Accounting Principles and Practices: A Comprehensive Project

Desklib provides past papers and solved assignments for students. This project covers financial statement analysis and accounting principles.

Assessment 2

Contents
Part A: Spreadsheet...................................................................................................................2
Part B: Inventory Management..................................................................................................5
Part C: Bank Reconciliation.....................................................................................................10
Part D: Bad debt management and financial decision.............................................................11
References................................................................................................................................16
List of Figures
Figure 1: Normal view of Financial Statement..........................................................................2
Figure 2: Formula view for financial statement.........................................................................3
Figure 3: VLOOKUP example...................................................................................................4
Figure 4: Journal Entries..........................................................................................................10
Figure 5: Bank Reconciliation.................................................................................................10
Figure 6: Bad and doubtful expense.........................................................................................11
Figure 7: Implementation of the current ratio..........................................................................12
Figure 8: Current Ratio chart...................................................................................................13
Figure 9: Implementation of Stock or Inventory Turnover Ratio............................................13
Figure 10: Inventory turnover chart.........................................................................................14
Figure 11: Implementation of Leverage Ratiov.......................................................................14
Figure 12: Leverage ratio chart................................................................................................14
List of Tables
Table 1: Difference between Direct write off method and Allowance method.......................11

Part A: Spreadsheet
1.
 In statement of financial performance, the total for all accounting statements is
calculated by using sum function. The total at the end is also calculated by sum
function. Sum function is used to total all amounts for debit and credit. The total for
all the statements is calculated by sum function.
 This is the normal view for financial statement:
Figure 1: Normal view of Financial Statement

This is the formula view where sum function is applied to total row:
Figure 2: Formula view for financial statement
In above figure, formula view is given for highlighted field where sum function is used to
calculate the total of debit field of statement of financial position.
 The sum function is very useful to calculate total for all debit and credit columns for all
statements. (Dalgleish, 2018)

2. VLOOKUP Function:
 Purpose of lookup function: VLOOKUP function means vertical lookup. It is used to
search value from some block of values so that it can be referenced and value can be
found. This is already built function in excel which can be used when we need to
reference some values from some couple of values.
 The formula and network view are both given as:
Figure 3: VLOOKUP example
In this, lookup table is made to retrieve Sales for Feb for B person and the formula is shown
in Figure 3.

Part B: Inventory Management
 Both periodic and perpetual inventory system are different procedures to know about
goods on hands. The most crucial to implement this is perpetual system. The only
problem with perpetual system is to maintain all records.
On basis of Accounts, Perpetual system goes with all updates continuously in inventory
journal and general ledger but with periodic inventory systems, no amount of cost of goods is
updated.
On basis of Computer systems, for perpetual inventory systems, no manual maintenance is
possible because many transactions are there in level of unit at each period of accounting but
periodic inventory systems allow you to maintain records manually.
On basis of cost of goods, perpetual method allows updates to be continuous in nature as
sales are made but periodic inventory systems, the cost for all goods is calculated first and is
added to initial inventory and is subtracted to closing inventory.
On basis of Purchases, in perpetual inventory systems, all purchases related to inventory can
be recorded under merchandise account or raw materials inventory account. These parameters
can be varied according to its nature. But in relation to periodic accounts purchases comes
under purchases asset account. (Bragg, 2017)
There are different entries based on different scenarios as:
1. On purchase of inventory:
Perpetual Inventory system:
The assumption is taken as that the purchase is conducted on credit
Periodic Inventory system
There is no assumption taken.

2. On basis of discounts on purchases
The inventory here would be decreased
Perpetual Inventory system:
Periodic Inventory system
Here the journal entries are compiled.
3. On basis of returns on purchases
Perpetual Inventory system:
If any inventory is purchased and that inventory is given to supplier.
Periodic Inventory system
These are recorded in journal entry as
4. On Basis of sales on Inventory
Perpetual Inventory system:
The first record of journal entry shows inventory sale value.
The second record of journal entry shows reduction in balance of inventory.

Periodic Inventory system
5. On basis of return on sales
Perpetual Inventory system:
There is also the requirement of 2 journal entries.
Periodic Inventory system
Periodic Inventory system is best because implementation of this method is easy.

 Average cost method in excel:
Last in First out in excel:
First in First out in Excel:

 To call funds FIFO method is appropriate as it is easy for application and no updation
or changes would be there. The older costs is removed subsequently. At last, there
would be no changes made in net income and cost of goods.

Part C: Bank Reconciliation
1. The financial report for Great Foods’ firm is prepared for the month June 2018. It is given
that the bank statement shows $30,800 bank balance and the cash balance is $31,560. If
an item is sold and the payment is made through cheque then this process will increase
the bank balance. When Great Foods’ makes a sale on cash, the cash balance will be
increased. (KAGAN, 2018)
Figure 4: Journal Entries
2. Bank Reconciliation statement of the above bank balance:
Figure 5: Bank Reconciliation

Part D: Bad debt management and financial decision
1. There are basically two types of methods that are used to account the uncollectible
accounts i.e. Allowance method and the Direct Write-off method. The “A2 Milk company
Limited” uses the Allowance method for estimating the bad debts of the debtors. Figure 1
shows the bad and doubtful debt expenses of the company which is $69 for the
accounting year of 2016.
Figure 6: Bad and doubtful expense
2. Yes, there is another method for bad debt. The other method for estimating bad debt is
“Direct write-off” method.
Difference between Allowance and Direct write off method: (Bragg, 2018)
Table 1: Difference between Direct write off method and Allowance method
Allowance Method Direct Write-off method
This method is not easy. This method is easy to use.
It is recorded at the end of the financial and
accounting year when expenses are
estimated to be uncollectable.
This is used when an account is judged as
an uncollectible account.
This method maintains a reserve account It neither estimates the doubtful accounts