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1)How could the separation of duties enhance internal controls? 2)Presented below are transactions related to Tom Brokaw, Inc
1)How could the separation of duties enhance internal controls?
2)Presented below are transactions related to Tom Brokaw, Inc.
May 10: Purchased goods billed at $32,100 subject to cash discount terms of 2/10, n/60.
May 11: Purchased goods billed at $17,800 subject to terms of 1/15, n/30.
May 19: Paid invoice of May 10.
May 24: Purchased goods billed at $12,300 subject to cash discount terms of 2/10, n/30.
Prepare general journal entries for the transactions above under the assumption that purchases are to be recorded at net amounts after cash discounts and that discounts lost are to be treated as a financial expense.
Expert Solution
1)Separation of duties enhances internal control in following ways:
1. It ensures that the errors are caught easily and the work in also reviewed.
2. It ensures the elimination of fraudulent activities because in separation of duties each duty is allotted to different individual therefore one individual cannot hide a business transaction alone.
3. It also enhances internal control by establishing the accountability and the responsibility between the individuals.
2)
The following journal entries are necessary to be recorded in each transactions.
May 10: Purchased goods billed at $32,100 subject to cash discount terms of 2/10, n/60.
| Account Title | Debit | Credit |
| Merchandise Inventory ($32,100 x 0.98) | $31,458 | |
| Accounts Payable | $31,458 |
May 11: Purchased goods billed at $17,800 subject to terms of 1/15, n/30.
| Account Title | Debit | Credit |
| Merchandise Inventory ($17,800 x 0.99) | $17,622 | |
| Accounts Payable | $17,622 |
May 19: Paid invoice of May 10.
| Account Title | Debit | Credit |
| Accounts Payable | $31,458 | |
| Cash | $31,458 |
Tom Brokaw, Inc. is entitled for cash discount until May 20, as per term agreement.
May 24: Purchased goods billed at $12,300 subject to cash discount terms of 2/10, n/30.
| Account Title | Debit | Credit |
| Merchandise Inventory ($12,300 x 0.98) | $12,054 | |
| Accounts Payable | $12,054 |
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