisition

• Reorder level

• Reorder quantity

• Storekeeping.
The categories of activity in the expenditure cycle are:

• Requesting purchases

• Placing orders with suppliers

• Receiving goods

• Storekeeping

• Processing supplier invoices

• Cash disbursement.

Purpose of the Expenditure Cycle

The major purpose of the expenditure cycle is facilitating the exchange of cash
with suppliers (Vendors) for needed goods (Materials) and services.

Most businesses use a purchasing department to acquire materials and supplies.

A purchasing agent orders material from a vendor who ships the material and mails an
invoice. The business uses the invoice to record the payable and later pays the vendor.
When the vendor is paid according to the terms of the sale, the vendor again sells items to
the business. This causes the sequence of transactions to form a cycle. The figure below
shows the relationships among vendors and the systems in the expenditure cycle.

Receiving Voucher
system system

Cash
Purchasing disbursement
system s system

Vendors

Figure: The Expenditure Cycle

Objective of the Expenditure Cycle

Typical objectives within this broad purpose are –

• To ensure that all goods and services are ordered as needed.

• To receive all ordered goods and verify That they are in good condition,

• To safeguard goods until needed,

• To determine that invoices pertaining to goods and services are valid and correct,

• To record and classify the expenditures promptly and accurately,

• To post obligations and cash disbursements to proper suppliers accounts in the

accounts payable ledger,

• To ensure that all cash disbursements are related to authorized expenditures, and

• To record and classify cash disbursements promptly & accurately.

Internal controls for expenditure cycle are:

• Pre-numbered purchase orders

• Authorized personnel to initiate all purchases

• Deliveries accepted on verification of purchase order

• Invoices, purchase orders and receiving reports matched to verify invoice for
processing and payment

• Expected refunds are followed up

• Cheque signatories have limits

• Authorized person responsible for petty cash fund

• Accounts payable is reconciled on a regular basis

• Inventory is protected and accounted for both physically and in terms of dollar
value
 • Reorder levels are maintained

• Proper authorization procedures apply for release of goods from stores

Functions of the Expenditure Cycle

The functions of the expenditure cycle consists of recognizing the need for the
goods, placing the order, receiving and storing the goods, ascertaining the validity of the
payment obligation, preparing the cash disbursement, maintaining the accounts payable,
posting transaction to general ledger and preparing needed financial reports and other
outputs. Related functions involve purchase returns and allowances and petty-cash fund
disbursements. These functions are achieved under the direction of the inventory
management and finance or accounting organizational units.

The steps of Expenditure Cycle for Zaber & Zubair Fabrics limited are
as shown in the diagram below:

Identification Receiving Checking Remit

of raw Give Open raw list of raw
Order against
material L/C materials materials L/C

Prepare
Payment Inventory
Reports

Maintain
Accounts
Payable

Figure: Steps of Expenditure Cycle.

Explanation of the Expenditure Cycle

Identification of raw material:

When a company gets any order it first checks due inventory record. The
company’s store manager checks the inventory records. By checking inventory record a
manager would get the detail information whether they have the required raw material
available in the stock or not. If the raw material is not available then the company will
purchase goods. The company manager then makes a purchase requisition for goods.

Give order:

When a need is recognized, a legally binding purchase order must be placed with
a supplier. The person or unit that recognizes the need places the order. The manager of
Zaber and Zubair fabric limited prepare the purchase order. The manager negotiates with
the suppliers and fixes the price. If the prices are fixed, then the manager are place that
order to that supplier. The purchase order form includes the supplies name and address,
detail information of the order and the total amount. The manager of a company will then
send the mail to the suppliers.

Open a L/C:

After placing the order Zaber and Zubair fabric ltd. make a invoice of material.
They give this invoice into the bank. The bank then makes a LC by that invoice. This LC
is then given to supplier by mail or fax.

For example:

Here Zaber and Zubair fabric limited make an order to fashion Ltd. After giving the order
the fabric company then made a LC from any foreign exchange bank, Bangladesh in
favor of fashion Ltd, America, under the states bank of America,

Receiving raw materials:

After placing order the company has to wait for the shipment of required
materials. They receive the required materials and then they prepare an inventory report.
Under inventory report, the company maintains the records of each item such that item
number, quantity etc.

For example:

Suppose Zaber and Zubair fabric ltd. Ordered for fabrics in S. Corporation in
china. The S. Corporation sent the ordered items through the ship and the company sent a
fax to the Zaber and Zubair fabric that the item is delivered from their company on the
respective date. The company will give the ship name and the approximate date of arrival
the ship on that sea port.

Checking list of raw materials:

After receive the products the company checks whether all the products are
received properly. The Zaber and Zubair fabric examines the items for identification of
defective goods. If buyer finds any defective then they sent a mail to the company that
they found defects on the received items. The company will reject those goods.

Remit against L/C:

When the seller sends the goods to the buyer’s the buyer issues a clearance
document and send a copy to the bank from where LC is made after receiving this
document the bank pays the money to the seller.

For example:

Zaber and Zubair fabric buy fabric from S. Corporation, China. They shift the
fabrics to the Chittagong port; from there we received it and check if it is as per our
order. Then the company send a clearance document to the Bank from where L/C is made
in conjunction to this the Bank send a clearance letter to S Corporation so that they can
disburse the money from the respective Bank.

Inventory:

After receiving all the goods or raw materials, the company will look intently
these goods in their inventory. Under inventory records, they keep up- to-date
information of inventory.

Payment:

After receiving the goods, the buyer of Zaber and Zubair fabric will soon pay the
money to their suppliers through the respective bank.

Maintain Accounts Payable:

Every company must maintain their accounts payable account must keep track of
amounts owed to supplier of goods and services. A separate record is maintained for cash
supplies with which the firm has a credit arrangement. The life containing these records
is generally called supplier or vendor files.
For example:

S. Corporation sends goods to the Zaber and Zubair fabric. Then the Zaber and
Zubair fabric pays the bill to the S Corporation. This amount of money is adjusted with
the accounts payable account after paying the money this account will be closed.

Prepare Reports:

After completing all the necessary adjustments, the company will prepare financial
reports. This report helps managers to take future decision.

For example:

Suppose in 2003 Zaber and Zubair fabrics total profit was 5 core and expenses
was 10 cores. This information helps the company to take corrective actions. Based on
this information a manager might think of controlling costs.

The Existing data flow diagram (Zero level) of the Expenditure cycle for
Zaber and Zubair Fabric limited:
 Fabric
Company 1.0
Identification
of raw Clerk
Inventory
data material

Supplier
Order data data
2.0
Order Place
Fabric
Company Suppliers

Credit check 3.0 Bank

Open back to
Suppliers back L/C Fabric
company

4.0 Inventory
data
Receive raw
material from Purchase
supplier data

5.0
Payable data Payment to
suppliers

General
Payable data 6.0 Ledger data
Maintain record
Receivables & prepare Managers
data report

Fig: The Existing data flow diagram (Zero level) of the Expenditure cycle for Zaber and
Zubair Fabric limited
Explanation of the Existing Logical DFD (zero-level) of the Expenditure
Cycle

Identification of raw material:

The data flows from the entity clerk to the process.

Order placed:

The data flows form fabric company to process, it means they place order for
materials. The data flows from process to the supplier because the ordered goods are
received by the supplier under data, the company records all the information’s regarding
the order placed. Under Supplier data, name of the suppliers and their addresses and other
important data are recorded.

Open back to back letter of credit (LC):

Fabric Company make invoice and they send this invoice to the process and it
means after receiving invoice from Fabric Company, the bank will make a LC with the
help of that invoice. This LC is then given to the supplier and for this reason the data
flows from the process to the supplier entity.

Receive raw material from supplier:

In this process Fabric company receives raw materials from the supplier. The
keep all the information’s of raw materials under inventory data. They also keep the
record of purchase data.

Payment to suppliers:

Fabric Company pays money to the suppliers for the ordered goods. They keep
all the information’s of payments under payable data.

Maintain records and prepare report:

To prepare financial report, the accounting department needs the ledger data &
other data, which is related to the report. After preparing the report, top-level manager
designs for future planning. For this reason, the data flow process to the managers’ entity.
Fig of the evuyvfcb cycle
Recommendation:

In the existing system, we have seen that there are six basics steps needed to
complete the whole expenditure cycle. We are not changing the process but we are able
to make the process faster than the previous system.

Explanations of Recommended DFD of Expenditure Cycle

Placed order through E-mail:

In the existing system of the expenditure cycle we have noticed that the Zaber
and Zubair Company placed order through fax or by post. If this process has been
changed to online system then it would be much better. By applying this process, both
buyer and seller would be able to communicate with each other. So if it converts into e-
mail system then the process will be faster, less expensive and easier than the previous
system.

By using accounting software like peach tree, financial report cab is prepared
more accurately and faster than the previous system.

Received raw material from supplier:

Verbal request for materials take lots of time. If company prepare written request
on a purchase requisition form: then the process will be easier. The company sends the
requisition to the purchasing department with a copy to the accounts payable department.
Then they assign the preparation of the purchase requisition to the stores keeper or to an
inventory control clerk, who would have a better knowledge of inventory needs than the
supervisor.

Payment to supplier:

Cash disbursement is difficult to control. The process will be easier if the

company prepare a pre-numbered checked and protect the amount then forward the check
to the treasurer, who should review the supporting documents, sign the check and mail
direct from his or her office; stamp "Paid" on all supporting documents and file by check
number.
Maintain record and prepare report by accounting software:

The Company can prepare a formal pre-numbered purchase order, which is to be

signed by the purchasing manager, and send to the supplier. They can send copies of the
purchase order to a newly organized receiving department and to the accounting
department as prior notification; they also can send a copy to the person who requested
the order as verification and life a copy by number in the purchasing department.

In the recommended Expenditure cycle, we are able using computer to

control the process:

Computers play an important role where large numbers of transactions are

processed:

• Record the information in the same categories as a manual system

• Quick production of the documentation required

• Reduce clerical handling errors

• Easily generate detailed reports for management use

• Reduce errors in pricing etc.

• Enable maintenance of large perpetual inventory systems with a minimum amount

of labor costs.

Controls in the computer environment

Application controls required:

• Input controls
– detect and prevent errors when data is input

• Processing controls
– detect and prevent errors while processing is in progress

• Output controls
– detect and prevent errors in outputs from processing
 Conversion Cycle
Definition of Conversion Cycle
Conversion cycle means converting raw materials into finished product. It is also
called production cycle. It is called production cycle. It contains those transactions
incurred when inputs are converted into salable goods or services. One economic event
exists in the conversion cycle. Materials, labor, and overhead are consumed in the
conversion process.

Conversion cycle basis:

• Production Order
• Materials Requisition
• Time Cards
• Overhead logs
• Job Cost Sheet (one document tracks all 4 above, often in summary form)
• Bill of Materials – Operations List – Shows standard relationships
• Inventory – Raw Materials, Work in Process, Finished Goods
• Inventory – Generic or Custom

Relationships between Conversion Cycle and Other Cycles:

• Use employee service is the same event as get employee service in the Payroll
cycle (simultaneous production and consumption)

• Revenue and Conversion – In JIT and Custom Manufacturing, Sales Order

àProduction Order

• Conversion and Expenditure – In JIT, Production Order à Purchase Order

• Conversion and Revenue – Production Completed à Shipment

The Key terms of conversion cycle are:

• Direct labor cost
• Direct material cost
• Job order costing
• Just-in-time inventory system
• Material requirements planning
• Overhead cost
 • Process costing
• Work in process

Transactions in the conversion process:

• Acquisition of materials

• Acquisition of labor

• Transfer of materials, labor and overheads into production

• Transfer of finished goods to inventory

• Sale of inventory

Major groups in the conversion cycle:

• Inventory

• Payroll

• Cost accounting

Inventory

• Main activity is to keep records of inventory levels:

– raw materials

– finished goods

• Valuation methods used:

– periodic inventory method

– perpetual inventory method

Inventory processing:

Fig: inventory processing

Payroll system:

• Records labor transactions

• Payroll system interfaces with conversion cycle providing information on labor

transactions

Cost accounting:

Records transactions of conversion cycle classifying three major elements:

• Direct material costs

• Direct labor costs
• Overhead costs

Internal control procedures for the conversion cycle:

• Material requisitions properly authorized

• Approved production schedules

• Finished goods transferred to store person’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

The Conversion Cycle in a Manufacturing Company:

In manufacturing company, either actual or standard material or labor costs are

recorded in a cost ledger as conversion occurs. Overhead costs are allocated in the cost
ledger, usually based on the amount of labor used. These costs are associated with the
products and are matched with revenue when the products are sold.

Inventory
system

Raw Work in Finished

materials process goods
Expenditure cycle Revenue cycle
Receivin Shipping
g system Cost system
accountin
g system

Payroll
system

Figure: Conversion Cycle.

Objective of the Conversion cycle

The objectives of the Conversion Cycle are:

• Adequate raw materials and other resources are available for production,
while the investment in such resources is minimized.

• Production costs are minimized through high labor productivity, full

utilization of production equipment, low levels of scrap and rework and
optimal design of production layouts and procedures.

• Work-in-process inventories are transformed into finished goods, which

are warehoused or shipped on scheduled.

• Established levels of product quality and after sales service are attained.

• Cost for each other or processes are accumulated accurately or fully.

Function of the Conversion Cycle:

The functions of the cycle are to undertake strategic planning, manage the raw
materials inventory initiate the production process, maintain and control production
operations, complete and transfer finished goods, prepare financial reports and other
outputs. It also includes quality control inspections, rework and scrap page and return of
excess materials.

The steps of Conversion Cycle for Zaber and Zubair Fabric

limited are as shown in the diagram below

Take Printing, Ironing

Sample Sample Primary Weaving, And
from buyer development Inspection Stiching, checking
Spinning

Packing
Prepare Maintain Shipmen Final
and attach
reports records t checking
the tag

Figure: Steps of Conversion Cycle. Stock

lot
Explanation of Conversion Cycle:

Take sample from buyer:

At first the buyer sends a sample to the company to know whether the company
can able to make that sample or not. If company agrees to produce such samples then
they go for negotiation. They negotiate for the particular product’s price with the buyer.

For example

Zen Company of Italy sends a sample to the Zaber and Zubair fabric limited to
produce sheet sets according to their sample. They will pay $20 per piece of i.e. if they
order for 2000 sweaters then they will have to pay $40000.

Sample development:

When LC is confirmed Zaber and Zubair fabric limited will develop the sample.
At first they buy fiber from the market and dye it with that color. Then they show this to
the buyer whether it is matched or not. If buyer says OK then the company will buy
accessories to produce those samples.

Primary Inspection:

The buyer checks the sample and if they like the sample, they will confirm it.
Then the process goes to the mass production i.e. Printing, Weaving, Stitching, and
Spinning, washing, ironing, packaging and joining tag.

Printing, Weaving, Stitching, and Spinning:

Printing includes the print the fiber, and then placed for distribution part, where
they check whether the weight of the fiber has been used properly or not. On the stitching
section the parts taken from the printing section and stitch the border of the sheet and r to
give the shape of the sheet.

Ironing and checking:

The products are washed either in washing machine or by hand and soaked in
hydro machine. Then it is placed in dryer and sends for ironing. If anything found wrong
then the product is send back to mend it again.

Final checking:

Before packing the product for shipment an inspection team verifies the finished
goods. If the inspection team found any defect from the sheets then they immediately
reject those sheets. These rejected goods are sold to stock lot. After the clearance of the
inspection team the sheet sets are transfer to the packing section for packing. If the
buyer’s inspection team does not find any defect then they will confirm the goods and
shipment the product.

Packing and attach the tag:

The sheets are packed in cartoon or packet for shipment and then they attach tag
on each sheet sets and the cartoon.

Stock lot:

If the buyer inspection team does not approve the clearance of if buying house
finds any defective sweaters then they will reject those sweaters. Those rejected goods or
sweaters are then sold to stock lot. It can be local or foreign buyer.

For example:

If Zaber and Zubair fabric limited found1000-defect sheet sets and the company
will immediately reject those sheets. The Zaber and Zubair fabric limited will sell these
sheet sets to the local traders in Dhaka.

Shipment:

The customer may pick up the ordered goods at the shipping dock. The goods are
delivered by the ship.

Maintain records:

Every Company should maintain their cost records. The cost includes the salaries
of the labor, rent, overhead, utilities, etc. When the company get order from the buyer
then they cover both fixed and variable cost and ultimately they reach profit margin. But
if company do not get any order then their fixed costs will considered as net loss.

Prepare reports:

After completing all the necessary adjustments the company will prepare financial
reports. This report will help the manager to making future planning.
DFD Existing process OF CONVERSION CYCLE
Explanation of the existing Logical DFD (zero-level) of the Conversion
Cycle

Obtain Sample:

The data flows from process to Fabric Company, it means they obtain sample
from the buyer. The data flows from buyer to the process; it means buyer sends the
samples to the sweater industry. They keep all the production related information under
pricing, order and inventory data.

Initial inspection:

Here buyers inspection team checks the sample and give clearance. For this
reason, the data flows from buyer entity to the process.

Mass production:

Here the data flows from Fabric Company to the process. After developing the
samples and receiving confirmation from the buyer Fabric Company moved into the
process of mass production. It includes printing, stitching, spinning, ironing and packing.
They need the information of inventory data, actual production and production planning
data.

Final inspection:

When the raw materials are converted into finished products, the buyer’s inspection
team checks the products and gives the clearance if they like the product. So the data
flows from the buyer to the process. If they find anything wrong in the product then they
reject those products. Those rejected goods or products are sold to the stock lot.

Shipment:

The data flows from process to the buyer entity because Fabric Company sends
goods to the buyer. They keep the shipping information under shipping data. Similarly,
they also keep the information of receivables and sales under receivables and sales data.

Maintain records and prepare reports:

To prepare financial report, the company needs general ledger data and other data.
The data flows from process to the manager entity because on the basis of this report
manager takes decisions for future planning.
RECMMMMMMMMM OF COVERSION CYCLE
Explanation of Recommended Logical DFD of Conversion Cycle

We cannot reduce or eliminate the process of conversion cycle but we can make it
faster, less expensive and less time consuming by applying few systems. These are
mentioned below:

Obtain sample through online:

In the existing Logical DFD of the conversion cycle we have noticed that the
obtains sample from the buyer through fax or by post. If the process has been changed to
on-line system then the system will be faster and easier as well.

Initial inspection:

Here buyers inspection team checks the sample and give clearance. For this
reason, the data flows from buyer entity to the process.

Mass production by expert system:

By using expert system, Zaber and Zubair fabric limited can increase their mass
production level. This system gives more accurate and errorless results to the production.
Parcel service is not safe and it takes long time to reach to the customer. To overcome
this problem Zaber and Zubair fabric limited can design their link through online. Both
buyer and seller can communicate or chat with each other through Internet. It helps in
reducing the costs of talking long distance phone calls.

Final inspection:

When the raw materials are converted into finished products, the buyer’s inspection
team checks the products and gives the clearance if they like the product. So the data
flows from the buyer to the process. If they find anything wrong in the product then they
reject those products. Those rejected goods or products are sold to the stock lot.

Shipment:

The data flows from process to the buyer entity because Fabric Company sends
goods to the buyer. They keep the shipping information under shipping data. Similarly,
they also keep the information of receivables and sales under receivables and sales data.

Prepare report and maintain record by using accounting software:

By using accounting software like Peachtree, financial report can be prepared more
accurately and faster than the previous system.
Conclusion:
Each of these types of information systems serves that are similar yet different.
Firms employ information systems as required to fulfill their total information needs. In a
typical firm we will find an intermingling of the systems. Smaller firms are likely to
emphasize the AIS, since they tend to be simpler, with the managers gathering more of
their decision-making information informally. Medium-sized firms, being more complex
and having more one level of management, tend to require more formalized MIS as well
as AIS. Large firms being extremely complex and having several levels of management
often scattered to numerous sites, tend to emphasize decision support and expert systems
as well as MIS and AIS. As a generalization, we may say that the medium and large firms
emphasize computerization to a higher degree than the small firms.
References:
• Accounting Information Systems, Joseph W.Wilkinson.

• Management Information Systems, Kenneth C.Laudon, Jane P.Laudon.

• www.znzfab.com