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    Internal Control Over Receivables

    Uploaded by

    HappyPurple
    The document discusses internal controls over receivables, notes receivable, accounts receivable, revenue, plant and equipment. It outlines key controls for plant and equipment including maintaining a detailed subsidiary ledger for each asset, requiring authorization for all acquisitions and expenditures, analyzing variances between authorized and actual costs, distinguishing between capital and operating expenditures, handling all purchases through purchasing, and performing periodic physical inventories. The controls are important for preparing reliable financial statements and analyzing additions, retirements, and depreciation expense.

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    Internal Control Over Receivables

    Uploaded by

    HappyPurple
    48 views3 pages
    The document discusses internal controls over receivables, notes receivable, accounts receivable, revenue, plant and equipment. It outlines key controls for plant and equipment including maintaining a detailed subsidiary ledger for each asset, requiring authorization for all acquisitions and expenditures, analyzing variances between authorized and actual costs, distinguishing between capital and operating expenditures, handling all purchases through purchasing, and performing periodic physical inventories. The controls are important for preparing reliable financial statements and analyzing additions, retirements, and depreciation expense.

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    Points to remember about internal control

    Original Title

    INTERNAL CONTROL OVER RECEIVABLES

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    The document discusses internal controls over receivables, notes receivable, accounts receivable, revenue, plant and equipment. It outlines key controls for plant and equipment including maintaining a detailed subsidiary ledger for each asset, requiring authorization for all acquisitions and expenditures, analyzing variances between authorized and actual costs, distinguishing between capital and operating expenditures, handling all purchases through purchasing, and performing periodic physical inventories. The controls are important for preparing reliable financial statements and analyzing additions, retirements, and depreciation expense.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    48 views3 pages

    Internal Control Over Receivables

    Uploaded by

    HappyPurple
    The document discusses internal controls over receivables, notes receivable, accounts receivable, revenue, plant and equipment. It outlines key controls for plant and equipment including maintaining a detailed subsidiary ledger for each asset, requiring authorization for all acquisitions and expenditures, analyzing variances between authorized and actual costs, distinguishing between capital and operating expenditures, handling all purchases through purchasing, and performing periodic physical inventories. The controls are important for preparing reliable financial statements and analyzing additions, retirements, and depreciation expense.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    INTERNAL CONTROL OVER RECEIVABLES

    Accounts receivable include not only claims against customers

    arising from the sale of goods or services, but also a variety of

    miscellaneous claims such as loans to officers or employees, loans to

    subsidiarięs, claims against various other films, claims for tax refunds

    and advantages to suppliers.

    Sources and Nature of Notes Receivable

    Notes receivable are written promises to pay certain amounts at future

    dates. Typically, notes receivable is used for handling transactions of

    substantial amount; these negotiable documents are widely used. In

    banks and other financial institutions, notes receivable usually

    constitutes the single most important asset.

    Internal Control of Accounts Receivable and Revenue

    To understand internal control over accounts receivable and

    revenue, one must consider the various components, including the

    control environment, risk assessment, monitoring, the (accounting)

    information and communication system, and control activities.

    Internal Control over Plant and Equipment

    The amounts invested in plant and equipment represents a large

    portion of the total assets of many industrial concerns. Maintenance,

    rearrangement and depreciation of these assets are major expenses

    in the income statement. The total expenditures for the assets and

    related expenses make strong internal control essential to the

    preparation of reliable financial statements. Errors in measurement of

    income may be material if assets are scrapped without their cost being

    removed from the accounts, or if the distinction between capital and


    revenue expenditures is not maintained consistently. The losses that

    inevitably arise from uncontrolled methods of acquiring, maintaining,

    and retiring plant and equipment are often greater than the losses

    from fraud in cash handling.

    In large enterprises, the auditors may expect to find an annual

    plant budget used to forecast and control acquisitions and retirements

    of plant and equipment. Many small companies also forecast

    expenditures for plant assets. Successful utilization of a plant budget

    presupposes the existence of reliable and detailed accounting records

    for plant and equipment. A detailed knowledge of the kinds, quantities

    and condition of existing equipment is an essential basis for intelligent

    forecasting of the need for replacements and additions to the plant.

    Other key controls applicable to plant and equipment are.as follows:

    1. A subsidiary ledger consisting of a separate record for each

    unit of property. An adequate plant and equipment ledger

    facilitate the auditor's work in analyzing additions and

    retirements, in verifying the depreciation provision and

    maintenance expenses, and in comparing authorizations with

    actual expenditures.

    2. A system of authorization requiring advance executive

    approval of all plant and equipment acquisitions, whether by

    purchase, lease or construction. Serially numbered capital work

    orders are a convenient means of recording authorizations.

    3. A reporting procedure assuring prompt disclosure and

    analysis of variances between authorized expenditures and

    actual costs.
    4. An authoritative written statement of company policy

    distinguishing between capital expenditures and revenue

    expenditures. A dollar minimum ordinarily will be established for

    capitalization; any expenditures of a lesser amount automatically

    classified as charges against current revenue.

    5.A policy requiring all purchases of plant and cquipment to be

    handled through the purchasing department and subjected to a

    standard routine for receiving, inspection and payment.

    6. Periodic physical inventories designed to verify the existence,

    location and condition of all property listed in the accounts and to

    disclose the existence of any unrecorded units.

    7. A system of retirement procedures, including serially

    numbered retirement work orders (bottom), stating reasons for

    retirement and bearing appropriate approvals.

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