Accounting System and Process Assignment for Finance Students

This accounting assignment solution provides a detailed analysis of various accounting concepts and processes. Part A focuses on the advantages and disadvantages of using spreadsheets in accounting, including data organization, computations, and security concerns. Part B delves into inventory management, comparing perpetual and periodic inventory systems, and applying FIFO, LIFO, and average cost methods to calculate ending inventory and cost of goods sold for Fashion Haven. Part C addresses bank reconciliation, including correcting bank errors and preparing journal entries. Finally, Part D explores bad debt management, comparing the allowance and write-off methods, and analyzing financial ratios (net profit, current, and debt-equity) and profitability charts to assess a company's financial performance and position, ultimately recommending investment decisions based on the analysis of Coca-Cola Amatil.

Running head: ACCOUNTING SYSTEM AND PROCESS
Accounting system and process
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DECLARATION: THE WORK IN THIS ASSIGNMENT IS MY OWN WORK, AND HAS NOT
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ACCOUNTING SYSTEM AND PROCESS
Table of Contents
Part A – Spreadsheet............................................................................................................................2
Part B – Inventory management..........................................................................................................7
Part C – Bank reconciliation..............................................................................................................12
Part D – Management of bad debt and financial decision.................................................................14
Reference...........................................................................................................................................17
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Part A – Spreadsheet
Answer (1)
Spreadsheet is used by the accountant in business procedures owing to the below mentioned
advantages –
 This software is cheap and installation process is quick as compared to other software.
Further, for using the spreadsheet extensive training is not required. User with basis
knowledge can use the software
 Computations – performing various calculations is very easy through input of formulas.
Further, the user is not required to calculate the same thing again and again, only inserting
the formula is sufficient.
 Data organization – wide number of data can be arranged and sorted in columns and rows.
Further, the user can sort the data as per his requirement.
 Using by various users – same spreadsheet can be used by various users in the organization
in various computers. It helps the user to complete their individual part of the same project
individually (Collins et al., 2014).
Spreadsheet has some inherent disadvantages as mentioned below –
 Human error – as the calculation solely depends on the data input, any kind of human error
in case of data input will make the entire output invalid.
 Security – this is one of the main issues with spreadsheet. Irrespective of password
protection spreadsheet is always vulnerable to data manipulation. Hence, the files with
important data may be hacked and manipulated by the hackers (Okamura & Dohi, 2013).
Answer 2
Spreadsheet contains the data area as well as report area both. Data area mainly contains the
raw and unprocessed data whereas the report area contains the processed data (Golyagina &
Valuckas, 2016). Data area and report are must be segregated to enable the users in using the
spreadsheet in best way and analyse it as per their requirement.
Answer 3
IF function –
Normal view
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Formula view
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Negative number within bracket
Normal view
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Formula view
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Names to the reference cell
Normal view
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Formula view
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ACCOUNTING SYSTEM AND PROCESS
Part B – Inventory management
Variance in perpetual inventory and periodic inventory
Both the methods are used by the entities for the purpose of computing the ending inventory
left with the company on the closing date of account. Various differences among 2 methods are
mentioned below –
 Sales transaction – as per the perpetual approach the sale transaction is recorded through 2
journal entries. One entry is recorded for selling value of the inventory and another entry is
recorded for recording the COGS. On the other hand, as per periodic inventory only one
entry is recorded (Myrelid & Olhager, 2015).
 COGS and inventories – under perpetual approach COGS account and inventory account is
updated on continuous basis. However, in periodic approach COGS account and inventory
account is updated at the closing of the accounting period.
 Closing entries – closing entries are required under periodic approach for updating the
COGS and inventories. On the other hand, as per perpetual approach closing entries for
inventories are not required.
 Purchase account, purchase return account and the allowance account – these accounts ae
used only under periodic approach and are updated on continuous basis. However, as per
perpetual approach the purchases are debited directly to the inventory account. Further, the
purchase returns are credited directly to the inventory account (Chołodowicz & Orłowski,
2015).
 Maintenance of records – records under perpetual system is not practicable to maintain in
manual system as the records to be maintained are large in size. On the contrary, as the
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records to be maintained are small in size in periodic approach it can be maintained
manually and computer both.
 Recognition of error – recognition of error under perpetual approach is near to impossible as
the records to be maintained are large in size. On the contrary, recognition of error is easy
under periodic approach (Hoggett et al., 2015).
From the given case of Fashion Haven, it can be identified that the company deals in
fashion clothing. Owing to the nature of the business it carries on it has large number of purchase
and sales transaction throughout the year. Therefore, to maintain the records of inventory and
COGS on updated basis the company shall use perpetual approach. Though it has to maintain large
number of data and records, it will enable them to keep the updated track for the inventories. It will
further, help them to check the inventories before accepting any new order.
Calculation of ending inventory and COGS for the month of May
FIFO method –
Normal view –
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Formula view –
LIFO method –
Normal view –
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Formula view –
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Average cost method
Normal view –
Formula view –
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Gross profit computation
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
From the given details of Fashion Haven it can be found that the purchase price of the
company during the period of 5th May to 17th May has went down from 102 per unit to 95 per unit.
As per above table it can be recognized that the company is able to earn higher profit when it uses
the FIFO method. Another crucial thin in deciding which method will be appropriate is the type of
goods the company is dealing with. As the company is dealing with fashion clothes chances is there
that the clothes purchased long time back can become out of fashion. Hence, it is recommended
that Fashion Haven shall use FIFO approach (Lwiki et al., 2015).
Part C – Bank reconciliation
Requirement 1
When the bank corrects the mistake made previously it may reduce or increase the bank
balance depending on the error made by it. For instance, if the check deposited amounted to $
20000 is recorded by the bank for $ 21,000, when the bank will make the correction amount of
bank balance will be reduced by ($ 21,000 - $ 20,000) = $ 1,000.
On the other hand, if bank wrongly allows any debit to cash balance say for $ 1,000 the cash
balance will be reduced by $ 1,000 upon correction.
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Requirement 2
Adjusted bank reconciliation
Requirement 3
Journal entries
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Part D – Management of bad debt and financial decision
 Debt method used by the company – from the annual report of Coca Cola Amatil for the
year ended 30th June 2017 it is found that the company use allowance method for its debt
treatment. On receiving any confirmation regarding the fact that the due receivable amount
of the company will not be received in part or the full amount will not be received total
doubtful amount will be recognised after allowance in the income statement. From the
annual report of the company for the year ended 30th June 2017 it is found that the amount
of bad debt expense was $ 9.5 million.
 Other method that can be used for computing the amount of bad debt and treating it in the
financial statement is write-off approach. As per this approach the uncollectible amount is
written off directly against the income when the likelihood of bad dent is actually
determined (Weygandt, Kimmel & Kieso, 2015). Major difference between 2 methods are
as follows –
Write – off method Allowance method
It records the entry at the time when bad debt
arise
This method sets aside the estimated
allowance for likelihood of bad debts that is
a part of credit sales during the year
It does not follows the matching principle It follows the matching principle
Credit sales and materialization of bad debt
generally takes place in 2 accounting periods
Estimated bad debts are equalised against
credit sales under same accounting period.
 Analysis of financial information –
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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 determines the profit remains with the company after making payments for all the
operational expenses. With the help of net profit margin the sustainability of the company is
assessed. It can be identified from above that the net profit margin of the company is 9.34%. It
signifies that the company’s sustainability position is good (Pervan & Kuvek, 2013).
Current ratio is used for analysing the liquidity position of the company that is whether the
company is able to make the payment of its short term dues efficiently. Generally the current ratio
of more than 1 signifies strong liquidity position. Hence, the company’s current ratio of 1.52 is
signifying that it has strong liquidity position (Ccamatil.com, 2018).
Debt equity ratio signifies the leverage position of the company. Company’s debt equity
ratio of 2.22 is indicating that the company is highly leveraged and burdened with high amount of
interest (Delen, Kuzey & Uyar, 2013).
Profitability chart –
$502.80
$375.50
$393.40
$417.90
$416.20
Profitability
2013
2014
2015
2016
2017
Earnings per share chart –
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2013 2014 2015 2016 2017
0
10
20
30
40
50
60
10.5
35.6
51.5
32.2
59.8
Earning per share
Amount (in cents)
 Both the above charts are showing that the company’s profitability position and ability to
provide return to the company are in improving trend (Ccamatil.com, 2018).
 As the profitability position as well as the liquidity position both is strong the company will
be considered as sustainable for long term. However, for addition fund requirement the
company shall raise from the investor to improve the leverage position (Carraher & Van
Auken, 2013).
 Analysing the financial performance as well as the financial position of the company it is
recommended that the client shall invest in Coca Cola Amatil. The reason is that the
company’s EPS is in improving trend and it pays regular dividend to its investors. Further,
the strong liquidity position of the company is stating that it is able to meet its debt
obligation efficiently.
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Reference
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 23 September 2018, from https://www.ccamatil.com/
Chołodowicz, E., & Orłowski, P. (2015). A periodic inventory control system with adaptive
reference stock level for long supply delay. Measurement Automation Monitoring, 61.
Collins, S.E., Kirouac, M., Taylor, E., Spelman, P.J., Grazioli, V., Hoffman, G., Haelsig, L.,
Holttum, J., Kanagawa, A., Nehru, M. & Hicks, J., (2014). Advantages and disadvantages
of college drinking in students’ own words: Content analysis of the decisional balance
worksheet. Psychology of addictive behaviors, 28(3), p.727.
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.
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.
Weygandt, J.J., Kimmel, P.D. & Kieso, D.E., (2015). Financial & managerial accounting. John
Wiley & Sons.
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