Accounting: Coffee and Cathy

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The business Coffee Call is run by Cathy. Coffee Call is a Wellington based coffee bean roaster. Coffee Call has gradually grown from a small business with only a few customers , (with Cathy doing all the hard work) to a successful business with 4 fulltime and 2 part time employees, the part time employees work “on call” therefore meaning they do not have specific duties however do help out in the office as well as with local deliveries . Cathy sells two types of coffe beans , Arabica and Robusta beans . They are imported from all over the world and are purchased from an Auckland based supplier called ‘Global Beanz’ . The cost of the coffee beans per kilogram is most likely to change from week to week due to international command and currency flunctuations. Cathy operates a perpetual inventory system using the ‘first in first out’ (FIFO) valuation method to record the flow of there inventory.

Perpetual inventory system:
The perpetual inventory system records all inventory movements in the inventory account which include sales, purchases, purchases returns and sales returns. Therefore Coffee Call must have a written record which is able to show the quantity of inventory that should be on the shelves at any point of time. As soon as a sale occurs the cost of the sold goods is then transferred from the inventory ledger account directly to the cost of goods sold account. Therefore at any time the perpetual inventory system provides an ‘up to date’ cost of goods sold.Also when a stock take is complete the numbers are able to be compared with those on the inventory records, this allows Coffee Call to see if there is any loss or inventory shortage. Coffee Call is then able to complete their income statement during any time which gives them the advantage of calculating their profit which enables Coffee Call to monitor profitability more often in addition there is no need for physical stock take. Cathy can use her computer or...
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