Question

Teresa Greene owns and manages a craft and material shop called All Sewn Up. Most of the revenue of All Sewn Up is from the sale of craft materials, although some revenue is made by giving craft lessons to groups of six customers at a time. As Teresa’s shop relies on many suppliers of small amounts of different craft materials, she has difficulty keeping track of all her accounts payable. Teresa is not very well organised and so struggles to send out accounts to her customers or collect money from them. Teresa is considering implementing a computerised accounting system as she has been doing a computer course at a local TAFE and feels that it could help her to be more organised.

Required:

1. Discuss what source documents would be required in a manual accounting system in order to record the sales to customers and receipt of cash, and to ensure correct payment of money to suppliers? You should also discuss where the transactions should be recorded and the best way to manage the credit sales.

Marks: 8

2. In her computer course Teresa learnt that the focus in accounting should not be on bookkeeping but on the use of the information ‘inside the computer’ to make better decisions and to better manage the business. In what ways could a computerised accounting package such as Xero help Teresa make better decisions and manage her business better?

Marks: 12

Answer 1

ANSWER

A.   

To record sales to customers, both credit and cash, use a tax invoice and record in the appropriate journal. Compare tax invoices and adjustment (credit) notes given. To be aware of customer accounts that are due and overdue, file invoices in terms of due date and keep subsidiary records up-to-date by updating at least daily. To ensure correct payment to suppliers, use tax invoices received filed chronologically in terms of any discount receivable, in conjunction with the purchase order and receiving report.

B.   

An integrated accounting package can assist by providing up-to-date information for all customer accounts that are due, and for adjustment (credit) notes as recorded in the accounts receivable master file (updated regularly from tax invoices and adjustment (credit) notes). The accounts payable master file (updated regularly from tax invoices received and adjustment (debit) notes) should provide details of all accounts that must be paid in order to claim discounts and to pay when due. Computerisation enables all transactions to be analysed via enquiries at any time to ensure all necessary approvals have been given before any payment is authorised. Integrated packages can update the general ledger at the same time as the transaction is recorded in the master files for receivables and payables, as well as updating inventory records for all items purchased and sold.

By better managing accounts receivable and accounts payable, Teresa will be able to improve the cash position of the business. A computerised system will also answer questions about which inventory items are the bestselling and which ones sit on the shelves for long periods with minimal sales. This will help Teresa better target the needs of her customers and to avoid running out of popular inventory items and to avoid wasting space and investment in unpopular inventory items.

By having information on what regular customers purchase, Teresa can better serve their needs and hopefully increase the amount of business she generates from her key customers.

A computerised system will help Teresa keep track of what inventory items she orders from each supplier and ensure that she minimises the number of orders placed. When an inventory item is running low, she can easily see what other inventory is supplied by the same supplier and check the levels of inventory of those items before placing an order. This can significantly reduce the number of orders and freight costs involved.

Such a system will also assist in recording and reporting the effects of the GST, and the preparation of Business Activity Statements (BAS).