Accounting for Inventory: Periodic vs Perpetual Method and FIFO vs Weighted Average Cost Method

This document discusses the periodic and perpetual methods of inventory, as well as the FIFO and weighted average cost methods. It also explains how a computerized system like Xero can help businesses track and account for inventory. The features of Xero software are highlighted, along with the importance of internal control in preventing fraud and misstatement of financial information.

QUESTION 1:
MEMORANDUM
DATE: 6 May 2019
TO: Mr and Mrs. Spot of Spottie Ltd
SUBJECT: Accounting for inventory
This memorandum is with reference to two inventory method -periodic and perpetual method
and the term ‘First in first out and Weighted average cost method.
What is Periodic and Perpetual method?
The periodic method of inventory is the occasional counting of inventory in a year and determining
the closing balance of inventory and the cost of goods sold.
The perpetual method of inventory is the counting of inventory on a regular basis.
What is first in first out and Weighted average cost method?
In the case of FIFO, the oldest purchase in an inventory will be out first when any item is sold. The
oldest cost of an item will be recorded in the profit and loss statement as a part of goods sold.
In the case of Weighted average cost method, the cost of goods together which are available for sale
are divided with the number of units available in order to ascertain the average cost per unit of item.

QUESTION 2:
INTRODUCTION
In simple words, cloud based accounting system means storing all the business related data over
internet instead od storing them on the personal hard disk .The cloud based accounting have
transformed many organization and entity over the past years ,which allow business to operate
more efficiently ,reduce costs and simplified result. (Hoffman, 2019).Cloud computing software
transfers all the data into “the cloud “,where the data is processed and returned back to the user of
the information. In cloud-based software the user can easily access the information remotely
through the internet or other network. Using this cloud-based accounting system one is not required
to install a software on each and every desktop computer. It becomes very easier for the employee’s
to easily access the information remotely sitting in any part of the world with the same version of
the software. Cloud based accounting software is also referred to as online accounting software or
Web based accounting software. (Beal, 2019)
How a computerised system like Xero can help the
business track and account for inventory?
The Xero software is a very useful tool to keep an up to date track of business and accounts for
inventory, few of them are here in described below:
1) One can easily know the best selling and most profitable product lines: Using xero software
one can easily get an update of the best selling product line .By knowing the best selling
product and how much profit it is asking and one can use this information to make the right
decision about what to order and how much should be set. (xero limited, 2019)
2) Keep tabs on stock quantity and value: The inventory management software like Xero helps
us to keep the track od stock level on a daily basis. It also helps us to calculate the value of
stock on a daily basis using average cost. This software is very useful for the retailers and
wholesalers and the providers of service who sell retail items.
3) It easily saves time with bulk imports: From the spreadsheet one can easily import the large
number of stock information in a quick second.
4) Use inventory items to reduce data entry: Devote less time in manually entering data by
easily setting in the software for the products frequently bought. Using inventory items
make purchase order easier and reduces the certainty of error.
(xero limited, 2019)
5) Create more accurate quotes and invoices, fast: Tracked inventory makes its very easy to
keep yourself updated about the stock in hand position when preparing invoice for any
order. As the prices and description are already entered so it reduces the chances of error.
(xero limited, 2019)

6) Attach documents to your inventory records’ software enables us to add photo for just a
visual reminder of the stock item.
Features of Xero Software
At the company Spottie limited, the owner of the company is looking for a way to make things easier
and better, faster and very efficient. So xero software is the most beautiful accounting software with
feeds on bank and other advantageous points. Few useful features of xero software are depicted
here in below:
1) Uncorded Statement Lines: It is very recent innovation which makes it very much easier to
get feedback from the client or colleagues on any unreconciled bank items. It is just very
easy to download the editable pdf file and share the same with the client and the client after
typing all the information sends back the PDF .It is a very simple and easier way for
feedback, and it reduces time and increases the efficiency . ( Xero Limited, 2019)
2) Cash Coding: It is a simple way to code the transactions in bulk very easily and in fast
process. First sort all the list of transactions then does all the coding in bulk. This feature
helps us to save a lot of processing time and this a very useful feature for those business
with cash transactions or any account that haven’t been touched for a long time. If the
company wants to use this coding one must learn all the keyboard shortcuts. ( Xero Limited,
2019)
3) Xero mobile: This app helps the business to easily raise invoices, record transactions and
easily code the banking transactions. This makes it easier for the business to raise invoices
for business, record purchase and do all coding for the bank transaction means that the
accounts are updated frequently and reduces the need for binge bookkeeping ,means the
requirement to process the months of transactions . ( Xero Limited, 2019)
CONCLUSION
The company Spottie limited should move to Xero software -an online accounting software as it is a
very friendly software and the owner of the company is busy in growing the business over the last
few years. The company has a stock of 20 inventory lines. As the owner of Spottie limited believe
that they spend maximum time in preparing the records of the company, so the company should
move to Xero software.

QUESTION 3:
Letter to Mr and Mrs Spot
To
Mr & Mrs Spot
Dated:6th May,2019
Subject: Importance of Internal Control
Internal control plays a very important role and a need of every business whether big or small. It
minimizes the risk of fraud and the chances to commit fraud. It is very useful in understanding and
mitigating the risk and helps to address the financial statement accuracy. It is also very helpful in
detecting fraud and prevent misstatement of financial information.
Office worker working in city Perth has been jailed for stealing $1.2 million from two businesses. She
took the money because she just wanted to go for shopping and want to have chit chat with friends.
Lynette Alison Corrie was also held guilty in the court as she manged to transfer over a period of
seven and half yeas from the company bank account to her joint account held by her and husband
together. The best way to prevent this is to have internal control which can help to detect and
prevent fraud. The function custody, recording and authorization should be designed in such a way
that no individual is having the access of all three. When the three responsibility is properly
bifurcated the chances of fraud is minimal.
The internal control over receipt of cash and payment should be drafted in such a way that only
specified persons are able to access and can verify it and all receipts and transfer of cash should be
documented properly in a timely manner. Any withdrawal and payment must be accompanied by a
proper authorization from a senior.
The above internal control is very useful in mitigating the risk involved in any business.

References
Xero Limited. (2019, May 6). 5 features in Xero that will boost your productivity. Retrieved from
www.xero.com: https://www.xero.com/blog/2016/07/5-features-xero-boost-productivity/
Beal, V. (2019, May 5). cloud computing accounting software. Retrieved from www.webopedia.com:
https://www.webopedia.com/TERM/C/cloud_computing_accounting_software.html
Hoffman, V. (2019, May 5). Cloud Accounting . Retrieved from ontent.hubdoc.com:
https://content.hubdoc.com/hubdoc-blog/cloud-accounting-faq
xero limited. (2019, May 6). xero. Retrieved from www.xero.com:
https://www.xero.com/us/features-and-tools/accounting-software/inventory/