1)Doroteo O

Q1

In the given scenario Accountant has control over cash as well all records of the enterprise, This shows weakness in internal control as the accountant is in a position to alter the records and misappropriate cash. There should be proper Segregation of duties to prevent fraud and errors.

The segregation of duties is a fundamental element of internal controls. The basic principle underlying segregation of duties is that no one person or group of employees should be in a position to commit and conceal errors or fraud in their day-to-day jobs.

One of the most important steps your unit can take to protect cash is to separate cash handling duties among different people. With proper separation of duties, no single person has control over the entire cash process.

Segregation of duties involves separating three main functions and having them conducted by different employees:

1. Having custody of assets
2. Being able to authorize the use of assets
3. Record keeping of assets

Best practice is to have different people to:

o Receive and deposit cash

o Record cash payments to receivable records

o Reconcile cash receipts to deposits and the general ledger

o Bill for goods and services

o Follow up on collection of returned checks

Segregation of duties is often difficult to achieve in small businesses, but should be implemented as much as possible.In some cases be offset by Owner/Manager supervisory controls which may exist because of direct personal knowledge of business.

Q2 Part 1

Although it would be nice to make all sales on a cash basis, it's not always possible. If your competitors are giving their customers credit terms, you will need to offer something similar to get their business. I would consider credit sales/on account basis due to following advantages:

Meet the competition : When your competitors are making sales on credit to your customers, you will need to do the same just to stay competitive. If you want to offer more favorable terms, you might consider giving discounts for prompt payment. For example, instead of just providing 30-days terms, offer 2/10/30. This means that the customers can take a 2-percent discount if he pays within 10 days instead of waiting for the full 30 days to pay

Increase in sales: An increase in sales may happen when you start selling on credit. Your customers are likely to buy from you as their cash flow is not disrupted. it attracts new customers who would otherwise not buy from the company. This is mostly true for companies that sell expensive items.

Better customer loyalty: Offering credit to customers demonstrates trust. The fact you trust them to pay bills by the due dates encourages a loyal business relationship. It is likely that a loyal customer will choose you over another business when bidding for goods or services.

Part 2

Factors to be considered on selling product on credit:

(i) The effect of credit on volume of sales

(ii) The degree of operating efficiency in the billing, record keeping and other cost such as interest ,collection cost, bad debts etc

(iii) Policies & practices of firm for selecting credit Customers.

(iv) The firm’s policy and practice of collection

(v) Paying practices and habits of customers

(vi) Cash discounts, Credit terms.

Understanding credit sales and cash sales

A credit sale is a type of transaction where the buyer delays payment to a later date. The seller usually decides on this date when they make a sale. A cash sale is when a buyer pays for goods and services at the time of purchase.