You are a graduate accountant working for J2R Chartered Accountants. One of the new clients to J2R Chartered Accountants is Mr Bing who owns and operates a large cherry farm and cherry farm bakery/shop which specialises in cherry pies, cherry jam and cherry chocolate bars which it mainly sells to exclusive restaurants. 

Every second Sunday of the month Mr Bing opens the cherry farm bakery/shop to the public which has been very successful. The shop is often full of customers during the day with a line-up that sometimes extends outside the shop. 

Mr Bing has had a meeting with the Managing Partner of J2R today and you were invited to attend the meeting. Mr Bing was clearly happy with the success of the cherry farm bakery/shop but he is concerned that when the shop is very busy it would be easy for someone to take products without paying for them and currently there is not any way of identifying this unless someone was sighted taking the products without paying for them. Mr Bing does not know whether this has been occurring or not. 

During the second Sunday of the month when the farm shop/bakery is open to the public, the baker and chocolate makers are often very busy making the products with a casual staff member boxing the cherry pies as they are baked, wrapping chocolates and taking these out for display and sale. 

The Managing Partner suggested that given the success of the business and the growth of sales in the cherry farm bakery/shop that it may be time to consider moving the inventory system from a periodic system to a perpetual system. Mr Bing is very interested to know more about this system as he has not heard of it before. After the meeting the Managing Partner tells you she is extremely busy with a number of clients at the moment and therefore asks you to writing letter to Mr Bing which covers the points listed below. When you have completed the letter, the Managing Partner has asked that you send it to her for review and from there it will be sent to the client. 

REQUIRED:

Please write letter to Mr Bing explaining the following:

• Identify and explain two key differences between the periodic and perpetual inventory systems.

• Explain how the perpetual inventory system operates, clearly explaining how sales and purchases are accounted for. You can assume Mr Bing has a basic understanding of how to journal transactions.

• Explain how Mr Bing will be able to determine if there are any cherry product thefts occurring in the cherry farm bakery/shop.                    

Formatting hints: 

• Date your letter the 23rd of March 2018
• Address your letter to Mr Bing, 2 Cherry Lane, Cherryfields, South Australia 5487
• Any formal business letter format is acceptable 
• Consider an appropriate way to sign off your letter
• Set out your letter with subheadings to separate each part of your letter as you address the criteria required