Automated accounting information systems generally include at least five cycles. Each of these cycles collects their own data and may pass data to other cycles, but in all cases data from each of these cycles are passed to the general ledger reporting system for financial reporting and analysis.
The revenue cycle performs three basic functions. First, they get finished goods from the production cycle. These goods are eventually sold to customers which leads to our second function. The second function of the revenue cycle is to provide a source of funding for the financing cycle. You will see more about the financing cycle later. As funds come into the organization from revenue cycle related activities they immediately become a source of funds for the – financing cycle. Finally, the revenue cycle provides crucial data to the general ledger reporting system so that the firm can do reporting on the activities of this cycle.
Our second cycle, the expenditure cycle, serves as the cash outflow for the firm. First, the expenditure cycle obtains the necessary funding from the financing cycle in order to conduct its activities. After receiving this cash inflow, the expenditure cycle uses the funds to purchase necessary items for the firms, such as the raw materials that will be used in the production cycle. As activities occur within the expenditure cycle, key data is sent to the general ledger reporting system for financial reporting and analysis. When data is passed to the general ledger and reporting system it is used for financial reporting and analysis. This data is summarized and consists of payment and non-payment related data. This data will be consolidated and summarized for transmission to the general ledger reporting system. The data that will be transmitted over include, but is not limited to, sales, cash, and accounts receivable.
The third cycle, the production cycle, is only used in organizations that manufacture their goods. In order to manufacture goods, the production cycle obtains raw materials that were purchased in the expenditure cycle. In order to convert the raw materials into finished goods, the production cycle obtains labor resources from the human resources payroll cycle. Once the finished goods are complete they are transferred to the revenue cycle to be sold to customers. As activities occur within the production cycle, key data is sent to the general ledger reporting system for financial reporting and analysis. Since the production cycle interacts with three other cycles, the data that is collected here and transferred to the general ledger reporting system relates to manufacturing aspects of each of the three cycles, such as cost accounting data. There is no need to duplicate the data from the other cycles.
The fourth cycle, the human resources payroll cycle, is the cycle where all human resources and payroll activities occur. It is the combination of these six activities that are used to provide labor resources that can be used by the production cycle. But remember, labor resources can be elsewhere in the organization, such as to supplement activities within the other cycles. Of course, the source of all funding for this cycle comes from the financing cycle. From a data perspective, these six activities also serve as the basis for collecting data within the human resources payroll data, and then summarized data is sent to the general ledger reporting system. The data that is sent to the general ledger reporting system focuses on the area of wages and benefits.
The final transactional cycle, the financing cycle, serves as a cash inflow, outflow for the organization. While the financing cycle may obtain funds for the firm through the sale of items such as stocks and bonds, the financing cycle relies heavily on receiving funds from the revenue cycle as the result of sales to customers. From a cash outflow perspective, the financing cycle provides funds to the expenditures cycle and the human resources payroll cycle. The financing cycle also sends information regarding these data exchanges to the general ledger reporting system for financial reporting and analysis.
The general ledger reporting system serves as a data repository for data from each of the transactional cycles. While each cycle is responsible for collecting and managing its own data, each is also responsible for transferring summarized data to the general ledger and reporting system. The data transferred to the general ledger reporting system is summarized and used for financial reporting and analysis by internal and external users. This concludes our review of the five transactional cycles.
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