Challenge 5 Task 1
The sisters would like to understand various concepts related to accounting generally and to their business specifically. For example, you realize that they are not familiar with internal control and accounting control systems so you decide to explain to them why it is so important to have these systems in a merchandising business and also to provide them with a brief rationale of their importance. You also provide them with an explanation of the fraud triangle. As far as their particular business is concerned, they want to better understand what, specifically, you have done for their company in terms of merchandising
Write a memo to the sisters in which you provide explanations of internal control and accounting control systems and the fraud triangle. Be sure to explain, as well, the details of accounting for a merchandising business, including the following:
1. What subsidiary ledgers and special journals are and how they should be used
2. The different ways freight costs can be handled
3. What internal control is, the principles of internal control activities, and how these principles can be applied to cash receipts and disbursements
4. Utilize a resource outside of the textbook
As new collaborators, most employees lack insight into the new business venture’s success and stability variables. Internal business controls, proper freight management, and accurate accounting systems are the foundation of a thriving business. As the management, workers hold a substantial responsibility in propelling the business’ activities by initiating robust internal business controls as the vital support system (University of Washington, 2021). Internal business controls guide and monitor the business activities to curb risks and minimize fraud as they are the basis for the other business components. The following is a comprehensive outlook into the business incipiency and advancement contrivances.
Typically, a general ledger records business transactions and occurrences (Openstax, 2021). As the business grows, the transactions appreciate posing a documentation challenge. Profiling all the business activities in one volume is hectic and can lead to discrepancies and a failure eventuality. Therefore, special journals and subsidiary ledgers cater to different types of transactions. The special journals comprise sales, purchases, cash disbursements, and cash receipts journals (Openstax, 2021). A sales journal documents all the businesses’ sales, whereas a purchase journal records all the merchandise procured by the company. The cash disbursement journal compiles all the company’s expenditures, while cash injected into the business is encoded into the cash receipts journal. The subsidiary ledgers indicate the business’ creditors and debtors (Openstax, 2021). An accounts subsidiary receivable ledger records the credentials of people who own the business entity. On the other hand, an accounts payable subsidiary ledger incorporates the money owed to other companies.
Business operations are costly, and some expenses can result in losses (PartnerShip, 2021). However, reducing freight costs is a tactical technique of optimizing logistic costs, attaining influential impacts, and saving the business from incurring losses. Creating rapport with the carriers is essential in obtaining transportation discounts (PartnerShip, 2021). As a novice in the business niche, a company may not access the deal immediately. However, there are third parties that can leverage their bargaining power. Prudence is paramount when choosing the transportation means. A cheaper way of freight significantly reduces the costs (PartnerShip, 2021). Overseas goods shipment by the ocean is more frugal than air, while domestic goods shipment by rail is affordable than trucks. Freight consolidation is another strategy to minimize costs. Obtaining the goods in bulk and transporting them once is nominal than several trips of shipment.
Internal controls are blueprints that govern compliance, facilitate efficient operations, and promote integrity and steer the attainment of set Objectives (University of Washington, 2021). The principles of internal controls entail control activities, risk assessment, communication, and information, reviewing and monitoring, and control environment. Control activities are the intramural activities of the business. They are either preventive or detective. Risk assessment is the analysis of threats that can impede the prosperity of a company. On the other hand, communication and information are the business’s information flow strategies that maintain clarity and openness (University of Washington, 2021). Reviewing and monitoring is the oversight and appraisal of the company for progress, relapse, regress, and maturation. Controlling the environment segregates duties and nurtures integrity in the business. Segregation of duties streamlines the debit and credit processes by ensuring that only specific individuals authorize the disbursement and reception of cash (ECLKC, 2021). This promotes accountability in financial operations.
Conclusion Business development is a consolidation of all the above factors. Studies have revealed that their implementation is a standard way of formulating a solid business foundation, nurturing it, and steering it towards prosperity. Therefore, a business should operate within the confines of these factors.
ECLKC. (2021). What Internal Controls Are Needed for Cash Disbursement? | ECLKC. ECLKC. Retrieved 20 April 2021, frommanagement/article/what-internal-controls-are-needed-cash-disbursement
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