Appendix 1: Title Page FACULTY OF EDUCATION AND LANGUAGES BDAW2103 BASICS OF FINANCIAL ACCOUNTING

-INTERNAL CONTROLName : AHMAD ALIFF BIN HASHIM Matric number: 900416-07-5529-001 NRIC: 900416-07-5529 Telephone number: 017-4242849 E-mail address: alieyfZ90@yahoo.com

Learning Centre: PP PULAU PINANG

Semester: SEPT2010

ASSIGNMENT QUESTIONS

PURPOSE The purpose of this assignment is to enhance learners understanding in assessing the internal control of a company. REQUIREMENTS AlSalam Sdn. Bhd. (AlSalam) has decided to diversify its business operations by selling beverages through vending machines. AlSalam plans to purchase 312 vending machines which will be situated at 78 different locations within a town. The company also needs to consider the rental of a warehouse for storing of merchandise. AlSalam intends to sell only canned beverages at standard price. The management of AlSalam has hired an inventory control clerk to oversee the warehousing functions, and two truck drivers who will periodically fill the vending machines with the merchandise as well as deposit cash collected at a designated bank. The drivers will be required to report to the warehouse on daily basis. Required: Evaluate the internal controls of the company that should be maintained to ensure integrity and reliability of the warehousing functions and cash receipts.

INTRODUCTION

INTERNAL CONTROL DEFINATION:

The plan of organization and all the methods and measures used by a business to monitor assets, prevent fraud, minimize errors, verify the correctness and reliability of accounting data, promote operational efficiency, and ensure that established managerial policies are followed. Internal control extends to functions beyond the accounting and financial departments. Accounting controls encompass safeguarding assets and the accuracy of financial records. They are designed to give assurance that transactions are properly authorized and are recorded to allow for financial statement preparation in accordance with gaap. Further, accounting controls deal with maintaining accountability for assets, proper authorization to access assets, and periodic reconciliations between recorded assets on the books and the physical assets that exist. Administrative or managerial controls deal with operational efficiency, adherence to managerial policies, and management's authorization of transactions. Examples are quality control and employee performance reports. Accounting and administrative controls are not mutually exclusive since some procedures and records falling under accounting control may also be used for administrative control. An essential ingredient in maintaining internal control is the internal audit function. The CPA reports on the adequacy of existing controls within the entity. The external auditor must carefully evaluate the internal control system as a basis to determine the degree of audit procedures necessary in the circumstances.

2. Internal control comprises the plan of organization and all of the coordinate methods adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies. This definition recognizes that a system of internal control extends beyond those matters which relate directly to the functions of the accounting and financial departments.

Generally, controls are of two types:

1. Preventative Controls: that are designed to discourage errors or irregularities from occurring.

2. Detective Controls: that are designed to find errors or irregularities after they have occurred.

Evaluation of internal control: warehousing functions

Functions of Warehouses
You have learnt that warehouses preserve goods on a large-scale in a systematic and orderly manner. They provide protection to goods against heat, wind, storm, moisture, etc. and also cut down losses due to spoilage, wastage. This is the basic function of every warehouse. In addition to this, warehouses now a day also perform a variety of other functions. In this section let us learn about the various functions of warehouses. Warehouses perform the following functions i. storage of goods ii. Protection of goods iii. Risk bearing iv. Financing v. Processing vi. Grading and branding vii. Transportation i. Storage of goods- The basic function of warehouses is to store large stock of goods. These goods are stored from the time of their production or purchase till their consumption or use. ii. Protection of goods- A warehouse provides protection to goods from loss or damage due to heat, dust, wind and moisture, etc. It makes special arrangements for different products according to their nature. It cuts down losses due to spoilage and wastage during storage. iii. Risk bearing - Warehouses take over the risks incidental to storage of goods. Once goods are handed over to the warehouse-keeper for storage, the responsibility of these goods passes on to the warehouse-keeper. Thus, the risk of loss or damage to goods in storage is borne by the warehouse keeper. Since it is bound to return the goods in good condition, the warehouse becomes responsible for any loss, theft or damage, etc. Thus, it takes all precautions to prevent any mishap.

iv. Financing- When goods are deposited in any warehouse, the depositor gets a receipt, which acts as a proof about the deposit of goods. The warehouses can also issue a document in favour of the owner of the goods, which is called warehouse-keepers warrant. This warrant is a document of title and can be transferred by simple endorsement and delivery. So while the goods are in custody of the warehouse-keeper, the businessmen can obtain loans from banks and other financial institutions keeping this warrant as security. In some cases, warehouses also give advances of money to the depositors for a short period keeping their goods as security. v. Processing - Certain commodities are not consumed in the form they are produced. Processing is required to make them consumable. For example, paddy is polished, timber is seasoned, and fruits are ripened, etc. Sometimes warehouses also undertake these activities on behalf of the owners. vi. Grading and branding- On request warehouses also perform the functions of grading and branding of goods on behalf of the manufacturer, wholesaler or the importer of goods. It also provides facilities for mixing, blending and packaging of goods for the convenience of handling and sale. vii. Transportation- In some cases warehouses provide transport arrangement to the bulk depositors. It collects goods from the place of production and also sends goods to the place of delivery on request of the depositors.

The authorisation of clerk and drivers

Clerk 1. 2. 3. 4. Oversee the warehouse functions Update check list of stock Record the transactions of stock Manage space utilization

Drivers

1. Fill the vending machines with the merchandise 2. Deposit cash collected at a designated bank. 3. Send goods to the place of delivery.

Evaluation of internal control: cash receipts

Example of cash receipts.

CONCLUSION

The conclusion for this research teach us about how to control and manage the inventory of stock in the warehouse. The management of ALSALAM has make a correct decision for hired a clerk to control the warehouse and the driver to manage the money and cash deposit.

THE END.