In: Accounting
Prepare a 2-3 page analysis discussing what you found as a result of your analysis and what internal controls you would recommend to the owner of ABC Co. Statements of Income |
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For the year ended December 31, | 2017 | 2016 | |||||||
Net Sales (less returns & allowances) | $ 930,560 | $ 875,693 | 6% | ||||||
Cost of Goods Sold | 623,543 | 585,625 | 6% | ||||||
Gross Margin | 307,017 | 290,068 | 6% | ||||||
Operating Expenses: | |||||||||
Advertising | 1,843 | 1,972 | -7% | ||||||
Bad Debt Expense | 17,683 | 13,923 | 27% | ||||||
Depreciation and Amortization | 14,095 | 12,870 | 10% | ||||||
Dues & Subscriptions | 364 | 375 | -3% | ||||||
Insurance | 2,800 | 2,600 | 8% | ||||||
Licenses & Fees | 300 | 285 | 5% | ||||||
Marketing & Promotion | 10,925 | 11,452 | -5% | ||||||
Meals and Entertainment | 4,512 | 3,985 | 13% | ||||||
Office Expenses | 1,611 | 1,543 | 4% | ||||||
Office Supplies | 2,000 | 2,035 | -2% | ||||||
Salaries & Wages | 45,800 | 42,700 | 7% | ||||||
Professional Fees | 3,700 | 3,500 | 6% | ||||||
Property Taxes | 1,920 | 1,900 | 1% | ||||||
Rent | 42,500 | 41,800 | 2% | ||||||
Repairs & Maintenance | 700 | 680 | 3% | ||||||
Shipping Delivery | 450 | 570 | -21% | ||||||
Travel Expenses | 41,862 | 35,587 | 18% | ||||||
Utilities | 7,300 | 6,950 | 5% | ||||||
Leased Equipment | 4,400 | 4,750 | -7% | ||||||
Other | 665 | 654 | 2% | ||||||
Total Operating Expenses | 205,430 | 190,131 | 8% | ||||||
Operating Income | 101,587 | 99,937 | 2% | ||||||
Interest Expense | 2,658 | 2,432 | 9% | ||||||
Other Income (interest, royalties) | 5,620 | 5,725 | -2% | ||||||
Income Before Taxes | 104,549 | 103,230 | 1% | ||||||
Income Taxes | 20,910 | 20,646 | 1% | ||||||
Net Income | $ 83,639 | $ 82,584 | 1% |
1. Internal control for accounts receivable.: the percntage of bad debt expense has gone by 27%. This means the credit controls are not in place or are not being implemented in place. There needs to be internal controls to manage accounts receivable ina bettr way. Decisions of whether or not extending credit should be taken with appropriae approvals. There should be a process in place to assess the credibility of the buyers and to a recovery process to recover doubtful debts.
2. Travel Expense, Meals and Entertainment: There is considerable increase in travel expense of the employees. A process to submit all bills with supportings and pprovals of manager should be in place. Expense limits should be prescribed for travel wherever necessary in the form of a travel policy. There should personnel appointed to check the bills submitted and to make sure proper approvals are in place. Also the personnel should make sure the employee spend is within the prescribed limit. A process should be developed to report any fraudaulent bills to management without anny risk to the person who reports it.