Inventory Management, Bank Reconciliation, And Bad Debt Management: Accounting Essay.

1. Accountants often use accounting software for data management, why do they still use spreadsheets What are the disadvantages of using spreadsheets
2. In designing a spreadsheet, why should the report section be completely separated from the data section
3. Use spreadsheets to demonstrate: 

• IF functions,
• Negative numbers in brackets,
• Names to reference cells (e.g. Net Profit = Sales less Expenses).

Show your demonstration in both normal and formula views with row and column headings.You are required to provide at least one reference from the reading resource in Interact2 and two other references.

Inventory management

Fashion Haven recently opened a retail clothing shop in Australia. The owner is considering whether a perpetual or periodic inventory system should be used. The company also has an item of inventory with details below:

Requirements: Write a business report (about 600 words) critically addressing the issues below:

• Explain the essential differences between perpetual and periodic inventory systems. With the nature of Fashion Haven’s business, which system would you suggest to the owner.
• Using a spreadsheet, calculate the Ending Inventory and Cost of Goods Sold for May, using the average cost, LIFO, and FIFO methods. Present your answers in both normal and formula views with rows and column headings.
• Taking into account the context of the firm’s operation and the current purchase price, what method would you suggest to the owner.

Bank reconciliation

You are preparing Golf Club’s financial reports for June 2017, and the 30 June 2017 bank statement has just arrived with the balance of $29,930. Currently, Golf Club’s Cash account shows a balance of $30,690.

Additional information:

Requirements:

1. Suggest one item that can decrease the bank balance, and one item that can decrease the cash balance. The value for both items must be the same. 
2. With the new balances, prepare Golf Club’s Bank Reconciliation at 30 June 2017 from the above data. Provide your handwritten solution – scan or use your phone to copy and paste the image in your assignment. You can use a free scanning app such as Camscanner, OfficeLens, or Google Drive. 
3. Record any required journal entries from the bank reconciliation.

Bad debt management and financial decision

You are an investment advisor with accounting expertise. Write a business report, addressing issues below:

• What was the bad debt method that the company used How much was their bad debt expense for the year 2017
• Is there any other method of estimating bad debt.
• Analyse the company financial information through at least three ratios and two charts. For any ratios used, justify why these ratios are relevant to your analysis.
• Comment on the company report on sustainability.
• In your report, you have to provide your advice as to whether your client should invest in the company or not.

You are required to provide a quality presentation of the total assignment including referencing throughout and bibliography. Details are listed under the presentation and spreadsheet requirement sections.

Perpetual and Periodic Inventory Systems

In the present days, there has many accounting softwares arrived in the market; however, the utility of Excel still persists. The Excel spreadsheet provides variety of functions and modality which is the most crucial advantage of using Excel in business management. The other accounting softwares are made customized to cater specific business needs. So, the utility of excel increases due to its flexibility and variety of functions being available for use.

The use of Excel is vulnerable to security threats and this is biggest disadvantages of using excel in business. Sometimes it is also time consuming for data maintenance as compared to fast customized softwares (Contractlogix, 2015).

Requirement-2

            The separation of data section from the report section is very necessary when designing a spreadsheet. If the data section is not kept separate, it will be difficult for one to manipulate data to get different results. One needs to keep data section separate so that changes could be accommodated in the report automatically (Bowerman et al. 2003). 

Requirement-3

Use of If function normal view

Use of If function formula view

Part-B

Introduction

This report presents the discussion on perpetual and periodic inventory system with a view to find out suitability of each system. Further, the report also covers inventory valuation and cost of goods sold computation for Fashion Haven.

Perpetual and Periodic Inventory Systems

The perpetual system of inventory record keeping is based on the premise that recording the transactions of sale and purchase and adjusting inventory on a routine basis is important. Thus, the inventory figures are adjusted on a daily basis or on the basis of some fixed routine in the perpetual inventory system. The periodic system is different from the perpetual. In the periodic system, the inventory figures are adjusted after the end of a definite period rather than routinely. In this system, the inventory is physically counted preferably at the quarter end and then adjustments are made to compute value of closing inventory and cost of gods sold (Stevenson, Hojati, & Cao, 2007).

 It depends upon the business peculiarities to find the system suitable out of perpetual and periodic. The perpetual system is necessary for the business where volume of transactions is large with multiple products being dealt with. On the contrary, the period system is helpful where one or two products are being dealt and volume is low. Fashion Haven is a retail stores that deals with various types of clothes. Thus, considering the nature of business, perpetual system of inventory is recommended for Fashion Haven (Latosiíiski & Bartoszewicz, 2017).

Calculation of Ending Inventory and Cost of Goods Sold

Calculation of Ending Inventory and Cost of Goods Sold

Normal View

Recommendation

The cost of inventory is $1,577.89, $1,680, and $1,520 under average cost method, LIFO, and FIFO method respectively. Fashion Haven is in the business of retail sales of clothes which is highly dynamic in nature and keeps changing with innovation. Thus, the company should follow FIFO system of inventory valuation.

Part-C

Requirement-1

The wrong deduction from the bank account of $520 is the transaction which will decrease the cash balance on preparing reconciliation. Similarly, outstanding cheque of $520 will decrease the balance of bank (Sian & Roberts, 2009).

Part-D

Introduction

This report deals with financial analysis of Coca-Cola Amatil Limited for the year 2017 with a view to make investment decision. The report also covers specific coverage of bad debts and sustainability initiatives taken by the company.   

Inspection of Bad Debts

As enunciated in the accounting policy of the company, the bad debts are recognized based on the identification of such situation giving rise to insolvency of the party. The trade receivables are verified for loss of recovery in amounts on a periodic basis. In the year 2017, the company did not recognize the bad debt at all (CocaCola, 2017).    

However, there is a method of bad debt recognition namely percentage to sales method. The company may follow a method where amount of bad debt expense would be determined based on certain predetermined rate applied on the credit sales.

Analysis of the Company’s Financial Information

There are three crucial aspects of financial analysis such as profitability, liquidity, and solvency. In order assess profitability of Coca-cola Amatil, the net margin ratio has been computed. The net margin ratio depicts profits as a percentage to revenues and thus, it gives an essential insight into the firm’s profitability. The chart given below shows that net margin ratio was higher in the year 2017 as compared to 2016 (CocaCola, 2017). This signifies that the company is performing well.   

Further, in order to assess liquidity and solvency, two ratios such as current ratio and debt equity ratio have been computed as show in the chart given below:

The current ratio measures short term liquidity of the business while debt equity ratio measures long term solvency position of the business. The current ratio has declined in the year 2017 to 1.52 times from 1.68 times in the year 2016. This shows that the liquidity position of the company has diminished in the current year. The debt equity ratio has increased in 2017 to 2.70 times from 2.18 times in 2016, which implies that solvency risk in the company has risen (CocaCola, 2017). 

Company’s Report on Sustainability

The company includes strategy on sustainability in its annual report.  The company reports initiatives taken by it in compliance with the global reporting standards. Coca-cola Amatil has set many goals to achieve sustainability. One of them is harm free environment of working. The company has been able to maintain good governance leading to good sustainability (CocaCola, 2017).

Recommendation

Overall, the financial performance of Coca-Cola Amatil seems to be improving which means that the investors can seek investment in this company. The deteriorating liquidity and solvency positions are short term phenomenon (CocaCola, 2017). 

References

Bowerman, B. L., O'Connell, R. T., Murphree, E., Huchendorf, S. C., & Porter, D. C. (2003). Business statistics in practice(pp. 728-730). New York: McGraw-Hill/Irwin.

CocaCola. (2017). Annual report of coca-cola Amatil Limited. 

Contractlogix. (2015). Top 3 Disadvantages of Using Spreadsheets for Contract Management.

Latosiíiski, P., & Bartoszewicz, A. (2017, August). Inventory management strategies with higher relative degree sliding variables. In Methods and Models in Automation and Robotics (MMAR), 2017 22nd International Conference on (pp. 425-430). IEEE.

Sian, S., & Roberts, C. (2009). UK small owner-managed businesses: accounting and financial reporting needs. Journal of Small Business and Enterprise Development, 16(2), 289-305.

Stevenson, W. J., Hojati, M., & Cao, J. (2007). Operations management (Vol. 8). Boston: McGraw-Hill/Irwin.