College of Administrative and Financial Sciences

                      College of Administrative and Financial Sciences

Assignment 2

For Instructor’s Use only

Instructions:

1. This assignment is an individual assignment.
2. All students are encouraged to use their own words.
3. Students must apply Saudi Electronic University academic writing standards and APA style guidelines.
4. Support your submission with course material concepts, principles, and theories from the textbook along with at least two scholarly, peer-reviewed journal articles.
5. A mark of zero will be given for any submission that includes copying from other resource without referencing it.
6. It is strongly encouraged that you submit your assignment into the safe assignment Originality Check prior to submitting it to your instructor for grading.

Assignment Question(s):                                                    (20 Marks)

Q1. Keenly observe the figure given and give you opinion on the information by answering the questions below.

1. Which financial statement do you think is prepared by Trekking Company? What is Specific Identification, FIFO, LIFO, or Weighted Average? Explain (1 Marks)

The financial statement being prepared by Trekking Company is the income statement. This is a financial statement that shows the revenues and expenses of the company over some time. It indicates how the revenues are transformed into the net profit of the business. Specific identification means the specific cost of the Inventory is the one that was utilized. FIFO stands for First In First Out and assumes that the oldest item was sold first. LIFO assumes that the most recent Inventory is the one that is sold first. The weighted average assumes the average cost per unit of the Inventory at the time of sale.

1. Explain in your own words the process of these methods with a numerical example for each. (4 Marks)

If a company buys 30 pens at $10 each and then further buys another 20 pens at $5 each and they sell 20 pens, the calculation will be as follows for each method.

For FIFO, the pens will be counted to be in the first Inventory making the cost of goods sold to be 20 x $10 = $200. For the LIFO method, the last Inventory will be sold, making 20 x $5 = $100. The weighted average will take the average cost, which will be ($10+$5)/2= $7.5. This multiplied by 20 pens will give $150. For the specific identification method, the cost of goods, the exact cost of the selected Inventory will be used in the calculations.

1. Assume that you are the manager of the company mentioned in the figure above, which cost method would you prefer, support your answer. (1 Marks)

The specific identification method is the best method for calculating the cost of goods sold as it provides an accurate calculation of the goods sold.

Q2. A company that uses a perpetual inventory system made the following cash purchases and sales.  There was no beginning inventory.

Prepare general journal entries to record the March 16 sale using the FIFO inventory valuation method and the LIFO inventory valuation method. (4Marks)

Journal entry for Purchases using both FIFO and LIFO inventory valuation

Journal entry for Sales using both FIFO and LIFO inventory valuation

Journal entry for Inventory using FIFO inventory valuation

Journal entry for Inventory using LIFO inventory valuation

Q3. Please log-in to Saudi Digital Library via your student’s service on SEU’s website. Find the following article, and answer the questions below (you should be able to answer the questions by reading the abstract of the article only):

Article:

Al Smirat, Belal Yousef (2016). “Cash Management Practices and Financial Performance of Small and Medium Enterprises (SMEs) in Jordan”. Research Journal of Finance and Accounting, Vol. 7, No. 2.   (4Marks)

1. Explain the issues mentioned in the abstract which the author would like to explore on.

The author would like to examine the cash management practices and their effect on the financial performance of SMEs in Jordan. He has noted that cash management is a crucial determinant of the success and growth of small and medium enterprises. The SMEs in Jordan do not know cash control procedures. From a study conducted, it is seen that only 32% of them kept track of their cash payments and receipts while the vast majority do not keep such records as they do not understand the importance of the same.

1. Assume that you are the cash manager of such Enterprises, how would you support them with cash management practices for the better financial performance of SMEs.

Having good cash management practices is critical, especially for SMEs. Having a positive cash flow will enable a business to pay expenses as well as invest in available opportunities for growth. There are many measures that cash managers could employ to ensure their cash management is top-notch. One of the most critical practices that managers of SME’s should employ is to record cash receipts and cash payments as they are used in finding the income statement of the business. Another measure is establishing a strict credit policy, such as collecting a deposit when taking orders. At all times, the business should try to collect payment as quickly as possible. Extending credit should be done rigorously as non-paying customers could cause hefty expenses in times of bad debt written off. Payment due to the business should be spread out to have cash for unexpected expenses. A business should also take into account the payroll cycle of the enterprise and align the payment of staff according to the cash flow. Having a forecast of how cash will flow in and out of business is another crucial element that the managers should employ to know when to expect shortages to be prepared.

Q4. The bank statement of DPLC Company for July 31^st showed a cash balance of $3,375. The company’s Cash account in its general ledger showed a $2,489 debit balance. The following information was also available as of July 31^st.

1. A customer’s check for $250 marked NSF was returned to DPLC Company by the bank. In addition, the bank charged the company’s account a $63 processing fee.
2. The July 31^st cash receipts, $3,125 were placed in the bank’s night depository after banking hours on that date and this amount did not appear on the July 31^st bank statement.

1. A $38 debit memorandum for checks printed by the bank was included with the canceled checks.

1. Outstanding checks amounted to $2,863

1. A customer’s note for $2,250 was collected by the bank. A collection fee of $63 was deducted by the bank and the difference was deposited in the account.

1. Included with the canceled checks was a check for $688, drawn on another company, DY Incorporation.

   Prepare a bank reconciliation as of July 31^st. (6 Marks)

Bank Reconciliation as of July 31^st.