Question

In: Accounting

Prepare a 2-3 page analysis discussing what you found as a result of your analysis and...

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

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%

Solutions

Expert Solution

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.


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