Question

Assignment 2 ACCT101

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

Answers to the above questions : -

Q1. If the company wants to implement good Internal control, then to avoid Human frauds and error, following policy and proceedure should be implement :-

1)  "Maker and checker system"

2) Use a system of check and balances to ensure no person has control over all parts of financial transactions.

3) Reconcile agency bank accounts every month

4) Protect petty cash and other caaash funds

5) Protect cash and check collection

Q2. As per 16th March, assume Sales amount will be Rs. 750/- (50 units * Rs.15 per unit) as given in the problem.

Journal entry by using percentage of slae method is as follows : -

(i) Debit - Debtors Account 750

Credit - Sales Account 750

(ii) Debit - Bad Debts Account 225

Credit - Debtors Account 225

Q3.

A) Journal Entries to record the sales on 16th march

FIFO Inventory valuation method

Debit - Cash / Bank Account 590   (30 units * Rs.11 + 20 units * Rs.13)

Credit - Sales account 590

LIFO Inventory valuation method

Debit - Cash/ Bank account 610 (30 units * Rs.13 + 20 units * Rs.11)

Credit - Sales Account 610

Weighted Average Valuation Method

Debit - Cash / Bank Account 600 (30 units* Rs.11+30units *Rs.13) / (30units+30 units) = Sales Rs.12 per unit)

Credit - Sales Account 600

B) Cost of goods sold refers to the Direct cost of producing the goods sold by a company. This amount includes the cost of material and labour directly used to create the goods. It excludes indirect expenses, such as Distribution cost, Administrative cost etc.

Cost of Goods sold is also referred to as "Cost of Sales".

Gross margin is a company's net sales revenue minus its cost of goods sold. The higher the gross margin the more capital a company retains on each dollar of sales, which can then use to pay other cost or debt obligation.

Q4.  A bank reconciliation statement summarizes banking and business activity, reconciling an entity's bank account with its financial records. Bank reconciliation statements confirm that payments have been processed and cash collections have been deposited into a bank account.

When you reconcile your business bank account, you compare your internal financial records against the records provided to you by your bank. A monthly reconciliation helps you identify any unusual transactions that might be caused by fraud or accounting errors, and the practice can also help you spot inefficiencies.