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: (a) 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

(b) 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?

Answer 1

Given, Teresa Greene owned and mangaes a craft and material shop called All sewn Up. She is not well organised and struggles to maintain the accounts and collect cash from customers and pay to the suppliers

a) Source Documents: Souurce documents are those documents based upon which the transations of the business are recorded. Theses are used as an evicence at the time of audit to make sure that the accounting is made properly and truely. So,these documents are to be retained with the company for a specific period.

The source documents which are used to record the sales to the customer are the sales order, Purchase order, Sales Invoice and the cash receipt for the receipt of cash. For the suppliers payment, the source documents are Purchase Invoice, Suppliers Invoice, Goods Receipt.

The transactions of the business are to be recorded in the journals such as General Journal, Cash Journal, Sales Journal, Purchases Journal, Accounts Receivable, Accounts Payable, Sales Returns, Purchase Returns. For recoring the sales we have to use the sales register and Accounts Receivable. For those sales which are on credit basis are to be recorded in Accounts Receivable. Foe managing the Credit sales, it is better to create the customer account for each Customer account where we can see the outsatanding balance of each customer in the specific customer account. The value of Total Credit sales can be found in the Accounts Receivable Account. Thus the credit sales can be managed easily.

b) In a Computerised Accounting Packages like Xero, it not only used to reord the transactions of the business. It can also be used to produce various reports like executive summaries, cash summaries, profit and loss statements, Balance sheet, Aged Receivables, Ages payables, Bank Reconciliations,cash flows,Taxations, Top customers, Top suppliers, Revenue statements etc for better decision making and to manage the business better.