Question

For this part, assume you are entering information about transactions into their relational database. You will be entering financial information, but you will also need to consider the other types of information Big Marker would want to know about that event. You will also utilize what you have learned to identify internal controls specific to each transaction.

The transactions are as follows:

a. Billed 30 communities for monthly dues of $600 (each).

b. Borrowed $10,000 from First National Bank with a 6-month, 4% note payable.

c. Created a Chief Financial Officer position and established a support team for that function. The CFO’s annual salary will be $150,000; each support team member will earn $60,000 annually.

d. Purchase new computer servers from Dell, $40,000.

e. Reimbursed employee for business expenses: Supplies, $500; Food, $250; and Travel, $1,500.

For each of the transactions, you should answer the following questions:

1. Which business process (from chapters 12-14) is most closely associated with each transaction?

2. What is the most appropriate journal entry (if any) to record the transaction? For each of the accounts you use, identify the element (asset, liability, equity, revenue or expense).

3. What forms/documents would be used to process this transaction?

4. For each transaction suggest at least two additional pieces of information you would want to capture in a relational database.

5. For each transaction, suggest two internal controls you would implement. The controls should be specific to each transaction and you should justify/explain your response.

Answer 1

1)a)Operation process

B)Finance

C)Human Resource

D)Asset Management

E)Human Resource

Journal

A)No Entry
B)Bank	10000
To 4% Note payable		10000
C)No entry
E)Employees Expenses	2250
To Cash		2250
D)Office equipment	40000
To Dell		40000

3)Document to be used

A)Sales Order

B)Bank Statements

C)Appointment letter,Employment Agreement

D)Supplier Invoice

E)Vouchers for expenses

4)Additional information

A)Period of due

Tax chargeable if any

B)Use of Fund

Gurranty provided by stakeholder if any

C)Team members name

Supervisor Subordinate relationship

D)Department where Computer will be installed

Warranty and after sale support from supplier

E)Actual expenses incurred

Employees name

5)Internal Controls

A)

• Cash Collection and Billing department should have separate authority.
• Bills are sequentially numbered.

B)

• The internal control should be designed in such a way that it shall ensure all the legal and other regulatory procedures relating to the borrowings are duly complied with.

It should also ensure that all the terms of borrowings and variations in terms of borrowings, if any are duly authorized.

C)

• Understanding the various laws involved with recruiting and hiring and conducting regular legal and regulatory reviews
• Preparing policies and procedures that comply with the law and applicable regulations
• Training management and staff on your policies and procedures and their legal obligations at work

E)

Separation of duties

A major step you can take to ensure proper payroll processing is to have different people performing key payroll duties. Employees should not process or approve actions affecting their own pay.

Best practice is to have different people:

Prepare and update online payroll and personnel data
Approve online payroll actions
Review monthly payroll expense reports
Review and reconcile financial records on a monthly basis
Distribute the payroll

Accountability, authorization, and approval

When you authorize, review, and ensure that payroll entries and personnel actions follow policy, you are adhering to accountability principles. Maintain data confidentiality by giving payroll and personnel access only to authorized individuals.

Best practices:

Periodically review and update signature authorizations.
Obtain pre-approval for changes made to timekeeping records.
Review attendance records for accuracy and compliance to policy.
Reconcile ledgers monthly for accuracy of recorded transactions.

D)

Separation of duties

Ensure that payment documents are processed correctly by having different people involved in the payment process. This principle is called separation of duties.

Best practice is to have different people:

Approve purchases
Receive ordered materials
Approve invoices for payment
Review and reconcile financial record

Security of assets

Once you receive your purchased goods, secure the materials in a safe location. To account for resources, periodically count your inventory and compare the results with amounts shown on control records.

Best practices:

Secure goods received in a restricted area.
Restrict inventory access to appropriate staff.
Lock up goods and materials, and provide key or combination to as few people as possible.
Keep inventory records and periodically calculate beginning and ending inventory amounts.

Accountability, authorization, and approval

Accountability ensures that you authorize, review, and approve invoices for payment based on signed agreements, contract terms, and purchase orders.

Best practices:

Review and update signature authorizations periodically.
Obtain pre-approval of consultant agreements from Purchasing.
Verify receipt of goods and services to against contract/ purchase order and invoice information.
Reconcile ledgers for accuracy of recorded transactions.
Monitor that invoices are paid in a timely manner.