Notesale: Turn your study into money

Document Preview

Extracts from the notes are below, to see the PDF you'll receive please use the links above

---

Term 1 Topic

4

Internal Control
Overview
Topic 4 Page 29

Internal control

1

Page 29

Definition and explanation of Internal control

2

Page 30

Internal control processes
1

Stock control

2

Control over debtors

3

Control over creditors

4

Control over fixed assets

5

Control over consumable goods

6

Control over cash

Overview – Internal control

1 Definition and explanation: What is internal control?
Internal means it is within itself, in other words, what can the management do within a
business
...
Internal control in the
business is what management can do to exercise authority over all activities within the
business so that maximum profit can be obtained
...
Everybody in a business must be involved in
putting successful control measures in place
...

Gather information about the strong points and the shortcomings of the
business
...

Act against shortcomings
...
1 Stock control
















The place where goods are stored must be safe from natural disasters (rain,
wind, etc
...

All stock must be insured
...

Sufficient stock must be kept, not too much or not too little
...

Documents must be completed for all stock issued to the sales department
...

The sales department must stay in contact with the warehouse to ensure enough
stock is on the shelves
...
If necessary,
alternative packing material must be used
...

The purchasing department must look at the time of the year in order to keep the
correct amount of stock
...
(The
Christmas season would need more stock than at other times of the year)
...

Separation of duties so that there is only one person involved with each activity
...
This prevents theft
of stock by staff members, fraud and corruption
...
2 Control over debtors









Debtors must be selected carefully
...

A complete record of transactions must be kept
...

Send out regular statements of accounts
...

If a debtor’ account is overdue for a certain period, interest on the account must
be levied
...


2
...
The clerk at the warehouse must do the following:





See that the goods on the invoice correspond with the items that have been
delivered
...

If it happens that problems occur frequently with a supplier, an alternative
supplier must be found
...
4 Control over fixed assets
Fixed assets are purchased by the business for use in the business
...
Fixed assets
consist of Land and buildings, vehicles and equipment
...


Via Afrika Publishers » Accounting Grade 10

32

Term 1 Topic

4

Internal Control
2
...
1 Land and Buildings
Before the business is started, it must be decided whether the business will buy or rent a
building
...

The following control must be kept over land and buildings:





The building must be located in a place where the worth of the building will not
decrease
...

The building must be insured against natural disasters
...
4
...

The following control must be kept over vehicles:





Write the depreciation off on vehicles at a rate and method that is suitable for
the lifespan of the vehicle
...

Look at technological changes and adapt accordingly
...
4
...

The following control must be kept over equipment:





Look at the lifespan of equipment and determine the method and rate at which
depreciation will be written off
...
g
...
The business must
remain up-to-date
...


2
...
Control and
management must be kept over these goods
...
This person’s responsibilities are:





to keep stock of all items
...


Via Afrika Publishers » Accounting Grade 10

33

Term 1 Topic

4

Internal Control
2
...
Money takes on many
forms: notes, coins, credit cards, cheques, etc
...
The following
journals are relevant to cash:

2
...
1 Cash Receipts Journal
The internal control for all cash receipts must make sure that cash being received is
received by a responsible person and recorded in the books as soon as possible
...
The following procedures must be
followed:







a document must be issued for all cash received
...

Cash must be kept in a safe place until it is deposited
...

Separation of duties so that there is only one person involved with each activity
...
This prevents theft
of stock by staff members, fraud and corruption
...
6
...
Usually
when a cheque is issued, two signatures are needed for safety reasons
...

All cheques issued must be entered in the Cash Payments Journal in consecutive
numbers
...

At the end of the month, the Cash Payments Journal must be compared with the
bank statement and all necessary corrections done - this is also a measure to see
that there was no fraud
...

The more people are involved, the easier it is to point fingers
...


Via Afrika Publishers » Accounting Grade 10

34

Term 1 Topic

4

Internal Control
2
...
3 Petty Cash Journal
A responsible person must be appointed to do the petty cash payments
...
The following procedures must be followed:






The petty cash must be kept in a locked petty cash box and kept in a safe place
...

As far as possible two people has to sign for any petty cash payments
...


Important:






These internal control measures will be integrated with all the topics and will
continuously be assessed as we advance with the Study Guide
...

Don’t try to study all the internal control measures all at once
...

When you answer questions on internal control measures, try to pretend that you
are working in the business to apply the measures that you have learnt
...


Activity 1 (Internal control)
Moses Mngadi has a delivery service business called MM Deliveries
...
Some drivers also run personal errands
with the business transport
...
Suggest which control measures Moses can put in place to save on
expenses and also reduce risk

---