Description

In a manufacturing, assembling, or processing business, the major activity of the conversion cycle is the production of a finished product, using re­ sources acquired for that purpose-materials, direct labor, and elements of overhead. The conversion cycle of such an entity would include all of the inventory-related processing and movement of resources until finished goods are placed in the final warehousing location within the entity.

Activities in the conversion cycles of entities in other industries are not as extensive as those in manufacturing. To some extent, however, utilities, health care institutions, real estate companies, and retailers manage inventories or other pools of resources.

Accounting within a conversion cycle includes the procedures necessary to account for the movement of resources within the entity and to match properly the use or expiration of resources with the period benefited. Inventories, property and equipment and related depreciation, prepaid expenses, other nonmonetary assets, and most accrued liabilities normally are accounted for within the conversion cycle.

Course Key Concepts: Internal Accounting Controls, SOX 404, ICFR, Internal Control over Financial Reporting, Independent Public Accountants, Internal Auditors, Business Cycles, Treasury, Expenditure, Purchasing, Payroll, Conversion, Revenue.