Features of an Effective System of Internal Control

Assignment 2

Fernanda Dzierwa

Chapter 8

Question 1.

Features of an effective system of internal control:

• Separation of Duties
• Assignment of Responsibilities
• Proper Authorization
• Internal and External Audits
• Use of Documents and Records
• Use of Electronic Devices and Computer Controls
• Competent, Reliable, and Ethical Personnel

Question 2.

The purpose of a bank reconciliation is to compared if the amounts of cash in the bank account is the same as the accounting records and if it is not, the company needs to update the books to ensure accurate cash records, or talk to the bank to make the right adjustments.

Question 3.

The documents that make up the payment packet are: purchase order, receiving report/packing slip and invoice.

Procedures that use the payment packet are:

• When the company receives the good ordered the receiving person or department checks the goods and makes the receiving report.
• The payment is only made after all the documents in the payment packet are examined.
• After payment come companies include a voucher in the payment packet.

Question 4.

The petty cash account has a debit balance at all times. This balance it’s not equal to the amount of cash in the found, but also it is equal to the amount of cash plus the receipts. The two amounts are equal when the petty cash is opened and when it is replenish.

Chapter 9

Question 1.

The two methods of accounting for uncollectible receivables are: the Allowance Method and the Direct Writ-off Method. The direct writ-off method is easier to apply, because the company only writes off the bad-debt when the company decides that the customer is not going to pay. The method consistent with ASPE is the Allowance Method, because it is the application of the matching objective.

Question 2.

The accounts debited and credited to account for uncollectible are:

1. Under the Allowance method: Debit Bad-Debt Expense and Credit Allowance for Doubtful Accounts.
2. Under the Direct write-off method: Debit Bad-Debt Expense and Credit Accounts Receivable.

Question 3.

The payee needs to make adjusting entries for interest at the end of the accounting period according to the matching principle, because the interest was earn during all the period of the note receivable, and not only at the maturity date. So if the maturity date is in the next year, the payee needs to make adjusting entries, otherwise the total of interest revenue on the first year would be understated and interest receivable overstated.