Question

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Assignment Question(s):                                                     

Q1-

A company wants to implement good internal control. What are the policies and procedures you can suggest to minimize human frauds and errors? (1Mark)

Q2-

Assume that you have a company. And the management team estimates that 3% of sales will be uncollectible.

Give any amount of sales and prepare the journal entry using the percent of sales method. (1Mark)

Q3-

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

January 1:	Purchased 30 units at SAR11 per unit
February 5:	Purchased 30 units at SAR 13 per unit
March 16:	Sold 50 Units for SAR 15 per unit

A.Prepare general journal entries to record the March 16 sale using the

1. FIFO inventory valuation method.
2. LIFO inventory valuation method.
3. Weighted average valuation method.

B. What is the cost of goods sold and the gross margin for each method? (2Marks)

Q4. What is the bank reconciliation? why is it important for companies to prepare bank reconciliation periodically? (1Mark)

Answer 1

A.1)

• No single person should have an independent control over any important aspect of business.
• Person having physical custody of assets must not be permitted to have access to the books of accounts.
• To prevent loss or misappropriation of cash, mechanical devices like automatic cash register should be employed.
• The duties of members of the staff should be changed from time to time without any previous notice so that the same officer doesn't perform the same function for a considerable lenghth of time.
• Accounting procedures should be reviewed periodically.

A.2)

Say, the initial Sales was of $100. The Management team estimates that 3% of sales will be uncollectible. Hence, the Journal Entry will be.

Uncollectible Accounts Expense Dr. $3

To Allowance for Doubtful accounts Cr. $3

When in the next year if estimates are actually uncollectible, the Allowance for doubtful accounts will be reduced from accounts receivable.

A.3)

A. Journal Entries in all the three methods will be same. However Cost of Goods sold and Inventory valuation will be different in all the three methods.

DATE Particulars Amount (SAR) Amount(SAR)

1 January - Purchases A/c Dr. (30*SAR11) 300

To Accounts Payable A/c 300

5 February   Purchases A/c Dr. (30*SAR13)    390

To Accounts Payable A/c 390

16 March- Accounts Receivable A/c Dr. (50*SAR15) 750

To Sales A/c 750

B. i.Cost of Goods Sold

1) under FIFO (30*SAR11)+(20*SAR13) = SAR 590  

2) under LIFO (30*SAR13)+(20*SAR12) = SAR 610

3) under Weighted Average (50*SAR12) = SAR 600

SAR12 for Weighted Average is calculated as below

[(30*SAR11)+(30*SAR13)]/60= SAR 12

ii. Gross Margin= Sales-COGS

1) under FIFO SAR 750 -SAR 590= SAR160  

2) under LIFO SAR 750 -SAR 610= SAR140

3) under Weighted Average SAR 750- SAR 600= SAR150

A.4)

i) Bank Reconciliation is a process through which bank balance reported in the books of accounts of the entity is reconciled with the balance of the corresponding bank statement issued by the bank.

ii) We should prepare bank reconciliation periodically so that in case there are any discrepancies, errors or fraud, then the reasons of the same can be identified. The benefits of bank reconciliation is not exhaustive. it also discourages from embezzlement.