Accounting System and Process: Financial Accounting and Reporting

This report provides a comprehensive overview of accounting systems and processes, covering key areas such as spreadsheet applications, inventory management, bank reconciliation, and the management of bad debt. The spreadsheet section discusses the advantages and disadvantages of using spreadsheets in accounting, differentiating between data and report sections, and demonstrating IF functions. The inventory management section compares perpetual and periodic inventory systems, applying FIFO, LIFO, and average cost methods to a case study. The bank reconciliation section explains items affecting bank and cash balances, presents an adjusted bank reconciliation, and provides relevant journal entries. Finally, the report examines Coca-Cola Amatil's bad debt management using the allowance method and analyzes the company's financial performance through ratio analysis. This document is available on Desklib, offering students a valuable resource for understanding complex accounting principles and practices with access to similar documents and study tools.

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..........................................................................................................5
Part C – Bank reconciliation..............................................................................................................12
Part D – Management of bad debt and financial decision.................................................................13
Reference...........................................................................................................................................16
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Part A – Spreadsheet
Answer 1
Spreadsheet is the sheet that reveals the accounting data or other data in columns and rows.
This is a computer programme application that replicates the physical spreadsheet through
capturing, manipulating and displaying the data arranged in columns and rows. It is one of the most
popular used in personal computer. It is a valuable tool to collect and calculate all types of data.
Apart from arithmetical uses spreadsheet can be used for creating concise and clear report that can
be updated and sorted just with the click of button. Spreadsheet are used for the below mentioned
uses –
 Lists – any type of lists like material list, employee list and delivery lists can be created
through using the spreadsheet. Further, the sorting power of the spreadsheet is more
evidential while any additional data is entered. Moreover, maintaining business data allows
the user to sort it by each field.
 Accounting – apart from above spreadsheet is used for making valuable calculations.
Through entering appropriate formula and mathematical function into any cell the user can
turn simple spreadsheet into accounting page. Debits can be entered in one column and
credits in another. Further the auto sum function can be used for fast calculation and can be
set up for maintaining the running totals. Further, data from any location in workbook can
be used in the calculation. Adding the additional worksheet allows the user to organize the
information as per requirement (Okamura & Dohi, 2013).
 Time sheets – apart from additions and calculations spreadsheet can also be used for making
calculations on the basis of time numbers. Formatting the cells for reflecting the data as
time allows using the sheet as time sheet. Hence, the user can add description for assorted
functions of job, names of employees which in turn enable sorting those data as per the time
incurred for the selected field.
Disadvantages associated with spreadsheet use are as follows –
 Vulnerable to the fraud – this limitation associated with the spreadsheet is most damaging
among all. It takes place owing to inherent control lack that enables any person to alter the
data or alter the formula, value or the dependencies without detection.
 Human error – while fraud is considered as threat to the spreadsheet more significant threat
areas are there in the spreadsheet that may make the spreadsheet useless. For instance, the
spreadsheet is highly susceptible to human errors. If input data is not entered correctly it
will make the entire calculation and analysis wrong (Weygandt, Kimmel & Kieso, 2015).
Answer 2
Data section and report section in the excel spreadsheet are differentiated for presenting the
sheet in more clear and meaningful manner. Data section presents unprocessed data while the
report section presents processed data. Hence, segregation of report area and data area enable the
user to take valuable decisions (Miller-Nobles, Mattison & Matsumura, 2016).
Answer 3
IF function –
Normal view
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Formula view
Negative number within bracket
Normal view
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Formula view
Names to the reference cell
Normal view
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Formula view
Part B – Inventory management
Difference between perpetual system and periodic system of inventory
Under perpetual inventory method each transaction for outflow and inflow of the stocks are
updated constantly through POS (point of sale) system. Under this method records are maintained
for keeping complete record for issue and receipts of inventory. Conversely, under periodic
inventory method the inventory method is recorded at regular interval only after taking the physical
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verification of the stock (Myrelid & Olhager, 2015). Under this method physical count for the stock
is carried out and thereafter the inventory records are updated after adjustments, if any.
Major differences between 2 methods are –
 Under perpetual system inventories are recorded on the basis of real time of issues and
receipts. On the other hand, under periodic system inventory movement details are tracked
at the periodic interval.
 Perpetual system is based on the book records while the periodic system considers the
physical verification as the base (Chołodowicz & Orłowski, 2015).
 Under perpetual system no interference in regular workflow at stock taking time and at the
time of verification. On the other hand, under periodic system, regular business operation
maybe required to be stopped.
 Under perpetual system loss of the goods are included under the closing inventory whereas
periodic system includes the same under COGS.
 Under perpetual system continuous updating are made for the inventories that are whenever
the transaction related to stock takes place. Conversely, in periodic system records are not
updated on continuous basis rather it is carried out in a gap of time.
 In periodic system information for COGS and cost of sales are provided whereas under
perpetual system information for COGS and inventories are provided (Golyagina &
Valuckas, 2016).
 Inventory purchases under perpetual system are included in raw material account or
merchandise account whereas in periodic method purchases are recorded in asset purchase
account.
Fashion Haven opened retail clothing store in Australia. Company is recently considering
using the most appropriate inventory method for its stock among periodic system and perpetual
system. It is found from the given details that for the month of May the company have 3 purchase
transactions and some sales. Therefore, it can be stated that owing to the nature of its business,
Fashion Haven generally has number of purchases and sales. Hence, it is suggested to the company
to use perpetual method for inventories. It will enable it to record the inventories on real time basis.
Further it will enable it to update the inventories whenever there will take place any purchase or
sales transactions.
Computation of closing inventory and COGS for May
Normal view –
FIFO method –
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LIFO method
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Average cost method
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Formula view –
FIFO method –
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LIFO method
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Average method
Under the FIFO approach that is first in first out cost allocated to goods are measured on the
basis of the goods bought 1st. To be more specific, the entity assumes that the goods purchased first
will be sold first. Conversely, as per LIFO (last in first out) method the items purchased last are
sold first. Under average method average quantity of goods purchased and their average price is
considered (Bragg, 2013).
Computation of gross profit
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
Looking into the nature of Fashion Haven’s business and increasing trend of purchase price
it is recommended that the company shall use FIFO method. Reason for selecting this method is
that it will give better indication for ending inventory’s value. Further as the prices for its
purchases are in increasing trend selling the goods those were purchased first will help in
maintaining profitability. Moreover, as per the calculation it can be identified that under FIFO
method the company will be able to earn highest amount profit as compared to other 2 methods
(Lwiki et al. 2013).
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Part C – Bank reconciliation
Requirement 1
One item that results into reduction of bank balance correcting error made by bank
amounting to $ 1000. For example, if the company deposits a check for the amount of $ 13,000 and
bank made entry for $ 14,000. When this error of recording $ (14,000 – 13,000) = $ 1,000 will be
corrected by bank it will decrease the bank account by the amount of difference that is $ 1,000. On
the other hand, one item that will reduce the cash balance is when the account is wrongly debited
by bank for amount of $ 1,000. This wrong debit will eventually decrease the cash balance by $
1,000.
Requirement 2
Adjusted bank reconciliation
Requirement 3
Journal entries
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Date Particulars Debit credit
30th June
2017 Bank service charge expenses $ 250.00
To cash $ 250.00
[payment of service charges]
Cheque # 256 $ 2,030.00
Cheque # 257 $ 520.00
Cheque # 258 $ 256.00
To bank $ 2,806.00
[cheque issued but not presented in bank]
Account receivable $ 1,920.00
To cash $ 1,920.00
Bank A/c $ 520.00
To cash $ 520.00
[wrong deduction from bank]
Interest income $ 122.00
To bank $ 122.00
Account payable $ 1,000.00
To cash $ 1,000.00
[Wrong debit given by bank]
Part D – Management of bad debt and financial decision
Coca cola Amatil is one of the biggest bottlers apart from distributing alcoholic as well as
non-alcoholic ready-to-drink beverage in Asia pacific segment. Apart from this, product range of
the company includes spring water, energy and sports drinks, iced tea, ready to eat food and
beverages and coffee (Ccamatil.com, 2018).
 Bad debt method of the company –
Bad debt is the loss that is incurred by a company when credit extended to any company
becomes unrecoverable owing to either the debtor is going through financial crisis or the debtor has
gone bankrupt or for any other reason the amount become uncollectible. It is found from the annual
report of the company for the year ended 2017 that the treats its bad debt on the basis of allowance
method. Under this method the account receivable procedure estimates the expenses for bad debt
with regard to sale in same accounting period. Bad debt expenses of the company for year closing
on 30th June 2017 are $ 9.5 million (Ccamatil.com, 2018). Whenever it is evidential that the amount
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due as account receivables are not receivable in part or fully, it recognise the amount as doubtful
debt under the income statement.
 Other method of bad debt estimation
Apart from the allowance method the bad debt can be estimated through write-off method.
Difference between 2 methods are that under write-off approach bad debt affects the balance sheet
only and no loss or expenses is recognized by the income statement as write off is included in the
adjusting entries for previous year for the amount of estimated bad debt. On the other hand, under
the allowance method if account of specific customer is recognised as uncollectible it is written off
through removing the particular amount from the entire account receivable (Warren, Reeve &
Duchac, 2013).
 Analysis of financial information –
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 represents the amount left with the company after payment of all the operating,
financing and tax expenses. Net profit plays an important role while the long term sustainability
aspect of the company is analyses by the investors. It can be found that the net profit margin for
Coca Cola Amatil for the year ended 2017 is 9.34%. as the net profit is positive it signifies that the
company is able to generate some income for its shareholders after meeting all the business
expenses (Hoggett et al. 2015).
Current ratio is analysed for analysing the liquidity position of the company. Analysing the
liquidity position is very important as it determines whether the company is able to pay its short
term obligations when they become due with its available short term assets. Current ratio of more
than 1 signifies that the company’s current assets are sufficient to cover the short term liabilities.
Hence, current ratio of the company 1.52 is indicating the liquidity position of the company is
strong (Pervan & Kuvek, 2013).
Debt to equity ratio is computed to analyse the leverage position of the company. Very high
debt to equity ratio signifies that the company is highly leveraged as high portion of its earnings are
consumed by interest payment on debt. Debt equity ratio of the company 2.22 is indicating that the
company shall raise further capital though issuing equity rather than raising through debt (Delen,
Kuzey & Uyar, 2013).
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)
Profitability chart –
$502.80
$375.50
$393.40
$417.90
$416.20
Profitability
2013
2014
2015
2016
2017
Above presented charts for profitability and EPS of the company for last 5 years are
indicating that the company improved its profitability position as well as the EPS over the time of
last 5 years. Therefore the company can be regarded as sustainable over long run (Carraher & Van
Auken, 2013).
 Advice regarding investment
It can be concluded from the above discussion that the company seems to be good
opportunity for investment as the profitability and liquidity position is good. Therefore, the client
shall invest in Coca Cola Amatil.
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Reference
Bragg, S.M., (2013). Inventory management. AccountingTools.
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 20 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.
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.
Miller-Nobles, T.L., Mattison, B. & Matsumura, E.M., (2016). Horngren's Financial & Managerial
Accounting: The Managerial Chapters. Pearson.
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.
Warren, C., Reeve, J. M., & Duchac, J. (2013). Financial & managerial accounting. Cengage
Learning.
Weygandt, J.J., Kimmel, P.D. & Kieso, D.E., (2015). Financial & managerial accounting. John
Wiley & Sons.
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