Accounting System and Process

This document provides an in-depth analysis of accounting systems and processes, including inventory systems, perpetual inventory system, periodic inventory system, and Xero cloud based accounting information system. It discusses the advantages and disadvantages of each system and provides recommendations for adoption. The document also includes a memo, report, and letter related to accounting systems and processes.

Running head: ACCOUNTING SYSTEM AND PROCESS
Accounting System and Process
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Answer to question 1: Memo:..........................................................................................................2
Answer to question 2: Report:.........................................................................................................6
Introduction:................................................................................................................................6
Computerized Accounting Information System:.........................................................................6
Xero Cloud based accounting information system:.....................................................................7
Advantages of Xero Cloud based accounting information system:.............................................7
Disadvantages of Xero Accounting information system:............................................................8
Adoption of the Xero Accounting information system:..............................................................8
Conclusion:..................................................................................................................................9
Answer to question 3: Letter:........................................................................................................10
Answer to question 4: Bank Reconciliation:.................................................................................13
Sub part (i):................................................................................................................................13
Sub part (ii):...............................................................................................................................13
Sub part (iii):..............................................................................................................................15
References and bibliography:........................................................................................................16

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Answer to question 1: Memo:
MEMORANDUM
Date: 13 May 2019
To: Directors, Spotty Ltd
From: [Name, Designation]
Subject: Inventory System
Introduction:
This memorandum is prepared to explain various inventory systems and their application
in the business organization. Inventory system means inventory recording and controlling system
in the business practice. There are various concepts in the inventory management system. Such
as perpetual inventory, periodic inventory and Just in time inventory system. In this memo some
of such inventory systems have been explained in details to understand its use and importance in
the business.
Perpetual Inventory System:
Inventory system is recording and maintaining the inventory related transactions in the
books of accounts. There are various concepts in doing such work in business practice. One of
the most important concepts in inventory management and inventory system is the perpetual
inventory system. The main concept of the perpetual inventory system is to record the inventory
and to update the inventory records as and when any purchase of issue of inventory occurs. The
main theme of the perpetual inventory system is to record the purchase and sales of the inventory
as and when such purchase or sale happens. It recognizes the cost of goods sold as and when the

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sales transaction is recorded. Now the question may arise about the valuation of cost of goods
sold when recording the cost of goods sold entry in the books of accounts. The same problem
arises at the time of valuation of ending inventory. To solve that problem there are various
methods of inventory records that have been discussed in the following parts in this memo
(Chołodowicz & Orłowski 2016).
First-in-firs-out method:
First-in-first-out (FIFO) is a method of recording the inventory in the perpetual inventory
system. It requires the issue rice to be recorded on the first in first out basis. It implies the
materials, which are purchased earlier, would be issued earlier and the materials, which have
been purchased last, would be issued last. Therefore, in the first in first out method the oldest
materials are issued first then the recent materials are issued. It is only for the recording purpose,
and to consider the cost of materials for valuing the cost of goods sold. In this method the cost of
goods sold is valued at the oldest price and the closing inventory is valued at the latest price. At
the inflationary period, in this method there would be a low amount of cost of goods sold and a
high amount of closing inventory, which will be showing a high amount of profit. This method is
easy to account for but is not as effective and efficient as the weighted average method. In
business organizations, where the prices of inputs fluctuates frequently it is recommended to
adopt the FIFO method of inventory valuation (Kaplan & Atkinson 2015).
Weighted Average method:
Weighted average method of inventory valuation or record keeping is another important
method of inventory management or inventory record keeping. In this system, the issue prices
are valued at the weighted average price based on the last held inventory and their total price. In

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this method, the issue price is computed by dividing the total cost of inventory by the total
quantity of the inventory held. It is a more rational and scientific method of inventory record
keeping, it considers the most recent as well as the historical price for valuing the cost of goods
sold and inventory (Kaplan & Atkinson 2015). In the inflationary period, there would not be
much effect on the profitability for this method of inventory valuation. It can be applied in
manufacturing business where the stocks are held for a considerable period of time and the prices
of inputs do not fluctuate frequently (Chołodowicz & Orłowski 2016).
Periodic Inventory System:
Periodic inventory system is another method of inventory management and inventory
control system. In this method only the purchase of inventory is recorded as and when the
purchase transaction takes place, but no cost of goods sold entry is made at that time. In this
method, the cost of goods sold is determined by comparing the opening inventory, sot of
purchase of materials and the closing inventory. To compute the cost of goods sold, the cost of
purchase of materials is added with the opening inventory and then the closing inventory is
deducted from to get the value of cost of goods sold. This is a less effective and less rational
method of inventory management and inventory control system (Kaplan & Atkinson 2015).
Conclusion:
From the above discussion and analysis it can be concluded that, there are various
inventory management system which can be used in business practice to record inventory and to
control and manage the inventory system. The periodic inventory system considers overall
movement in the inventory for inventory valuation and valuation of cost of goods sold. The
perpetual inventory system is more rational, efficient, effective and scientific system. It is

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recommended for the company to adopt the weighted average method of perpetual inventory
system, which would be more suitable for them.

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Answer to question 2: Report:
Introduction:
Accounting system is the backbone of any business organization. It is the language for a
business organization to express and explain their financial performance and position. Without
accounting the modern business organization cannot control their financial performances and
financial records. The information generated as an output of the accounting system is used in
managerial decision-making. With the development of the business and advancement of the
technology, various computerized and automated system has been developed to doe the
accounting and reporting job with the help of technology and information system. In this report
such accounting information system have been analyzed and discussed further (Belfo & Trigo
2013).
Computerized Accounting Information System:
With the advancement and innovation in the technology, various computerized software
packages have been developed to make the accounting job easy and accurate. There are various
automated accounting information system and software to record the day-to-day financial
transaction and to process them and to generate meaningful information from there (Collier
2015). There are various desktop accounting software packages available in the market, which
can be used for the accounting and reporting in the computers. In addition, some internet based
accounting packages can be used for the accounting purpose. Such internet based accounting
systems are known as the cloud based accounting systems. Some example of desktop accounting
packages are SAP, Mayob, Recon and so on and some example of cloud based accounting
information system are Xero, cloud based accounting system, Quick books accounting system

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and so on. In the following paragraphs the features, applications, advantages and disadvantage of
Xero cloud based accounting system has been discussed (Belfo & Trigo 2013).
Xero Cloud based accounting information system:
Xero is a cloud based accounting software package, which can be accessed from
anywhere in the world. It just requires a user id and password to enter into the software and to
work on it. To use the Xero cloud based accounting information system, one need to buy the
annual subscription for the Xero, and to get their company registered with the Xero. Various
roles can be set and defined for various users in the Xero according to their authority and scope
of work in the organization (Hossack 2015). In the initial stage the company and its features and
activities needs to be set after entering into it. All the opening balances of assets and liabilities
are to be given at the very first stage. The Xero is an automated cloud based software, with the
entry of some purchase, sales, receipts and payments transactions, all the effect will be
automatically given to the respective ledgers. It prepares all the reports instantly and can produce
the results in a single click. It is being widely used because of its simplicity and performance. In
the following paragraphs it usefulness, importance, advantages and disadvantages have been
discussed (Hossack 2015).
Advantages of Xero Cloud based accounting information system:
The system processes the financial data and produces the required and meaningful
information and reports based on the given criteria. The main feature of the system is its
accessibility from the anywhere in the world. The software can be accessed from anywhere using
the internet and can be worked into it. Its popularity is because of its simplicity. It is very much
simple and easy to record transactions in the system; the rest part of processing the information is
done by itself automatically. Its user interface is also very simple and easy. Its unique feature is

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its presentation of information. It shows all the important figures and facts in the dashboard of
the system with a bar chart. It also shows the pending invoices and pending bills to be paid in the
dashboard. One more important feature of the system is the inventory recording and inventory
control system. It tracks the inventory with every inputs and outputs in the inventory. Therefore,
it is very much user friendly easy and efficient in performing all the accounting and reporting
financial transactions (Hossack 2015).
Disadvantages of Xero Accounting information system:
The Xero accounting information system is a completely cloud based accounting system
which is accessed using the internet. All the information are stored in the cloud and updated in
the cloud as and when new information is added to it. Hence, the main disadvantage of the
system is its security (Hossack 2015). As it is a complete internet based system there is a security
issue in the system. Various important information of the business can be stolen by others from
the internet. If the system gets hacked or if he user id and password is lost to anyone else, then
the information of the business would be licked to the outsiders. If that can be assured there
would be no problem in using it for the business organization (Brandas, Megan & Didraga
2015).
Adoption of the Xero Accounting information system:
After observing the importance, advantages and uses of the Xero cloud based accounting
system it can be recommended for the company to adopt the accounting system and to use it for
recording their day-to-day business transaction. It can help them in controlling their financial
transactions as well as to control their inventory system. The company is having various
inventory related transactions, which can be controlled in Xero cloud based accounting system
with a proper tracking of the inventory. It can also help them to generate meaningful information

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as and when required and can be used in managerial decision-making process. They need to
adopt the system according to their requirement and setup must be done according to their
information needs (Brandas, Megan & Didraga 2015).
Conclusion:
From the above discussion and analysis, it can be concluded that, Accounting system is
an integral part of the business organization, it is very important for the organization also. If it
can be done effectively and efficiently and meaningful accounting or financial information can
be generated as an output, internal and external stakeholders would be beneficial and various
important decisions can be taken based on such information. Xero, is a fully cloud based
accounting system which is having various advanced and unique features, which can help an
organization in better accounting, management and decision making process.

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Answer to question 3: Letter:
To
The Directors, Mr. and Mrs. Spot
Spotty Ltd
Australia
14 May 2019
Subject: Employee fraud and Importance of internal control
Dear Sir/Madam,
This letter is prepared to inform you the following issues and importance of the internal
control system. Although there is no such events of frauds, mismanagement activities in the
organization, various recent frauds and mismanagements in some Australian companies have
been discussed, and the importance of an internal control system to prevent such activities have
been outlined.
Cash mismanagement is the case, when an employee of an organization steals cash or
mismanages the cash of an organization. It is an unethical behavior of the employee of an
organization. It must not be entertained, and necessary measures must be taken for preventing
such activities in a business organization. Some recent instances of such cash mismanagement
activities in Australia can be outlined as follows.
A recent study has shown that almost $217 million has been stolen by the bank
employees in the last 13 years in Australia, among them a women employee of ING had stolen
$45 million, which wan the biggest cash mismanagement case by employees. In another case a
female employee of an Australian company, stole almost $19 million. She had the cheque
signing authority of the company and was one of the two employees having authority to process

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electronic fund transfer activities. She transferred fund from the company’s account to her an
account controlled by her in the name of her own business. She purchased properties by that
amount to channelize the fund and to extract it from the banking cycle. In this case the employee
used to make bills drawn on the name of the company using her own business name, and
transferred fund to pay off those bills which was totally fake. She hided the real case in behind
and shown all those bill as actual payables to the company and duly paid those bills which was a
total fraud.
In another case of employee cash mismanagement, a male employee of 41 years age, who
was employed as the financial controller of the company and the company secretary for a
transport company had stolen a significant amount of cash within a period of only five months.
He was given the authority and role to act as the authorized signatory on behalf of the
organization for banking transactions. Within a five months period, he transferred a total of $11
million to his personal account and bought property and a luxury car using that fund.
Therefore, if all those instances and cases are considered, it can be observed that, there is
a risk of cash mismanagement in every organization. As human beings are working in behalf of
the business organization in various roles and positions, their motives and intentions can never
be completely known by the organization. It depend on their ethical values and beliefs, whether
they would involve in such activities or not.
The risk of such employee frauds can be avoided and reduced applying various internal
control procedures for cash management and cash transactions. In an organization there are
mainly two types of cash transactions, one is cash receipts and the other is cash payments. In
both the ways the cash mismanagement is possible by the employees. Hence, in both the sides of

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the cash transaction, implementation of internal control system is required. Some important and
effective internal control techniques have been described as follows.
Access: For applying a control over the cash transactions the access to the cash
transactions should be defined and should be restricted to certain levels, such as a petty cashier
should never make any trading bill payments. Authority of making transaction must be
predefined and must be given based on their duties and responsibilities. If they are given undue
power and authority they would be entering into unethical practices.
Documentation: Proper documentation should be there supporting every cash transaction. It
must be recorded and duly authorized by the respective authority before making any cash
payment and receipts. It ensures the proper authority and the validity of the transaction.
Reconciliation: All the cash transactions must be reconciled at the end of a specified
frequency of period. It must be matched with the documents and bank records. It ensures the
correctness and proper treatment of the cash transactions.
Lastly, it is very important to assign the authority to different employees of an
organization. It must not be the case that, a single employee prepares a bill, authorizes it makes
payment for that. The authority should be so distributed that, the employee making the bill,
authorizing it, paying it and lastly reconciling it would be different persons. In this way the
dishonest employee would not involve in fraud activities as he knows that, this work will be
checked by others.
Therefore it can be recommended for the company to adopt such internal control
measures to avoid any potential risk of employee fraud and cash mismanagement.
Sincerely
[Name]

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Answer to question 4: Bank Reconciliation:
Sub part (i):
Sub part (ii):

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Sub part (iii):

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References and bibliography:
Belfo, F., & Trigo, A. (2013). Accounting information systems: Tradition and future
directions. Procedia Technology, 9, 536-546.
Bonny, P., Goode, S., & Lacey, D. (2015). Revisiting employee fraud: gender, investigation
outcomes and offender motivation. Journal of Financial Crime, 22(4), 447-467.
Brandas, C., Megan, O., & Didraga, O. (2015). Global perspectives on accounting information
systems: mobile and cloud approach. Procedia Economics and Finance, 20, 88-93.
Chołodowicz, E., & Orłowski, P. (2016). Comparison of a perpetual and PD inventory control
system with Smith Predictor and different shipping delays using bicriterial optimization
and SPEA2. Pomiary Automatyka Robotyka, 20.
Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Dimitriu, O., & Matei, M. (2014). A new paradigm for accounting through cloud
computing. Procedia economics and finance, 15, 840-846.
Hossack, S. (2015). Cloud-based accounting and productivity tools for practitioners and
taxpayers. Taxation in Australia, 50(5), 265.
Iyer, N., & Samociuk, M. (2016). Fraud and corruption: Prevention and detection. Routledge.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.

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Kummer, T. F., Singh, K., & Best, P. (2015). The effectiveness of fraud detection instruments in
not-for-profit organizations. Managerial Auditing Journal, 30(4/5), 435-455.