ACC566 Accounting System And Process

ACC566 Accounting System And Process

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ACC566 Accounting System And Process

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ACC566 Accounting System And Process

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Course Code: ACC566
University: Charles Sturt University

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Country: Australia

Question:

Requirements: Write a business report (about 600 words) critically addressing the issues below:

Explain the essential differences between perpetual and periodic inventory systems. With the nature of Fashion Haven’s business, which system would you suggest to the owner? Why?
Using a spreadsheet, calculate the Ending Inventory and Cost of Goods Sold for May, using the average cost, LIFO, and FIFO methods. Present your answers in both normal and formula views with rows and column headings.
Taking into account the context of the firm’s operation and the current purchase price, what method would you suggest to the owner, why?

Accountants often use accounting software for data management, why do they still use spreadsheets? What are the disadvantages of using spreadsheets?
In designing a spreadsheet, why should the report section be completely separated from the data section?

Requirements:
1.Suggest one item that can decrease the bank balance, and one item that can decrease the cash balance. The value for both items must be the same.
2.With the new balances, prepare Golf Club’s Bank Reconciliation at 30 June 2017 from the above data. Provide your handwritten solution – scan or use your phone to copy and paste the image in your assignment. You can use a free scanning app such as Camscanner, OfficeLens, or Google Drive.
3.Record any required journal entries from the bank reconciliation.

What was the bad debt method that the company used? How much was their bad debt expense for the year 2017?
Is there any other method of estimating bad debt? What are their differences?
Analyse the company financial information through at least three ratios and two charts. For any ratios used, justify why these ratios are relevant to your analysis.
Comment on the company report on sustainability.
In your report, you have to provide your advice as to whether your client should invest in the company or not.

This assessment task will assess the following learning outcome/s:

be able to apply conceptual and technical aspects of accounting and prepare relevant business financial statements.
be able to appraise the use of information technology including spreadsheet software in accounting problem solving, and evaluate the Internet as a professional resource.
be able to demonstrate relevant business communication skills including report writing.
be able to contextualise and evaluate accounting information for decision making purposes.

Answer:

Spreadsheet
Spreadsheet is the sheet that reveals the accounting data or other data in columns and rows. This is a computer programme application that replicates the physical spreadsheet through capturing, manipulating and displaying the data arranged in columns and rows. It is one of the most popular used in personal computer.  It is a valuable tool to collect and calculate all types of data. Apart from arithmetical uses spreadsheet can be used for creating concise and clear report that can be updated and sorted just with the click of button. Spreadsheet are used for the below mentioned uses –

Lists – any type of lists like material list, employee list and delivery lists can be created through using the spreadsheet. Further, the sorting power of the spreadsheet is more evidential while any additional data is entered. Moreover, maintaining business data allows the user to sort it by each field.
Accounting – apart from above spreadsheet is used for making valuable calculations. Through entering appropriate formula and mathematical function into any cell the user can turn simple spreadsheet into accounting page. Debits can be entered in one column and credits in another. Further the auto sum function can be used for fast calculation and can be set up for maintaining the running totals. Further, data from any location in workbook can be used in the calculation. Adding the additional worksheet allows the user to organize the information as per requirement (Okamura & Dohi, 2013).
Time sheets – apart from additions and calculations spreadsheet can also be used for making calculations on the basis of time numbers. Formatting the cells for reflecting the data as time allows using the sheet as time sheet. Hence, the user can add description for assorted functions of job, names of employees which in turn enable sorting those data as per the time incurred for the selected field.   

Disadvantages associated with spreadsheet use are as follows –

Vulnerable to the fraud – this limitation associated with the spreadsheet is most damaging among all. It takes place owing to inherent control lack that enables any person to alter the data or alter the formula, value or the dependencies without detection.
Human error – while fraud is considered as threat to the spreadsheet more significant threat areas are there in the spreadsheet that may make the spreadsheet useless. For instance, the spreadsheet is highly susceptible to human errors. If input data is not entered correctly it will make the entire calculation and analysis wrong (Weygandt, Kimmel & Kieso, 2015).

Answer 2
Data section and report section in the excel spreadsheet are differentiated for presenting the sheet in more clear and meaningful manner. Data section presents unprocessed data while the report section presents processed data. Hence, segregation of report area and data area enable the user to take valuable decisions (Miller-Nobles, Mattison & Matsumura, 2016).
Inventory management
Difference between perpetual system and periodic system of inventory
Under perpetual inventory method each transaction for outflow and inflow of the stocks are updated constantly through POS (point of sale) system. Under this method records are maintained for keeping complete record for issue and receipts of inventory. Conversely, under periodic inventory method the inventory method is recorded at regular interval only after taking the physical verification of the stock (Myrelid & Olhager, 2015). Under this method physical count for the stock is carried out and thereafter the inventory records are updated after adjustments, if any.
Major differences between 2 methods are –

Under perpetual system inventories are recorded on the basis of real time of issues and receipts. On the other hand, under periodic system inventory movement details are tracked at the periodic interval.
Perpetual system is based on the book records while the periodic system considers the physical verification as the base (Cho?odowicz & Or?owski, 2015).
Under perpetual system no interference in regular workflow at stock taking time and at the time of verification. On the other hand, under periodic system, regular business operation maybe required to be stopped.
Under perpetual system loss of the goods are included under the closing inventory whereas periodic system includes the same under COGS.
Under perpetual system continuous updating are made for the inventories that are whenever the transaction related to stock takes place. Conversely, in periodic system records are not updated on continuous basis rather it is carried out in a gap of time.
In periodic system information for COGS and cost of sales are provided whereas under perpetual system information for COGS and inventories are provided (Golyagina & Valuckas, 2016).
Inventory purchases under perpetual system are included in raw material account or merchandise account whereas in periodic method purchases are recorded in asset purchase account.  

Fashion Haven opened retail clothing store in Australia. Company is recently considering using the most appropriate inventory method for its stock among periodic system and perpetual system. It is found from the given details that for the month of May the company have 3 purchase transactions and some sales. Therefore, it can be stated that owing to the nature of its business, Fashion Haven generally has number of purchases and sales. Hence, it is suggested to the company to use perpetual method for inventories. It will enable it to record the inventories on real time basis. Further it will enable it to update the inventories whenever there will take place any purchase or sales transactions.  
Computation of closing inventory and COGS for May
Normal view –
FIFO method –
LIFO method
Average cost method
Formula view –
FIFO method –
LIFO method
Average method
Under the FIFO approach that is first in first out cost allocated to goods are measured on the basis of the goods bought 1st. To be more specific, the entity assumes that the goods purchased first will be sold first. Conversely, as per LIFO (last in first out) method the items purchased last are sold first. Under average method average quantity of goods purchased and their average price is considered (Bragg, 2013).  

Computation of gross profit

 

 

 

 

 

 

 

Particulars

FIFO

LIFO

Average method

Sales revenue

$  10,800.00

$ 10,800.00

$         10,800.00

Less: COGS

$    5,815.00

$   5,975.00

$           5,917.11

Gross profit

$    4,985.00

$   4,825.00

$           4,882.89

Looking into the nature of Fashion Haven’s business and increasing trend of purchase price it is recommended that the company shall use FIFO method. Reason for selecting this method is that it will give better indication for ending inventory’s value.  Further as the prices for its purchases are in increasing trend selling the goods those were purchased first will help in maintaining profitability. Moreover, as per the calculation it can be identified that under FIFO method the company will be able to earn highest amount profit as compared to other 2 methods (Lwiki et al. 2013).
Bank reconciliation
Requirement 1
One item that results into reduction of bank balance correcting error made by bank amounting to $ 1000. For example, if the company deposits a check for the amount of $ 13,000 and bank made entry for $ 14,000. When this error of recording $ (14,000 – 13,000) = $ 1,000 will be corrected by bank it will decrease the bank account by the amount of difference that is $ 1,000. On the other hand, one item that will reduce the cash balance is when the account is wrongly debited by bank for amount of $ 1,000. This wrong debit will eventually decrease the cash balance by $ 1,000.
Requirement 2
Adjusted bank reconciliation
Requirement 3
Journal entries

Date

Particulars

Debit

credit

30th June 2017

Bank service charge expenses

$      250.00

 

 

                       To cash

 

$      250.00

 

[payment of service charges]

 

 

 

 

 

 

 

 

 

 

 

Cheque # 256

$   2,030.00

 

 

Cheque # 257

$      520.00

 

 

Cheque # 258

$      256.00

 

 

                   To bank

 

$   2,806.00

 

[cheque issued but not presented in bank]

 

 

 

 

 

 

 

Account receivable

$   1,920.00

 

 

                    To cash

 

$   1,920.00

 

 

 

 

 

Bank A/c

$      520.00

 

 

                    To cash

 

$      520.00

 

[wrong deduction from bank]

 

 

 

 

 

 

 

Interest income

$      122.00

 

 

            To bank

 

$      122.00

 

 

 

 

 

 

 

 

 

Account payable

$   1,000.00

 

 

             To cash

 

$   1,000.00

 

[Wrong debit given by bank]

 

 

 

 

 

 

Management of bad debt and financial decision
Coca cola Amatil is one of the biggest bottlers apart from distributing alcoholic as well as non-alcoholic ready-to-drink beverage in Asia pacific segment. Apart from this, product range of the company includes spring water, energy and sports drinks, iced tea, ready to eat food and beverages and coffee (Ccamatil.com, 2018).

Bad debt method of the company –

Bad debt is the loss that is incurred by a company when credit extended to any company becomes unrecoverable owing to either the debtor is going through financial crisis or the debtor has gone bankrupt or for any other reason the amount become uncollectible. It is found from the annual report of the company for the year ended 2017 that the treats its bad debt on the basis of allowance method. Under this method the account receivable procedure estimates the expenses for bad debt with regard to sale in same accounting period. Bad debt expenses of the company for year closing on 30th June 2017 are $ 9.5 million (Ccamatil.com, 2018). Whenever it is evidential that the amount due as account receivables are not receivable in part or fully, it recognise the amount as doubtful debt under the income statement.

Other method of bad debt estimation

Apart from the allowance method the bad debt can be estimated through write-off method. Difference between 2 methods are that under write-off approach bad debt affects the balance sheet only and no loss or expenses is recognized by the income statement as write off is included in the adjusting entries for previous year for the amount of estimated bad debt. On the other hand, under the allowance method if account of specific customer is recognised as uncollectible it is written off through removing the particular amount from the entire account receivable (Warren, Reeve & Duchac, 2013).  

Analysis of financial information –

Ratio analysis –

Ratio

Formula

Result

Net profit ratio

Net profit/sales

9.34%

Current ratio

Current assets/current liabilities

1.52

Debt equity ratio

Total debt/shareholder’s equity

2.22

Net profit represents the amount left with the company after payment of all the operating, financing and tax expenses. Net profit plays an important role while the long term sustainability aspect of the company is analyses by the investors. It can be found that the net profit margin for Coca Cola Amatil for the year ended 2017 is 9.34%. as the net profit is positive it signifies that the company is able to generate some income for its shareholders after meeting all the business expenses (Hoggett et al. 2015).  
Current ratio is analysed for analysing the liquidity position of the company. Analysing the liquidity position is very important as it determines whether the company is able to pay its short term obligations when they become due with its available short term assets. Current ratio of more than 1 signifies that the company’s current assets are sufficient to cover the short term liabilities. Hence, current ratio of the company 1.52 is indicating the liquidity position of the company is strong (Pervan & Kuvek, 2013).  
Debt to equity ratio is computed to analyse the leverage position of the company. Very high debt to equity ratio signifies that the company is highly leveraged as high portion of its earnings are consumed by interest payment on debt. Debt equity ratio of the company 2.22 is indicating that the company shall raise further capital though issuing equity rather than raising through debt (Delen, Kuzey & Uyar, 2013).  
Earnings per share chart –
Profitability chart –
Above presented charts for profitability and EPS of the company for last 5 years are indicating that the company improved its profitability position as well as the EPS over the time of last 5 years. Therefore the company can be regarded as sustainable over long run (Carraher & Van Auken, 2013).

Advice regarding investment

It can be concluded from the above discussion that the company seems to be good opportunity for investment as the profitability and liquidity position is good. Therefore, the client shall invest in Coca Cola Amatil.
Reference
Bragg, S.M., (2013). Inventory management. AccountingTools.
Carraher, S., & Van Auken, H. (2013). The use of financial statements for decision making by small firms. Journal of Small Business & Entrepreneurship, 26(3), 323-336.
Ccamatil.com. (2018). Coca-Cola Amatil – Australia, New Zealand & South Pacific. [online] Retrieved 20 September 2018, from https://www.ccamatil.com/
Cho?odowicz, E., & Or?owski, P. (2015). A periodic inventory control system with adaptive reference stock level for long supply delay. Measurement Automation Monitoring, 61.
Delen, D., Kuzey, C. & Uyar, A., (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
Golyagina, A., & Valuckas, D. (2016). Representation of knowledge on some management accounting techniques in textbooks. Accounting Education, 25(5), 479-501.
Hoggett, J., Edwards, L., Medlin, J., Chalmers, K., Hellmann, A., Beattie, C., & Maxfield, J. (2015). Accounting.
Lwiki, T., Ojera, P.B., Mugenda, N.G. and Wachira, V.K., (2013). The impact of inventory management practices on financial performance of sugar manufacturing firms in Kenya. International Journal of Business, Humanities and Technology, 3(5), pp.75-85.
Miller-Nobles, T.L., Mattison, B. & Matsumura, E.M., (2016). Horngren’s Financial & Managerial Accounting: The Managerial Chapters. Pearson.
Myrelid, A., & Olhager, J. (2015). Applying modern accounting techniques in complex manufacturing. Industrial Management & Data Systems, 115(3), 402-418.
Okamura, H. & Dohi, T., (2013), November. SRATS: Software reliability assessment tool on spreadsheet (Experience report). In Software Reliability Engineering (ISSRE), 2013 IEEE 24th International Symposium on (pp. 100-107). IEEE.
Pervan, I., & Kuvek, T. (2013). The relative importance of financial ratios and nonfinancial variables in predicting of insolvency. Croatian Operational research review, 4(1), 187-197. 
Warren, C., Reeve, J. M., & Duchac, J. (2013). Financial & managerial accounting. Cengage Learning.
Weygandt, J.J., Kimmel, P.D. & Kieso, D.E., (2015). Financial & managerial accounting. John Wiley & Sons.

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