Creditors recon possible questions
Why do source documents form an integral part of internal control.
 Source documents are proof that a transaction occurred.
 These documents are used to draw up journals and to update the accounts of
Customers.
Discuss two advantages of not accepting cash payments but instead requesting that
all payments are made electronically using the customer's account number as a
reference.
 The bank statement can be used as a source document to record all money
received.
 Money cannot be lost/spent/misplaced by Patrick while delivering to
these businesses.
 Patrick will also be safer as he will not be carrying large amounts of cash in
his
delivery vehicle.
Source documents
 Credit note: used when goods are returned by a debtor
 Debit note: Given by the seller to the debtor to notify them of their debt
obligations
Forms of internal control for creditors
 Ensure all credit purchases are authorised.
 Conduct internal audits to minimise the possibility of fraud or error
 Ensure creditors are paid on time so that the business qualifies for any
available discounts.
 Check that all orders received from creditors are correct and in good
condition.
 Implement division of duties/ so that one employee can check on another
employee's work.
 Rotate staff so that there is less opportunity for fraud and do not let staff
control all aspects of buying, receiving and paying for stock.
 Make sure full use is made of the credit terms in order to maintain good cash
flow.
Debit notes are recorded in CAJ
Credit notes are recorded in DAJ
Creditors ledger- opening balance of a creditor at the beginning of the month
Creditors list-closing balance of all creditors accounts at the end of the month.
What to do if a person steals
The owner must conduct an investigation.
Suspend the employee until investigation is completed.
Report the incident to the police or take legal action against Ursula.
She must be dismissed from work.
She must be instructed to repay the money she stole from the business.
Bank Reconciliation
Why is it important to prepare a bank reconciliation statement monthly
 An important tool for internal control
 Confirms the accuracy of all transactions in the cash journals and the
balance in the bank account.
 Keeps track of outstanding EFTs and deposits as well as outstanding
cheques, r/d cheques, and bank charges.
 Identifies errors and omissions in the cash journals and the bank
statement.
 Detects fraud
 Checks the bank account balance against the bank statement.
Matching Concept:
Income and expenses must be reported in the correct financial period
Materiality Concept:
Financial information of importance to decision making must be shown separately for
the users of the information.
Historical-cost Concept:
Assets are recorded at the original cost price and not at carrying value.
Going Concern Concept:
Financial statements are prepared on the assumption that the business will continue
into the foreseeable future
Business Entity concept:
The business and the owner are treated as two separate entities and the
transactions associated with a business must be separately recorded from those of
its owners.
Prudence concept
accounting principle that makes sure that assets and income are not overstated, and
provision is made for all known expenses and losses whether the amount is known
for certain or just an estimation, i.e., expenses and liabilities are not understated in
the books of accounting.
Use of mechanical devices Companies use several mechanical devices to help
protect their assets. Bar codes scanners make it difficult for employees to steal
inventory and alter company documents and records.