Accounting Systems and Processes

This study material covers various topics related to accounting systems and processes. It includes explanations of different inventory methods, analysis of cloud-based accounting systems, importance of internal controls, and more. Suitable for students studying accounting and related courses.

Running head: ACCOUNTING SYSTEMS AND PROCESSES
Accounting Systems and Processes
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1ACCOUNTING SYSTEMS AND PROCESSES
Table of Contents
Question 1: Retail operations and retail inventory.....................................................................3
Requirement 1:.......................................................................................................................3
Requirement 2:.......................................................................................................................5
Question 2: Retail operations...................................................................................................10
Introduction:.........................................................................................................................10
Cloud-based accounting system:..........................................................................................11
Operation and processing of cloud-based accounting system:............................................11
Suitability of the Xero cloud-based accounting system to the business of Spottie Limited:
..............................................................................................................................................12
Inventory system in Xero:....................................................................................................13
Useful attributes of Xero:.....................................................................................................13
Conclusion:..........................................................................................................................14
Question 3: Internal controls – cash.........................................................................................14
Introduction:.........................................................................................................................15
Requirement (i):...................................................................................................................15
Employee/supplier fraud cases in Australia:....................................................................15
Case summaries:...............................................................................................................15
Recommendations of internal control for fraud prevention:................................................16
Website links of the provided article:..............................................................................17
Requirement (ii):..................................................................................................................17

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Requirement (iii):.................................................................................................................18
Conclusion:..........................................................................................................................19
Question 4: Bank reconciliations and cash..............................................................................19
Requirement (i):...................................................................................................................19
Requirement (ii):..................................................................................................................20
Requirement (iii):.................................................................................................................22
Question 5: Property, plant and equipment..............................................................................23
References:...............................................................................................................................27

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Question 1: Retail operations and retail inventory
Requirement 1:
Memorandum
To: Mr and Mrs Spot
From: The Accountant
Date: 14th May 2019
Subject: Explanation of inventory methods
The memorandum is prepared with the intent to provide an overview of the different
costing methods that include the following:
Periodic method:
In this method, the inventory stays at a fixed figure until the ascertainment of
inventory value at the period end. Moreover, the movements in inventory purchase are
recorded in purchase account, while the recording of sales is made in sales account (Gupta,
2016). The following is an example of periodic inventory system:
Perpetual method:

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There is perpetual change in inventory account with each transaction posting and
posting occurs in inventory account and cost of sales account. All postings related to
inventory are affected immediately in the inventory ledgers and the value is ascertained
depending on the cost flow assumption (Hoyle, Schaefer & Doupnik, 2015). The following is
an example of perpetual inventory system:
First-In-First-Out (FIFO) method:
According to this method, the stocks that came in first would be moved out or
consumed first. It is applicable for the sectors, in which it is possible to identify stock in hand
by date and the ones coming in first have to be consumed first; in opposition, they might
expire. For instance; in potato chips factory, the maintenance of potatoes would be
maintained in potato lots and the potatoes coming in before have to be consumed first or they
might be spoiled (Kaplan & Atkinson, 2015).
Weighted average method:
According to this method, the stocks coming in first or coming in last could not be
ascertained and thus, a determination of weighted average cost is necessary in case of mixed
stock. This is applicable in those sectors whether there would be a mix of old stocks and new
stocks and they could not be separated from one another (Kieso, Weygandt & Warfield,

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2016). For instance, in an oil producing firm, there is continuous production and thus, old oil
and new oil are mixed together. As a result, in order to determine the value of the mixed
stock, weighted average rate is computed based on which there is accounting for stock
movement.
Requirement 2:
Normal view:

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Working Note: Calculation of balance inventory

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Formula view:

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Question 2: Retail operations
To,
The Directors,
Spottie Limited
Date: 14th May 2019
Subject: Analysis of cloud-based accounting systems
Introduction:
The objective of this report is to provide an insight of computerised accounting
system, since the manual accounting system requires considerable amount of time as well as
labour. There are a number of cloud-based accounting systems used by the contemporary
business organisations and thus, discussion would be made regarding the systems and the
ways through which they operate. However, since Spottie Limited intends to implement the

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Xero cloud-based accounting system and therefore, the suitability of this system would be
discussed from its business perspective. More specifically, the aspects to be covered include
the inventory system in Xero and three of its most useful attributes for the business
operations of Spottie Limited.
Cloud-based accounting system:
Cloud-based accounting system could be defined as accounting software, which is
hosted mainly on remote servers. This system is involved in providing accounting abilities to
a business in a manner, which is identical to Software as a Service (Saas) business model. In
this system, data are sent into the cloud, in which processing is made, after which they come
back to the user. Moreover, the application functions are conducted off-site and not on the
personal computer or desktop of the user (Kimmel et al., 2016).
Operation and processing of cloud-based accounting system:
In this accounting system, the users are involved in accessing software applications
from remote areas via the internet or other network with the assistance of cloud application
service provider. By using this system, the organisation is no longer needed to install and
maintain software on the individual desktops. Moreover, the staffs in branch or remote
offices could be able to access identical data as well as identical version of the software.
Majority of the application providers mainly charge depending on usage in comparison with
the licensing fees of the sites having relationship with the deployments of conventional
accounting software (Maynard, 2017). Disaster recovery and back-up of accounting data are
often considered as parts of the cloud-based accounting system.

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Suitability of the Xero cloud-based accounting system to the business of Spottie
Limited:
Xero is online accounting software designed mainly for small and medium-sized
organisations. It helps in increasing the transparency of the financial health of the concerned
organisation. Spottie Limited falls under small and medium-sized entities and thus, Xero is
deemed to be suitable to the business of the organisation owing to the following reasons:
Intelligent banking:
Xero is involved in automatic import of all bank transactions, which eradicates the
need to enter information manually (Smith, 2019). Once the data is entered into the system,
the bank reconciliation function would match the transactions. Thus, the accountant of
Spottie Limited only needs to double-check the transactions before clicking Ok on the
system.
Sound invoicing:
Since the layout of Xero could be customised fully, the organisations like Spottie
Limited could create professional invoices. Therefore, it would become easy to mail invoices
to those customers willing to pay online that would help in quick collection of payments. In
addition, Xero would even highlight the time the invoices have been opened by the customers
and hence, there would be no instances of lost invoices (Dimitriu & Matei, 2014). Finally, it
is possible to automate repeating invoices through Xero resulting in time savings.
Control of bills:
By having clear knowledge of business payments, Spottie Limited could plan and
schedule payments ahead of time to control its cash flows. Moreover, it is possible to set up
recurring bills in Xero for dealing with future uncertainties.

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One-click financial reports:
By a single click, the accountant of Spottie Limited could create budgets and reports
using real-time business data. The reports are deemed to be interactive and it is possible to
drill down into the source transactions. Moreover, GST is computed automatically in Xero;
thus, resulting in saving both effort and time.
Inventory system in Xero:
With the help of tools of inventory management software in Xero, it is possible to
keep observation on the levels and values of stocks on daily as well as regular intervals. It
computes the values of stocks in hand by using the weighted average cost method (Wyslocka
& Jelonek, 2015). Since the system provides easy tracking, it is deemed to be feasible for the
independent wholesalers and retailers. Moreover, the prices and descriptions of stocks are
entered into Xero, which would result in avoidance of typos, keeping quotes along with
consistent invoices. Finally, it provides the option of adding photos to the inventory items for
visual stock reminders and supplier contracts could be uploaded by Spottie Limited for
keeping the same close at hand.
Useful attributes of Xero:
Besides the above-discussed aspects, there are certain other useful attributes of Xero,
three of which for the business of Spottie Limited are identified as follows:
Monitoring transactions and actvities:
The Xero accounting system takes direct information from online banking and thus, it
eliminates the scope for mistakes when it comes to typing numbers. As a result, considerable
amount of time is saved and accounting records are maintained with accuracy (Hossack,
2015).

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Time to save accounting records:
Xero is designed mainly for assisting with debt collection. The sending of statements
could be automated and as a result, statements and invoices could be sent via mails resulting
in minimisation of time and postage cost.
Improvement of business:
It is possible to keep the Xero accounting system up-to-date. By uploading bank
information daily, it is possible to determine the exact financial position of a business.
Accordingly, remedial actions could be undertaken, if any adverse results are identified from
the system (Nilsson & Stockenstrand, 2015).
Conclusion:
Based on the above discussion, it could be inferred that the Xero accounting system is
apt for the business of Spottie Limited, since it is designed mainly for small and medium-
sized businesses. Moreover, it offers certain additional features that would assist the
organisation in keeping track of daily business activities based on which it would be possible
to undertake sound decisions in future.
Question 3: Internal controls – cash
To,
The Directors,
Spottie Limited
Date: 14th May 2019
Subject: Importance of internal controls

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Introduction:
The current report intends to evaluate the significance of internal controls in the
business of Spottie Limited, as it has grown moderately over the past two years. This is
because there are a number of recent employee fraud cases in Australia and this has mandated
the need for effective internal controls in order to avoid such instance in Spottie Limited. The
relevant internal controls for the business have been discussed in this report as well.
Requirement (i):
Employee/supplier fraud cases in Australia:
Case 1: Subsidiary of Employsure- employee fraud
Employsure works with 20,000 small businesses in Australia, which came across
numerous serious proven and unproven cases. One of its clients is running a small business,
in which Italian coffee machines are imported. Since the client has to visit the potential
customers, it is not possible to stay in the warehouse for longer timeframe. However, for
several months in 2018, it was realised that money was stolen from safe in the office
(NewsComAu, 2018).
Case 2: Bookkeeper of TZ Limited imprisoned for fraud of $130,000
A former bookkeeper of TZ Limited, which is a logistics firm, has been imprisoned
after found guilty of conducting fraud of $130,000 in the books of accounts of the
organisation in 2013 (SmartCompany, 2013).
Case summaries:
Case 1:
The money was stolen from the safe for the past six months in the office. Since
several staffs had access to the safe, the business owner decides to place a hidden camera in

16ACCOUNTING SYSTEMS AND PROCESSES
his office in order to catch the individual. On the next day, the owner viewed the footage of
the camera after which he confronted the particular staff by placing evidence and the
individual was released from the job owing to serious misconduct. Later on, the business
owner provided a copy of footage to the police.
Case 2:
The bookkeeper of TZ Limited transferred money by recording payments made to
him in the books of accounts of the organisation. An amount of $130,000 was transferred to
the personal bank account of the bookkeeper between 2007 and 2009. This is an instance of
financial fraud impacting the small and medium-sized businesses in Australia. The Australian
Securities and Investments Commission (ASIC) conducted the investigation out of the
suspect that the former directors of TZ Limited had misappropriated large amount of money.
On further investigation, the fraud of the bookkeeper was revealed, for which he was sent to
imprisonment.
Recommendations of internal control for fraud prevention:
In order to prevent and detect fraud, the following internal control recommendations
would be beneficial for the business organisations:
 Use of check and balance systems to assure that a single individual does not have
entire control on all parts of financial transactions
 Reconciliation of the business bank accounts in every month
 Providing the board of directors agency operations and management oversight
(Henderson et al., 2015)
 Protection of petty cash funds as well as other cash funds
 Prohibition of writing cheques, which are payable to cash
 Protection of cash and cheque collections through reconciliation of cash receipts

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Website links of the provided article:
Case 1: https://www.news.com.au/finance/work/at-work/from-freebies-for-mates-to-150000-
fraud-employee-theft-costs-australian-business-billions/news-story/
ac7b41f93ace63b20ff99b5e3d1b712a
Case 2: https://www.smartcompany.com.au/finance/tz-limited-bookkeeper-sentenced-for-
130-000-fraud-three-other-major-bookkeeping-fraud-cases/
Requirement (ii):
Internal control for cash receipt:
Internal Control Importance Prevention of Fraud
Separation of job duties Separating duties engaged in
cash processing minimises
the opportunity for a
dishonest staff in concealing
fraudulent transactions.
The employee receiving and
depositing cash need not
carry out the reconciliations.
Documentation The transactions are recorded
immediately in the cash
receipt log.
The transaction numbers
need to be sequential and
unique for enabling the
auditor to verify if there is
absence of any cash receipt
from the log.
Reconciliation Reconciliation of accounting
transactions assists in
matching cash receipts with
bank receipts on daily basis
The general ledger reports
for the cash account of the
organisation need to be
printed in order to compare

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(Henderson et al., 2015). with the monthly balances of
the cash receipt log.
Access Access to the safe is crucial
for internal control, since
daily cash balances are
maintained by the
responsible staffs.
Proper training should be
provided to the employees on
the necessary procedures
before giving access to the
safe and log.
Requirement (iii):
Internal control for cash payment:
Internal Control Importance Prevention of Fraud
Accountability, authorisation
and approval
This is significant in order to
assure appropriate
accounting, documentation
and security of cash along
with traceability to particular
cash handlers (Gupta, 2016).
Recording cash receipts at
the time they are received,
securing funds and
documenting transfers
Asset security All assets need to be secured
for promoting safe working
environment.
Conduction of appropriate
background checks on cash
handlers and locking cash in
a safe place
Review and reconciliation This is important for accurate
recording of business
transactions.
Comparison of receipts for
depositing records along with
counting cash balance on

19ACCOUNTING SYSTEMS AND PROCESSES
daily basis
Conclusion:
From the above analysis, it is evident that internal control is a key aspect to prevent
frauds in business organisations. Therefore, appropriate internal control recommendations
have been provided, which the owners of Spottie Limited need to adopt for avoiding the
possibility of any financial or administrative fraud in future.
Question 4: Bank reconciliations and cash
Requirement (i):
Normal view:
Formula view:

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Requirement (ii):
Normal view:

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Formula view:

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Requirement (iii):
Normal view:

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Formula view:
Question 5: Property, plant and equipment
Normal view:

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Formula view:
Working Note (Normal view):

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Working Note (Formula View):

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References:
Dimitriu, O., & Matei, M. (2014). A new paradigm for accounting through cloud
computing. Procedia economics and finance, 15, 840-846.
Gupta, A. (2016). Financial Accounting for Management. Pearson Education India.
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial
accounting. Pearson Higher Education AU.
Hossack, S. (2015). Cloud-based accounting and productivity tools for practitioners and
taxpayers. Taxation in Australia, 50(5), 265.
Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Intermediate Accounting, Binder
Ready Version. John Wiley & Sons.
Kimmel, P. D., Weygandt, J. J., Kieso, D. E., & Trenholm, B. (2016). Financial Accounting.
Wiley Custom Learning Solutions.
Maynard, J. (2017). Financial accounting, reporting, and analysis. Oxford University Press.
Narayanaswamy, R. (2017). Financial accounting: a managerial perspective. PHI Learning
Pvt. Ltd.
NewsComAu. (2018). ‘The employee strongly denied the evidence’. Retrieved 14 May 2019,
from https://www.news.com.au/finance/work/at-work/from-freebies-for-mates-to-
150000-fraud-employee-theft-costs-australian-business-billions/news-story/
ac7b41f93ace63b20ff99b5e3d1b71

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Nilsson, F., & Stockenstrand, A. K. (2015). Financial accounting and management
control. The tensions and conflicts between uniformity and uniqueness. Springer,
Cham.
SmartCompany. (2013). TZ Limited bookkeeper sentenced for $130,000 fraud: Three other
major bookkeeping fraud cases - SmartCompany. Retrieved 13 May 2019, from
https://www.smartcompany.com.au/finance/tz-limited-bookkeeper-sentenced-for-130-
000-fraud-three-other-major-bookkeeping-fraud-cases/
Smith, H. (2019). Xero for dummies. For Dummies.
Wyslocka, E., & Jelonek, D. (2015). Accounting in the Cloud Computing. Turkish Online
Journal of Science & Technology, 5(4), pp.67-95.