Reference no: EM132278770

Scenario or Tasks

Part A:

Siraj wants to start a new restaurant in Muscat. He brought in OMR 7,500 in cash and a cooking range costing ONIR 6.000 in the business. The transactions of the first month of the operation are as under;

3- Sept-18 Deposited OMR 4,500 in bank. Also purchased food stuff (raw material) for OMR 2,000 7-Sept-18 Purchased raw-material from Salim for OMR 1,800

9-Sept- I8 Sales for the day OMR 200.

11-Sept-18 Party order delivered to Al Sukun super market on credit for OMR 500

14-Sept-18 Paid Salim by cheque. Received trade discount of OMR 20. Account is settled.

16-Sept-18 Received money from Al Sukun super market in the bank account towards account settlement.

21 -Sept-18 Withdrew OMR 250 for personal use form the business

24-Sept-I8 Sent quotation to a hospital for one-year canteen contract. Applied for a bank loan for RO 4500

27-Sept-I8 Purchased a used kitchen equipment for 50% discount. Market price of the machine is OMR 2000

30-Sept-18 Sales for cash OMR 120, Bank loan got approved and money received in the bank account OMR 4500.

Required

Task I Show the effects of above transactions on the accounting equation.

Task 2 Pass journal entries for all the above transactions.

Task 3 Write a note on General Ledger and Receivable Ledger.

Task 4 Draw "T accounts" for the following and find out the closing balance.

1. Bank/Cash account

2. Capital Account

3. Purchase Account

4. Bank Loan Account

5. Salim's Account

Task 5 What type of internal control for inventory management system can you design for your business?

Task 6 What type of internal control for cash management can be designed for your business?

Task 7 Critically evaluate importance of internal control in enhancing the effective management of your business.

Part B:

It is commonly believed that the need for an internal control system develops as the organization grows. As a small entity, characterized by the direct involvement of the owner on a daily basis, grows into an organization with specialized and/or departmental operations, the need for internal controls does increase (Bodnar, 1975). In general this idea is based on an accepted group of controls that are useful in allowing management to evaluate financial and operational efficiency from reports. Subordinates, therefore, must transfer information throughout the hierarchy of the business. Management depends on internal controls to provide some assurance that the reports generated are accurate and their directives have been carried out by the responsible subordinates. These internal controls increase the confidence that the owners or managers have in the business. Although the need for internal controls increase in direct proportion to size of the business, the system is very imperative for the small business.

(Monday, J. (2014). INTERNAL CONTROLS AND OPERATING PERFORMANCE OF SMALL BUSINESSES IN LAGOS METROPOLIS. Lagos Metropolis.)

Assume that you are an individual owner of 10 coffee shops in various areas of Muscat. At every location of your business you have a team of 5 people. One of them is a cook, two are the waiters, one is a manager of the shop and the fifth one is a cleaner. It being 10 shops across various areas of the city, you can not physically visit them all on daily basis. Hence you feel need some automated control system which makes the governance and management of the business smooth.