La Salle University

College of Accountancy
Ozamiz City

Understanding the Entity and its Environment,

including its Internal Control
(Cash Receipts Transaction)

Submitted by:
Dela Cruz, Dolph Lachel Earl
Fernandez, Mae Khyla
Ponce, Marillac

Submitted to:
Mr. Lowelle Cielo Pacot, CPA

November 2, 2015
 Table of Contents

Page
Cover Page 1
Table of Contents 2
Introduction 3
Executive Summary 4
Audit Plan 6
Results and Discussions 8
Internal Control Questionnaire 8
Narrative Documentation 11
Assessment and Synthesis 13
Appendix 15
Company Background
1.1 Company Logo 15
1.2 Vision 15
1.3 Mission 15
1.4 Organizational Chart 16
1.5 Infrastructure 17
1.6 Products 18
Pertinent Document and Records Used 19
Group Members Profile 22

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 Introduction

Yamaha Motor Philippines, Inc. (YMPH), together with Gentrade International

Philippines, Inc. (GIPI), opened the 37th 3S Shop in Ozamiz City on November 24, 2009. It is
specifically located at Don Anselmo, Bernad Avenue, Corner Mabini extension of the said city.
Transcycle Yamaha 3s Shop offers products such as motorcycles that are sold in cash and varied
instalment schemes, spare parts exclusive for Yamaha models and customized accessories like
apparel, helmet, oil and lubricants. They also offer services such as minor & major tune-up, major
engine overhaul, battery recharging and replacement of motorcycle parts.

GIPI under the trade name Transcycle Mart (TCM) which operates Yamaha 3s Shop is one
of the business units belonging to Siy Cha Group of Companies owned by Siy Cha Family that
originated at Tacurong, Sultan Kudarat. It is an offshoot of a series of business ventures which
found its way to the world of motorcycle industry. The venture was further enhanced when Suzuki
Philippines offered the company the privilege to be an exclusive 3S Shop (Sales, Service, Spare
Parts) in Mindanao and South Luzon areas.

Yamaha Motor Philippines, Inc. recognized the need for a better motorcycle shop in the
Philippines and is designed to focus on the requirements of the changeable market. Their goal is
to deliver excellent and consistent service. The technicians and mechanics are well versed in
motorcycle service and continually refine their knowledge in order to provide the best service
possible for customers.

How does Yamaha Motor Philippines, Inc. effectively consolidate their operations? Does
Yamaha 3S shop provide an excellent and transparent accounting system as much as they wanted
to give the best possible service for customers? Do they experience confusions and improper
reporting of the daily operations concerning their cash receipts transactions and how do they
prevent or address such problems that threatens the achievement of their objectives? To obtain
answers for the preceding questions, the group conducts an understanding of the entity and its
environment, including its internal controls related to cash receipts.

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 Executive Summary

I. About the study

The study focuses on the understanding of the entity and environment, including
the internal controls of Yamaha 3S Shop Ozamiz Branch particularly in the
processes and procedures of collection or cash receipts transactions. The results
gathered will be discussed and analyzed to identify if there are existing weaknesses
of their system and make recommendation for further audit procedures to be
performed.

II. Company Background

Yamaha 3S Shop, Ozamiz City branch is operated by Gentrade International
Philippines, Inc. (Transcycle). It is designed to focus on the requirements of the
changeable market and deliver excellent and consistent service. The head office is
located in Ortigas center, Pasig city. The 3S Shop offers all the needs of a
motorcycle buyer from sales, service to spare parts.

III. Audit Plan

To obtain the desired data and information, the group created a guide plan which
includes management interview and observation of their procedures performed
needed for the understanding of their entity and its environment and assessment of
the effectiveness and efficiency of their internal control for the cash receipts related
transactions.

IV. Results and Discussion

As a result of the data gathering and series of group discussions, an internal
questionnaire and narrative documentation is presented to give a better
understanding on the daily operations and internal control over the cash receipt
transaction of the company.

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V. Assessment and Synthesis
The results shows that Yamaha 3S shop internal control is strong enough to be
relied upon. However, the segregation of duties needed a room for improvement to
enhance their internal control quality. Test of control is recommended for further
audit procedures to obtain evidence about the effectiveness of the design and
operation of the internal control throughout the period.

VI. Documentation
Organizational chart, business facility, products available and some documents
used by the company are also presented for further understanding of their entity.

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 The Audit Plan

To gain better understanding on the how the entity operates, nature of its environment and
preliminary assess the effectiveness of their internal control which can be used to analyse their
strengths and weaknesses, the group has come up with plans and procedures in gathering the
needed information. These are the following:

A. Preparing Interview Questions

Search for any reference that will provide guide questions which can be used in
understanding their entity, determining their collection process and evaluating internal
control over cash receipts transactions such as segregation of duties, maintaining records,
handling and custody cash.

B. Visitation of the Entity & Inquiry

With this, the actual interview shall be conducted and addressed to the
appropriate personnel who can provide us the necessary information about the company
and the flow of their cash receipts transaction.

C. Additional Query
If the group believes that there are still lacking information and is not satisfied
with the outcome during the first interview, the group will conduct a follow-up interview
to finally obtain the complete information.

D. Observing the Entitys Environment

The group will also observe some procedures perform by their personnel to
verify their statements during the interview.

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E. Application of Procedures:

Presented below are the specific plans and procedures that the group will perform:

PLANS PROCEDURES

A. Data Gathering for Visit the company and interview the manager
Company Background about the following:
i. Name of the business, its address &
scope of operations;
ii. Type of business and its products and
services;
iii. Type of organization and its history.

B. Understand the Cash Interview the assigned personnel and ask

Receipt Cycle about the process or flow of operation and
tasks assigned to her/him.
Observe the procedures performed.
Conduct an additional interview if necessary

C. Compilation of pertinent Take a picture of the used records and

data and records used. documents available

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 RESULTS AND DISCUSSIONS

Internal Control Questionnaire for Cash Receipts Transaction

Questions Yes No Remarks

Cash & Check Receipt Handling

1. Is cash counted and verified when cashiers

receive their drawers?
2. Is only one cashier able to access each cash
drawer at any given time so that cash will at all There is only one cashier

times be in the possession and control of only and one drawer.

one person?
3. Are cash drawers assigned to one person and
not shared across shifts / employees?
4. Is a receipt given for all transactions that are
conducted in person - whether by cash register
or pre-numbered receipt?
5. Are duplicate copies of receipts retained?

6. Are receipts issued in sequence?

7. Are receipt books regularly reviewed for

missing receipt numbers by someone other than .

a cashier?
8. Are checks stamped with a restrictive Endorsement is made by
endorsement immediately upon receipt - by the the Head Office because
cashier before putting the check in the cash Checks are immediately
drawer or by the person opening the mail? sent to them.

9. Is the mail log prepared by someone The Loan Processor will

independent of the cash receipts process? make the mail log.

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Cash Deposit

10. Are receipts recorded promptly and deposited Every 4:00 P.M.
within 24 hours or at least once weekly if less?
11. Are all funds received deposited with no funds
being held back for change, petty cash, etc.?
12. Are deposit slips prepared in at least duplicate
form?
13. Do you use a either a locking bank bag or a
sealing plastic tamper proof bag for deposit?
14. Do two people accompany the departmental Only one will deposit it,
deposit from the office to the nearest its either the Branch
depository? Manager or the Sales
Executive.

Management Oversight, Reconciliation &

Recording

15. Does someone independent of the cash receipts

process reconcile payment receipts to deposit
slips on a daily basis?
16. Is the payment receipt to deposit reconciliation
regularly reviewed by management?
17. Does someone independent of the cash receipts A roving Notes
process reconcile payment receipts to receipt Receivable personnel
records (receipts, mail log, cash register) on a reconciles the payment
daily basis? receipt to receipt records
but not daily.

18. Does someone independent of the cash receipt

process reconcile receipts records (receipts,
mail log, cash register) to the deposit slip?

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 19. Is the receipt record to deposit slip
reconciliation regularly reviewed by
management?
20. Are accounting personnel prohibited from The accounting personnel
handling cash? and the cashier is the
same.

21. Is there internal verification of the agreement of Their system will do the
daily cash summaries and cash receipts journal job.
entries?
22. Is there separation of duties between the The cashier will input
journalizing cash receipts transactions and everything to the system
posting to the customers ledger? for further processing.

Safeguarding of Asset

23. Are adequate physical facilities such as a safe A drawer and a vault is
or locking drawer provided for safeguarding used.
cash?
24. Is cash always safeguarded when unattended
including end of shift, lunch, bathroom breaks,
etc.?
25. Are receipt books safeguarded when
unattended?
26. Are safe combinations and keys to lockboxes The access of the vault can
restricted to a minimum number of employees? only be made by the
Branch Manager.

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Narrative Documentation

The accounting-in-charge and the cashier of Yamaha 3S shop refers only to one person.
She receives the cash payment from the customer and issues an official pre-numbered receipt. She
will retain a duplicate copy of the official receipt and input the transaction in their Point-of-sale
system which will automatically journalize and post it to appropriate accounts. The cash collected
will be kept in a drawer which can only access by the cashier and branch manager. By 4:00 P.M.,
the cashier will make a tender declaration that summarizes all cash transactions during the day. To
make sure that all transaction in the tender declaration is accurate and complete, an X-Reading
which is generated by their system will be produced. A further finalization and overall review of
all transactions is also generated by their system which they termed as Z-Reading. This Z-
Reading will not be created if there is any detected error in their recorded transaction. If this
happens, the cashier will review all the transactions, ask help from the head office if necessary and
make the needed adjustments.

All cash collected during the day will be deposited to the bank by the Branch Manager or
the Sales Executive. The deposit slip is prepared and reconciled to the cash summary by the
cashier. A second cash count will also be made by the Branch Manager to verify the reported
amount of cash. A logbook is also used by the cashier where all deposits are recorded. If there will
be additional cash collection after 4:00 P.M., the cash will be put inside a vault accessed by the
Branch Manager only. This will be deposited in the bank as a second batch together with the cash
collection for the next day.
Moreover, another personnel is assigned for any check collections. Checks are received by
the companys loan processor. If the check given by the customer is post-dated, it is keep in the
cashiers drawer for the meantime and will be sent every Tuesday and Thursday to the head office.
In this case, a provisional receipt which is a temporary receipt is issued to the customer. The
official receipt will only be given to the customer if the head office has already endorsed the check
to the bank. If the checks are on-date, it will be immediately deposited to the bank and an official
receipt is handed to the customer.

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 Furthermore, the provisional receipt is issued to a customer if the POS system is found to
have a problem. The transaction will be recorded to the system if the problem has already been
solved. On the other hand, there is also a roving notes receivable in-charge delegated by the head
office who will reconcile customer accounts and receipt records. She is also assigned to check and
reconcile any customer accounts.

The head office will then be the one who will update the general ledger accounts, perform
bank reconciliation and prepare financial statements to complete the cash receipt transaction cycle.

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 ASSESSMENT AND SYNTHESIS

Weakness

1. Segregation of Duties
The personnel in-charge in accounting is also the only cashier of the entity. She
mostly do all the cash-related job of the company. She receives all the money and is
responsible for recording it to their system and its safekeeping. This could create a doubt
whether the cashier is doing her job honestly or not.

Despite of this weakness, the company can still compensate it because of their:

1. Accuracy of their system

The cashier inputs all transactions inside the system and the system will process all
those transaction. The system prevents any anomalies in the transactions, for example
unintentional omission and double recording of entries. The X-Reading and Z-Reading are
evidences that their system is strictly verifying their transactions.

2. Timeliness
All cash collected are deposited in the bank at four o'clock pm every day. Cash
sales after the cut-off time are retained inside a safe vault to be deposited in the bank the
next day.

3. Verifiability and validity

All transactions are validated by the branch manager. Checks are also are verified
and certified by the home office.

4. Confidentiality

Unauthorized persons are not allowed to access or keep the records and other
information of the cash receipt transaction.

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 5. Restricted Access of Cash
Cash are also kept in a drawer with the cashier and branch managers access and a
safety vault which can only be accessed by the manager.

Recommendation

Since the group concludes that it is more efficient to rely on the internal control systems
the following procedure shall be conducted for the testing of controls:

1. Inquire the company's employees, receive confirmation from the employees and the
customers and observe the cash receipt process to conclude whether the control procedures are
implemented.

2. Inspect the documents and evaluate the computer system of the company.

3. Recalculate the company's record of sales and reperform the company's procedures.

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 APPENDIX

COMPANY BACKGROUND

1.1 Company logo

1.2 Vision

Be the leading institution in providing financing services in the pursuit of uplifting Filipino
lives.

1.3 Mission

a. Team MembersDevelop happy, productive and competent employees who are

rewarded fairly and given the opportunity to grow.
b. CustomersEstablish a continuous healthy relationship with customers through fair,
quality and professional delivery of service.
c. Creditors and SuppliersMaintain a mutually beneficial and healthy business
partnership with creditors and suppliers bound by respect, fairness and professionalism.
d. ShareholdersGive back to our investors/ shareholders their fair return.
e. CommunityCreate employment and livelihood opportunities by providing affordable
financing to every Filipino family.
f. CountryLove our country by obeying the laws of the land.

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1.4 Organizational Chart

1.5 Infrastructure

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1.5 Infrastructure

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1.6 Products

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PERTINENT DOCUMENTS AND RECORDS USED

2.1 Official Receipt

2.2 Daily Cash Collection Report

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2.3 Provisional Receipt

2.4 Tender Declaration

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2.5 X- Reading 2.6 Z-Reading

2.7 Deposit Slip 2.8 Logbook

GROUP MEMBERS PROFILE

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GROUP MEMBERS PROFILE

Name: Dolph Lachel Earl S. Dela Cruz

Address: Carangan, Ozamiz CIty

Contact number: 09187037237

Email Address: delacruz.d@lsu.edu.ph

Name: Mae Khyla S. Fernandez

Address: Maningcol, Ozamiz City

Contact number: 09062385602

Email address: khyla_fernandez@yahoo.com

Name: Marillac P. Ponce

Address: Talairon, Oroquieta City

Contact number: 09126486157

Email address: ponce.ma@lsu.edu.ph

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