Reference no: EM13732442 , Length: word count:3000

Question 1:

Henning Ltd owns a range of fashion clothing stores with one in each capital city.Each store is run by a store manager who is allowed considerable flexibility with respect to types,styles and quantities of clothing they buy and sell .The Head Office has established a standard mark up on cost for all items that is to be used by each store manager to calculate the selling price for each item.

Each store manager is responsible for the hiring of their own employees.This is done by the store manager interviewing potential employees on their own and making the hiring decision on their own .The store manager makes the decision based on the interview and does no further check on the employee with the manager advising the store clerical support of the pay rate for each new employee.

The staff turnover at several stores has been rising but each store are happy with the current set up and the flexibility it provides.As well as being responsible for hiring and employment of personnel each store maintains its own accounting records .Each month the clerical support personnel from each store prepare a return which is sent to Head Office and it covers purchases ,sales and any other sundry expenditure incurred locally.

Required:

(a) Identify the weaknesses in the existing procedures.

(b) Identify improvements to the existing system.

Question 2:

You have been asked to review the procedures of Aleena Lighting company because of concerns about its procedures. It makes a substantial amount of annual sales .Your enquiries have revealed the following procedures for invoicing sales and collecting cash.

1. There are two sets of invoices-one for cash sales and one for credit sales.

2.When payment for cash sales is received by the cashier , one copy of the invoice is stamped paid and filed alphabetically , and the other is given to the customer .

3. Credit sales invoices are sent to the customers.

4. Mail is opened by the secretary to the Credit Manager, who passes any cheques to the Credit Manager for his review without recording the amounts received.

5. The Credit Manager gives the cheques to the cashier by depositing them in a tray on the Cashier's desk.

6.The cashier then makes a listing of the cheques ,which is then used by the Credit Manager to post to the Accounts Receivable ledger.

7.The cheques from credit customers and the receipts from cash sales are banked daily by the Cashier,except for once a week when sufficient cash is retained to reimburse petty cash .

8. The Credit Manager posts remittances(cash received) from Accounts Receivable using a computerised accounting system and verifies any cash discount allowable to them.

9. The Credit Manager obtains approval from its Head Office to write off bad debts .Any subsequent cash received from these debtors is credited to sundry income

Required:

1. Descibe the control weaknesses in accounting for cash receipts

2. Suggest improvements in the internal control to overcome the weaknesses.