PORQUERINO, Gia Layne C.

IV-BSA

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.

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

Local Pricing Receive Enter

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

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.

PORQUERINO, Gia Layne C.
IV-BSA

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.
PORQUERINO, Gia Layne C.
IV-BSA
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.
PORQUERINO, Gia Layne C.
IV-BSA
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.

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

Identification Give Receiving Checking

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

Prepare Inventory
Payment
Reports

Maintain
Accounts
Payable
Figure: Steps of Expenditure Cycle.
PORQUERINO, Gia Layne C.
IV-BSA
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.
PORQUERINO, Gia Layne C.
IV-BSA

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.
PORQUERINO, Gia Layne C.
IV-BSA
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.
PORQUERINO, Gia Layne C.
IV-BSA

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
back L/C Fabric
Suppliers
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
PORQUERINO, Gia Layne C.
IV-BSA
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.
PORQUERINO, Gia Layne C.
IV-BSA
Production/Conversion Cycle

Definition of Production/Conversion Cycle

Production/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.

Take Printing, Ironing

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

Prepare Packing Final

Maintain
reports records
Shipmen and attach checking
t the tag

Figure: Steps of Conversion Cycle.

Stock
Explanation of Conversion Cycle: lot

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:
PORQUERINO, Gia Layne C.
IV-BSA
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:
PORQUERINO, Gia Layne C.
IV-BSA
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.