A company's conversion processes involve the activities related to the transformation of resources into goods or services. These resources include the following:

  • Materials, including raw materials inventory
  • Labor, namely, the human resources required for operations
  • Overhead, including fixed assets, indirect materials, indirect labor, and various other expenses necessary to run the operating facility

Exhibit 11-1 highlights the portions of the conversion processes addressed in this chapter, as they relate to the overall accounting system.

A company must have systems in place to capture, record, summarize, and report all of its conversion activities. The major activities within this process include operational planning that supports the company's strategies, optimizing the use of the employees, property, and inventories that are needed in operations, controlling production flows, ensuring product quality, and preparing the related cost accounting and financial accounting records. These are considered routine processes in most companies because of the large number of transactions encountered on a daily basis.

Exhibit 11-1 Conversion Processes within the Overall System


Although many companies are not considered manufacturing firms—that is, their principal functions are not manufacturing operations—most companies do conduct ...

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