Accounts Receivable Cycle

Accounts Receivable Cycle

Riordan Manufacturing, an industry leader in the field of plastic injection molding, has facilities in California, Georgia, Michigan and China. The accounting functions are carried out in each individual location, and consolidated for processing in the corporate offices in California. The Georgia and Michigan locations, being newly acquired, are using systems that are not completely compatible with the corporate offices. This is causing problems on many levels and within this paper, Learning Team A will discuss the accounts receivable cycle as Riordan Manufacturing would like to achieve.

Learning Team A will discuss the strengths and weaknesses of the internal controls of the accounts receivable cycle, the integration of the cycle into enterprise wide accounting information systems and the different types of information systems that will be needed for the integration. Finally, Team A will present a flowchart showing how the accounts receivable information optimally flows through the company.

Strengths and Weaknesses of Internal Controls

Internal control is somewhat broad in nature, but specific enough to protect the company. Some basic accounting controls need to be implemented to assure stockholders that the financial records are accurate. Six control activities are necessary to a company’s internal control system. These activities are a good audit trail, sound personnel policies and practices, separation of duties, physical protection of assets, internal reviews of controls and timely performance reports. If controls are not properly implemented, the company could be vulnerable to theft and inaccuracies.

Two controls that are key factors in any accounting department are separation of duties and processing controls. For example, if the same employee processes payments and processes bank deposits, this violates separation of duty controls and leaves the door open to embezzlement. Processing controls will also help to prevent any dishonesty by requiring certain reports to be printed after batches or days input. These reports will then be audited periodically for discrepancies in entry or computer glitches. If strong internal controls such as these are not implemented, then the growth of the company will suffer and profits are likely to be steadily lost.

Integration into Enterprise-Wide AIS

Enterprise resource planning systems, or ERP, is one of the new technologies that influenced the accounting information system. ERP systems integrate all data and processes of an organization into one application. A typical ERP system uses multiple components of computer software and hardware to achieve the integration (Wikipedia, 2007). Among other things, ERP software combines the data of formerly separate applications. This has become helpful in the synchronization of multiple systems. It also standardizes and reduces the number of software specialties required within larger organizations, such as Riordan Manufacturing. (Dunn, Cherrington, Hollander, 2004) One of the major reasons companies implement ERP is its capability of integrating financial information.

The corporate headquarters in California already has a license for a fully integrated Windows based ERP manufacturing, distribution and financial management software application. Being the main operating entity among the Georgia and Michigan locations, the ERP system can help finance and accounting departments consolidate all transactions, such as input from accounts receivable. Incorporating the accounts receivable cycle processes into an enterprise-wide accounting information system depends on the goal of the system integration. But given that all financial transactions provided to Riordan’s corporate offices in California are usually consolidated, the integration may be achieved at a high level by creating some sort of shell reporting model and requiring each system to report its results in compliance with that particular shell (Dunn, et al, 2004). Each piece of the accounts receivable transaction should be submitted in the shell format so the pieces can be easily combined. Having this kind of format, all accounts receivable input from the different entities will be seamlessly