Question

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?

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.

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?

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

Answer 1

Ans 1) The primary reason of implementing internal control is to minimize human frauds and errors. I will suggest the company to follow the principle of Segregation of duties and implement it in all process within the organisation. This ensures that no one person has the responsibility for transactions from beginning to end as a result of which the risk of fraud is mitigated. Further, i will throw the importance on signatures on documents and how documents should not be valid until signed. The signatures provide evidence the documents have been authorized and approved and reduce the risk of fraud. PPE (Property plant and equipment) is a significant area in most of the business hence i would recommend them to use Physical asset control which controls the movement of assets. As it requires documents authorizing the movement. It include use of locked file cabinets, padlocks and fences.

Ans 2) Percentage of sale method to calculate bad debts uses the sales (Income statement) amount to calculate the uncollectible amount.

The amount is 3% of total sale value and the journal entry will be

Bad Debt expense (Debit) -  $(3% of total sale value)

Allownace for doubtful debts (Credit) - $(3% of total sale value)

Ans 3) FIFO= First in first out

COGS = 30 units*$11+20units*$13 = $590

Sales = 50 units * $15 = $750

i) Account recievable (Debit) $750

Sales (Credit) $750

ii) COGS (Debit) $590

Inventory (Credit) $590

LIFO= Last in first out

COGS = 30 units*$13+20units*$11 = $610

Sales = 50 units * $15 = $750

i) Account recievable (Debit) $750

Sales (Credit) $750

ii) COGS (Debit) $610

Inventory (Credit) $610

Weighted Average

Average cost of inventory = (30 units*$13+ 30units*$11)/60units = $12

COGS = 50units* $12 = $600

Sales = 50 units * $15 = $750

i) Account recievable (Debit) $750

Sales (Credit) $750

ii) COGS (Debit) $600

Inventory (Credit) $600

B) LIFO

COGS = $610

Gross profit = Sales - COGS = 140

FIFO

COGS = $590

Gross profit = Sales - COGS = 160

Average Cost

COGS = $600

Gross profit = Sales - COGS = 150

Ans4) BRS means comparison of  your internal financial records against the records provided to you by your bank. In simple terms, Balance as per general ledger maintained by company with the Bank statement. Tt is important to prepare BRS periodically as it helps Company to  identify any unusual transactions that might be caused by fraud or accounting errors. Hence, it helps to identify and fraud before its too late and administrative problems if any.