BANKING ACADEMY, HANOI BTEC HND IN BUSINESS (ACCOUNTING)

ASSIGNMENT COVER SHEET

NAME OF STUDENT REGISTRATION NO. UNIT TITLE ASSIGNMENT TITLE ASSIGNMENT NO NAME OF ASSESSOR SUBMISSION DEADLINE Nguyn Thanh H Moon F05-051 Unit 11: Financial Systems and Auditing Pear International Ltd Management Control Systems 1 of 2 Dr. Jun Bathan

I, ____Nguyen Thanh Ha_____ hereby confirm that this assignment is my own work and not copied or plagiarized from any source. I have referenced the sources from which information is obtained by me for this assignment.

________________________________ Signature

_________________________ Date

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1.1.

Explain the purpose and use of the different accounting records used by Pear International Ltd. An accounting record is any type of electronic or hard copy document that provides information regarding the financial status of an individual or entity. Records of this type are used to create more detailed accounting records such as ledgers, journals, and other types of accounting books. The main function of these documents is to create an accurate history of all financial transactions related to a given period of time, including income received as well as disbursements made for relevant expenses. Along with money transactions, these books of account also make it possible to determine the balance between assets and liabilities (Tatum, 2014)

1.1.1. Prime entry books: are first recorded transactions. The main books of prime entry included: a. Sales day book It recorded the information of sales from customers daily and totaled each month. Only credit sales will be entered in it. Date 2014 3 Mar 4 Mar 5 Mar TOTAL Adam Khoo Megan Fox 1002 1003 PI002 PI003 484.00 360.00 1704.00 Table 1: The Sales Day Book of Pear 121.00 90.00 426.00 605.00 450.00 2130.00 Customer 2M&L Ltd. Invoice Folio 1001 PI001 Net 860.00 VAT (20%) 215.00 Gross 1075.00

b. Purchase day book It recorded credit purchases and totaled each month. In the case of cash purchase will not be entered in this, it must be in Cash book.

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Date 2014 1 Mar 2 Mar 7 Mar TOTAL

Supplier CMJ Ltd.

Invoice 2738

Folio 728

Net 1,000.00

VAT (20%)

Gross

200.00 1,200.00

Vin Export Ltd. BigC

45983 5832

729 730

1,500.00 300.00 2,800.00

300.00 1,800.00 60.00 360.00

560.00 3,360.00

Table 2: Purchase day book of Pear

c. Sales returns day book It recorded goods returned to company from customers, only entered credit notes and totaled each week. d. Purchase returns day book It recorded the goods returned to suppliers

e. Cash book It recorded the transactions information which is related to cash receipts and payments.

1.1.2. Ledger: is used for preparing trial balance which checks the arithmetical accuracy of the accounting books. Ledger is the store-house of all kind of information which is used for preparing final accounts and financial statements. (Ducha, et.al, 2008). a. Sales ledger It record all sales have made by the company, the cash from goods or services in a month. It is very useful because you can see who slow payers are and who potential customers are, it also help you to calculating VAT liability and return. b. Purchases ledger It recorded all purchases made by the company. It can help you see which amount is unpaid, who are your recent suppliers, how much you spendfrom that you can manage the companys finance better. c. Nominal ledger The Nominal Ledger is the main accounting record for any business using doubleentry bookkeeping, usually listing accounts for current and fixed assets, liabilities, revenue and expenses, gains and losses. It is often divided into two sections the

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left hand showing debit transactions and the right listing credit transactions. (businessblog.winweb.com, 2011) It is very useful and important tool for business to know how much you received or gave, how much you earned.

1.1.3. Trial Balance: is a list of closing balances of ledger accounts on a certain date and is the first step towards the preparation of financial statements. It is usually prepared at the end of an accounting period to assist in the drafting of financial statements. If the totals of the trial balance do not agree, the differences may be investigated and resolved before financial statements are prepared. Rectifying basic accounting errors can be a much lengthy task after the financial statements have been prepared because of the changes that would be required to correct the financial statements. (accountingsimplified.com, n.d.) Pear uses trial balance to test whether the credits equal the debits to prepare financial statement.

1.1.4. Financial accounting is a specialized branch of accounting that keeps track of a company's financial transactions. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet. (accountingcoach.com, n.d.) a. Trading account An account with a broker that enables an individual or other party to buy and sell securities. The part of an income statement that shows how the gross profit was generated through trading activities (businessdictionary.com, n.d.) In trading account, direct expenses are debited and direct incomes are credited. b. Profit and loss account It shows the sales and expenses, profits and loss of the company each month, each year. From that, you can know which area is loss and have appropriate strategy to decrease the loss and increase the profits.

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Pear Ltd. uses this for the purposes: Allows shareholders/owners to see how the business has performed and whether it has made an acceptable profit (return) Helps identify whether the profit earned by the business is sustainable (profit quality) Enables comparison with other similar businesses (e.g. competitors) and the industry as a whole Allows providers of finance to see whether the business is able to generate sufficient profits to remain viable (in conjunction with the cash flow statement) Allows the directors of a company to satisfy their legal requirements to report on the financial record of the business (Riley, 2012) c. Balance sheet Balance sheet is a financial statement which shows the value of business at one point in time. It has three parts: assets, liabilities, ownership equity/ capital. Pear Ltd. Uses the balance sheet to have an overview about companys financial, what they owns and owes. The main formula in balance sheet is: Assets = Liabilities + Shareholders' Equity

1.2.Assess the importance and meaning of the fundamental accounting concepts 1.2.1. Accrual The meaning of accrual is something that becomes due especially an amount of money that is yet to be paid or received at the end of the accounting period. It means that revenues are recognised when they become receivable. Though cash is received or not received and the expenses are recognised when they become payable though cash is paid or not paid. Both transactions will be recorded in the accounting period to which they relate. Therefore, the accrual concept makes a distinction between the accrual receipt of cash and the right to receive cash as regards revenue and actual payment of cash and obligation to pay cash as regards expenses.
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The accrual concept under accounting assumes that revenue is realised at the time of sale of goods or services irrespective of the fact when the cash is received.

(Accounting Principles and Concepts Application: Grade 10 - 12, n.d.) Apply to Pear: The company borrowed 100,000 on December 1, 2012 and make only payment for interest when the note is paid off on June 1, 2013. The total interest for the six months will be 10,000 but in income statement, the accountant reported Interest Expense is 5,000. This principle helps the users know actual income and expenses in period time, calculating net profits

1.2.2. Matching The principle of prudence provides that accounting for a business should be fair and reasonable. Accountants are required in their work to make evaluations and estimates, to deliver opinions, and to select procedures. They should do so in a way that neither overstates nor understates the affairs of the business or the results of operation, i.e. Profits should not be overstated and loss must not be understated. (Accounting Principles and Concepts Application: Grade 10 - 12, n.d.) 1.2.3. Prudence The principle of prudence provides that accounting for a business should be fair and reasonable. Accountants are required in their work to make evaluations and estimates, to deliver opinions, and to select procedures. They should do so in a way that neither overstates nor understates the affairs of the business or the results of operation, i.e. Profits should not be overstated and loss must not be understated. (Accounting Principles and Concepts Application: Grade 10 - 12, n.d.)
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Apply to Pear: The accountant must follow the law in all financial statement, do not estimate profits, all losses, costs, profits should be recorded when realized. They must use their judgment to record transactions. 1.2.4. Materiality The materiality principle requires accountants to use generally accepted accounting principles except when to do so would be expensive or difficult, and where it makes no real difference if the rules are ignored. If a rule is temporarily ignored, the net income of the company must not be significantly affected, nor should the reader's ability to judge the financial statements be impaired. Immaterial amounts may be aggregated with the amounts of a similar nature or function and need not be presented separately Materiality depends on the size and nature of the item Any information, which is important to the reader, must be highlighted or reflected separately (Accounting Principles and Concepts Application: Grade 10 - 12, n.d.) Apply to Pear: The cost of small value assets like pencil or paper are written in Profit and Loss account (in Expenditures revenues). Some payments like postage, cleaning expense are put together in one kind of expense.

1.3.Evaluate the factors which influence the nature and structure of accounting systems 1.3.1. Manual and computerized accounting system In the technological life, almost companies are using Computerized system instead of Manual system because of some reasons: The Manual accounting system required the accountant do all the business transactions by hands whereas Computerized accounting allows the accountant to put the transactions into the program and update data if has changed.

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About Speed, Computerized is absolutely faster than Manual, calculation are auto done. It has important role in accounting because of saving time, decreasing human errors, increasing job performance. About Cost, it is clearly that using Computerized system is more expensive then Manual system. In Pear Ltd., they are going to buy new equipment include accounting system. It means that they also have to spent a lot of money to buy machine, software, training program to teach worker how to use this software.

1.3.2. Effect of business size and structure

2.1.Identify the different components of business risk (2 examples) 2.1.1. Types of business risk a. Financial risk The probability of loss inherent in financing methods which may impair the ability to provide adequate return (businessdictionary.com, n.d.) Pear is going to change a part of manufacturing process and buy new equipment to increase the produce level and quality of products. It is a good direction but they can spend money in wrong way, such as

b. Operating risk Probability of loss occurring from the internal inadequacies of a firm or a breakdown in its controls, operations, or procedures (businessdictionary.com, n.d.)

c. Compliance risk Compliance risk is the threat posed to a company's earnings or capital as a result of violation or nonconformance with laws, regulations, or prescribed practices (superpages.com, n.d.)

2.1.2. Risk management

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2.2.Analyse the control systems in place in a business 2.2.1. Elements of control system The ISA classified five elements of internal control system, there are: Control environment: relates to the control consciousness of the people within the organization. The control environment is the basis for all other components of internal control. Risk assessment: refers to the organization's identification, analysis, and management of the risks that are related to financial statement preparation, in order to ensure that financial statements are presented fairly and in compliance with generally accepted accounting principles (GAAP) Information and communication: focuses "on the nature and quality of information needed for effective control, the systems used to develop such information, and reports necessary to communicate it effectively" (Internal Control Issues) Control activities: the organization's policies and procedures which help ensure that necessary actions are taken to address the potential risks involved in accomplishing the entity's objectives Monitoring: involves assessing the quality and effectiveness of the organizations internal control process over time. It includes assessing the design and operation of controls, and assessing compliance with policies and procedures. It also provides for the implementation of appropriate actions when necessary. (voices.yahoo.com, n.d.)

2.2.2. Apply to Pear Ltd.

2.3.Evaluate the risk of fraud within a business, and suggest methods for detection

2.3 fraud (at least 5), prevention (company), detection (auditor can detect)

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