Accounting System

This document provides information about accounting system, inventory control system, perpetual inventory system, periodic inventory system, Xero cloud based accounting information system, advantages and disadvantages of Xero accounting information system, and suggests internal control mechanism to prevent employee fraud.

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

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Table of Contents
Answer to question 1:......................................................................................................................2
Sub part (i): Memo:.....................................................................................................................2
Sub part (ii): Journal:...................................................................................................................5
Answer to question 2: Report:.........................................................................................................9
Introduction:................................................................................................................................9
Computerized Accounting Information System:.........................................................................9
Xero Cloud based accounting information system:...................................................................10
Advantages of Xero Cloud based accounting information system:...........................................10
Disadvantages of Xero Accounting information system:..........................................................11
Adoption of the Xero Accounting information system:............................................................11
Conclusion:................................................................................................................................12
Answer to question 3: Letter:........................................................................................................13
Answer to question 4: Bank Reconciliation:.................................................................................15
Sub part (i):................................................................................................................................15
Sub part (ii):...............................................................................................................................15
Sub part (iii):..............................................................................................................................17
Answer to question 5: PPE transactions:.......................................................................................18
References and bibliography:........................................................................................................20

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Answer to question 1:
Sub part (i): Memo:
MEMORANDUM
Date: 14 May 2019
To: Directors, Spottie Ltd
From: [Name, Designation]
Subject: Inventory System
Introduction:
This memorandum is prepared to analyze and understand different types of inventory
control system and inventory valuation methods. There are various inventory management
systems, which can be used in a business organization, to control the flow of inventory as well as
to make the valuation of cost of goods sold and ending inventory. In the following parts of this
memorandum, some of such inventory management systems have been described briefly.
Perpetual Inventory System:
There are various types of inventory which can be successfully applied in a business
organization to control the flow of inventory. Perpetual inventory system is a type of inventory
management system, under which, all the purchases and issues of inventory are recorded
periodically as and when such purchase or sales transaction occurs. In this system, purchases are
recorded at actual costs and issues are recorded on cost based on certain valuation techniques.
There are various valuation methods, which are followed in perpetual inventory system, such as

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FIFO method, LIFO method, Simple average method and weighted average method of inventory
valuation. In this system with every sales transaction, a separate entry is passed to record to cost
of goods sold. At the end of the period the value of closing inventory is automatically determined
by the store ledger balance. Some of such inventory valuation methods have been described
below.
First-in-firs-out method:
First In First Out (FIFO) is a method of inventory recording and inventory valuation in
which, all the purchases of inventory are recorded as and when the purchases are made and
issues are recorded on the basis of prices of earliest received materials. In this system the cost of
goods sold is measured taking the prices of materials received in the earlier stage and the closing
inventory is valued at the recent market price. In the inflationary period this system is suitable
and can give a reasonable and logical result.
Weighted Average method:
Weighted average method is one more type of inventory valuation technique, in which
the purchases are recorded at actual costs but the issues are recorded at the weighted average
price of the materials. To ascertain the issue price or the cost of goods sold, the amount of last
held materials is divided by the quantity of materials to get the issue price. In this system, both
the cost of goods sold and the ending inventory is valued at weighted average price and is
suitable for every type of business.
Periodic Inventory System:

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In contrast of the perpetual inventory system, periodic inventory system is one more type
of inventory control and management system. In this system, the purchases are recorded as and
when the purchase transaction is made but the issues are not recorded properly as and when such
issues take place. At the end of the period the closing inventory is valued by physical stock
taking and considering the current market price of the inventory. Then the cost of goods sold is
determined by the difference between the cost of goods available and the cost of ending
inventory. Here, the cost of goods available is equal to the summation of beginning inventory
and the cost of purchase. This is a traditional system which is less rational and effective in real
time business practice.
Conclusion:
From the above discussion, it can be concluded that, inventory is a resource for the
business which needs to be well managed for an optimum and efficient utilization of business
resources. To achieve such objective there are various inventory management concepts and tools
which can be applied in a business. The perpetual and weighted average method of inventory
valuation is more efficient and effective for business and hence, it can be recommended for the
company to adopt the weighted average method of perpetual inventory system.

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Sub part (ii): Journal:

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From the above calculations and journal entries, it can be observed that, in perpetual
inventory system all the purchases and sales are recorded in the books of accounts and the
valuations of cost of goods sold have been made along with the sales transactions, but in case of
periodic inventory system the valuation of cost of goods sold has been made at the end of the
period.

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Answer to question 2: Report:
Introduction:
Accounting is the process of recording business transactions, summarizing them and
preparing meaningful information and reports after processing them. When the volume of
businesses were small and the transactions were a very and simple, it was possible for a single
individual to manage all the accounting and reporting activities of an organization. To ride off
this situation, various accounting information systems have developed which can help and
individual to record numerous transactions and process them simultaneously. There are various
fully automated and semi automated accounting software and accounting information systems
available in the market which can be used in real time business situations to record business
transaction and to process them. Some important desktop accounting software are, MAYOB,
Sage 50, Tally, SAP and so on. There are some cloud based accounting systems also, which can
be accessed through the internet and can be worked in from anywhere. A good example of such a
cloud based accounting systems is the Xero cloud based accounting information syste (Belfo &
Trigo 2013).
Computerized Accounting Information System:
With the revolution in the business world and advancement in the technologies the
accounting system has also been computerized for more accurate and efficient management and
processing of accounting information. Various computerized systems and computer aids have
been used to manage the accounting and recording processes of business transactions of any
business organizations. Various customized as well as readymade accounting software packages
are available in the market which can be used for this purpose. Some of such important desktop

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accounting packages are, MAYOB, SAP and Recon. Some cloud based computerized accounting
systems are XERO, Sage 50 cloud based information system and so on. The Xero cloud based
accounting system has become very popular and has been used widely all over the globe. In the
following paragraphs of this report, some of such importance, advantage and disadvantages of
the Xero cloud based accounting system have been described briefly (Belfo & Trigo 2013).
Xero Cloud based accounting information system:
Xero is a cloud based accounting information system, which is totally cloud based and
can be accessed and operated from anywhere using internet. To use the system, an annual
subscription needs to be purchased and the company needs to be registered with the Xero system.
All the details of the company needs to entered into the system before starting the work. It is a
totally automated accounting information system. The only thing an individual needs to do, is
just to enter the invoices and bills, the rest of the processing of accounting information is done
automatically by the system. It records all the subsidiary books by itself and can generate
meaningful information for the use of the managers and information users. it is having various
advantages for which it is gaining importance day by day, some of such advantages of the system
have been outlined as follows (Hossack 2015).
Advantages of Xero Cloud based accounting information system:
The Xero cloud based accounting system processes the financial data and produces the desired
and meaningful reports based on the given criteria. The important 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 sitting anywhere. Its popularity is because of its simplicity

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and efficiency. 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 advanced feature is its information generating capacityion. It shows all the
important figures and facts in the dashboard of the system with some graphs. It also shows the
pending invoices for receipt and pending bills to be paid in the dashboard. Another more
important feature of the system is the inventory control system. It records all the inventory
related transactions and tracks the inventory with every inputs and outputs in the inventory.
Therefore, it is very user friendly easy and efficient in performing all the accounting and
reporting financial transactions (Hossack 2015).
Disadvantages of Xero Accounting information system:
Xero is a fully automated cloud based accounting information system. It can be accessed
through the internet and can be used from anywhere in the world. it is very much easy to operate
and to record transactions. Only the invoices for sales and bills for purchases are needed to be
entered. Various other automated calculation features includes, the calculations and accounting
for fixed assets and depreciation, interest calculations, debtors and creditors management and so
on. It also presents data and reports in a meaningful and systematic way and formats. It can
present information in graphical forms also. It shows all the key parameters and figures of
accounting in the dashboard of the system. Having all those usefulness and efficiencies it is
becoming more popular now a days (Brandas, Megan & Didraga 2015).
Adoption of the Xero Accounting information system:
After knowing the importance and advantages of Xero, now the disadvantages or shor
coming of the system must be analyzed. Xero is a complete cloud based system. All the
transactions are recorded using internet and all the data are stored in the cloud. If any alteration is

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made in the data or transactions it gets updated in the cloud. The main base of the system is the
storage of data in the cloud. Hence, there is a security threats to the system for meaningful
information to get stolen by others. It is only the single user id and password, if that is lost, the
system could be accessed by others and various meaningful information of the business can be
stolen by the others. Hence, if the security issues can be addressed properly then the system is
superior and can be used for business accounting purposes (Brandas, Megan & Didraga 2015).
Conclusion:
From the above analysis and discussion, it can be occluded that, use of accounting
information system can help business organization to manage their accounting and reporting in
more effective and efficient way. There are various accounting systems available in the market
but it must be implemented based on the accounting needs and information needs of the business.
Lastly, it can be recommended for the business to adopt the Xero cloud based accounting system
which is having various advanced and innovative features.

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Answer to question 3: Letter:
To
The Directors, Mr. and Mrs. Spot
Spotty Ltd
Australia
14 May 2019
Subject: Cash mismanagement, Employee fraud and Importance of internal control
Dear Sir/Madam,
This letter is intended to let you know various issues of employee fraud that is happening
in various business organizations and to suggest some internal control mechanism to prevent all
those employee fraud issues. Some recent studies have shown that various employee fraud cases
in various Australian companies led a business organization to collapse. Some of such cases have
been outlined for your convenience as below.
Cash mismanagement means the misappropriation of cash or transfer of cash from
business fund to the own bank account of the employee. It can be done by an employee fro
various motives and in various ways. Some of such recent cases in Australian business
organizations have been outlined briefly as below.
A recent study has shown that $217 million have been mismanaged and transferred in the
personal account of employees in banking sectors in Australia. An ING’s employee had stolen
$45 million from the business fund and transferred into his private bank and it was the larges
employee fraud case in Australia. Another case of such employee fraud is where an employee
transferred $19 million to his own account from the business bank account using his signing
authority on behalf of the business for banking transactions of the business.

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In another case an employee of an Australian company transferred 11$ million from the
business bank and purchased various properties using that fund. All those cases are rising day by
day, and business organizations need to take certain initiatives to counter and prevent such
happenings in a business organization. Some of such internal control system can eb suggested as
follows.
Access: Information access levels for employees must be well defined and well assigned
as per their need and scope of responsibilities in the business activities.
Documentation: All the cash transaction must be backed by proper documentary evidences
and proofs. All the transaction must be authorized by appropriate authority and must be
documented before completing the transaction.
Reconciliation: At the end of a specified period, all the cash transactions must be
reconciled cross checking with the documentary evidences and necessary proofs. It improves the
accuracy and transparency of the transactions.
Lastly, it can be recommended to assign the authority to different persons so that the
work of an employee gets checked by the other employees. It can reduce the employee fraud
cases to a large extent. Therefore, Sir/Madam, I would like to draw your attention to the above
matters and request you to do the needful for improvement in the internal control system of the
business.
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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Answer to question 5: PPE transactions:

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27-31.
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.
Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
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.
Hilton, R. W., & Platt, D. E. (2013). Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
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.

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Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Routledge.
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Maskell, B. H., Baggaley, B., & Grasso, L. (2016). Practical lean accounting: a proven system
for measuring and managing the lean enterprise. Productivity Press.
Nawawi, A., & Salin, A. S. A. P. (2018). Employee fraud and misconduct: empirical evidence
from a telecommunication company. Information & Computer Security, 26(1), 129-144.
Uwonda, G., & Okello, N. (2015). Cash flow management and sustainability of small medium
enterprises (SMEs) in Northern Uganda. International Journal of Social Science and
Economics Invention, 1(03), 153-to.
Worrell, J. L., Di Gangi, P. M., & Bush, A. A. (2013). Exploring the use of the Delphi method in
accounting information systems research. International Journal of Accounting
Information Systems, 14(3), 193-208.