Question

Identify or assume TWO (2) high level/detective internal controls within the retail industry and propose a control test for each control in ANY of the following processes.

• Cash receipt and payment
• Sales and accounts receivables
• Purchase and accounts payables
• Inventory and Cost of goods sold
• Payrolls
• Non-current assets and Depreciation

Answer 1

Internal controls are the mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

There are various types of internal control and detective control are are one of them.

Following are the purpose of detective internal control are:-

CASH RECEIPTS AND PAYMENT

Receipt of cash helps retail industry to prevention from loss due to employees fraud and accounting error. These control intended to limit the access of cash to limited number of specified employees and varify that all receipts , refund or transfer documents correctly

With the help of cash receipts and payments we can control only on cash transactions.

SALES AND ACCOUNT RECIEVABLE

The purpose of account receivable is to ensure that sales invoice are properly recorded in books of business . And customer pay promptly according to agreement. With the help of sales and account receivable records each and every transaction with customer are recorded properly , in chronological order.

With the help of sales and account receivable we can control sales , debtor , bad debts , inventory .

PURCHASE AND ACCOUNT PAYABLES

The purpose of account payable is to ensure make time payment to vendors, maintaining accurate data and to maintain good relationship with suppliers. It also help to maintain inventory .

With the help of purchase and account payable . We can control inventory , creditors .

INVENTORY AND COST OF GOODS SOLD

It helps the business to ascertain profit . Maintain stock record .

PAYROLLS

Payroll controls and procedures prevent employees from accessing confidential information. Internal controls also prevent employees from stealing money from your business through overpayments and false time record

Payroll helps business to ascertain accurate amount to be given to employees .

NON CURRENT ASSETS AND DEPRECIATION

It recognizes that assets with finite lives lose their value, efficiency or effectiveness with the passage of time”. Depreciation is recorded as an expense in the income statement to spread the original cost of a non-current asset over its useful life to match the revenue, it is generating.

Conclusion:-

Sales and account receivable

Purchase and account payable

Are two high level detective control within the retail industry as the affect many accounts like inventory , creditors , debtor , bad debts, sales and purchase .