Question

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

(1)

Segregation of duties and documentation are important components of internal control that can reduce the risk of fraud from occurring.Internal control programs should be monitored and revised on a consistent basis to ensure they are effective and current with technological and other advances. If you do not have an internal control process or fraud prevention program in place, then you should hire a professional with experience in this area.

Everyone within the organization should be aware of the fraud risk policy including types of fraud and the consequences associated with them.

(2)

Take Sales as 1000

ACCOUNT		DEBIT	CREDIT
Accounts Recievable A/c dr	1000
To Revenue(sales)		1000
Uncollectible Account expense A/c   dr	30
To Accounts Recievable		30
	(1000*3%)

(3)

A.

Under FIFO

DATE	ACCOUNT		DEBIT	CREDIT
Mar-16	Revenue(sales) A/c    dr	750
	To Cash			750
	( 50 unit at 15/unit)
	Cost of goods sold   A/c   dr	590
	To Inventory			590
	( 30 units at 11/unit = 330,
	20 units at 13/unit = 260)

Under LIFO,

DATE	ACCOUNT		DEBIT	CREDIT
Mar-16	Revenue(sales) A/c    dr	750
	To Cash			750
	( 50 unit at 15/unit)
	Cost of goods sold   A/c   dr	610
	To Inventory			610
	( 30 units at 13/unit = 330,
	20 units at 11/unit = 260)

WEIGHTED AVERAGE METHOD

DATE	ACCOUNT		DEBIT	CREDIT
Mar-16	Revenue(sales) A/c    dr	750
	To Cash			750
	( 50 unit at 15/unit)
	Cost of goods sold   A/c   dr	600
	To Inventory			600
	(Weighted average cost = cost of goods available for sale / number of units available)
	Weighted average cost = (30 units * 13 + 30 units * 11 )/ (30+30)
	=720/60 = 12/unit
	Cost of goods sold = 50 units * 12/unit = 600)

B.

FIFO

Cost of goods sold = 590

Gross margin = 750- 590 = 160

LIFO

Cost of goods sold = 610

Gross margin = 750- 610 = 140

WEIGHTED AVERAGE METHOD

Cost of goods sold = 600

Gross margin = 750- 600 = 150

(4)

A bank reconciliation statement (BRS) is a summary of banking and business activity that reconciles an entity’s bank account with its financial records.

BRS is prepared on a periodical basis for checking that bank related transactions are recorded properly in cash book's bank column and also by the bank in their books. BRS helps to detect errors in recording transactions and determining the exact bank balance as on a specified date.