GB518: Financial Accounting Principles and Analysis
Identify the weaknesses in internal control that you see in the system that John is recommending. (Consider the principles of internal control identified in the chapter.) Can you suggest any improvements if John is hired to do Natalie’s accounting?
CCC8 One of Natalie’s friends, Curtis Lesperance, runs a coffee shop where he sells specialty coffees and prepares and sells muffins and cookies. He is eager to buy one of Natalie’s fine European mixers, which would enable him to make larger batches of muffins and cookies. However, Curtis cannot afford to pay for the mixer for at least 30 days. He asks Natalie if she would be willing to sell him the mixer on credit.
Natalie comes to you for advice and asks the following questions
- I am thinking seriously about permitting my customers to use credit cards. What are some of the advantages and disadvantages of letting my customers pay by credit card?”
- “Is there an alternative other than extending credit to Curtis for 30 days?”
- “Curtis has provided me with a set of his most recent financial statements. What calculations should I do with the data from these statements, and how will the results help me decide if I should extend credit to Curtis?”
CCC7 Part 1 Natalie is struggling to keep up with the recording of her accounting transactions. She is spending a lot of time marketing and selling mixers and giving her cookie classes. Her friend John is an accounting student who runs his own accounting service. He has asked Natalie if she would like to have him do her accounting.
John and Natalie meet and discuss her business. John suggests that he do the following for Natalie.
- Prepare the monthly bank reconciliation.
- Transfer all of Natalie’s manual accounting records to his computer accounting program. John maintains all of the accounting information that he keeps for his clients on his laptop computer.
- Prepare monthly financial statements for Natalie to review.
- Write himself a check every month for the work he has done for Natalie.
- Hold onto cash until there is enough to be deposited. (He would keep the cash locked up in his vehicle). He would also take all of the deposits to the bank at least twice a month.
- Write and sign all of the checks.
- Record all of the deposits in the accounting records.
- Record all of the checks in the accounting records.
(a) Answer Natalie’s questions.