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1)Would it be okay if your AR Clerk, who handles receipts, also reconciles the bank statement at the end of the month? Why or why not?

2)The company's environment has two aspects. One is the external environment. Which of the following is not an external environment factor?

a.Economic

b.Technical

c.Social

d.Tone at the Top

3)Name two methods that are commonly used to speed up the collection of receivables.

4)Match the description of the controls with the financial area the control would pertain to. (some matching items may be used more than once)

Question Items

A - All check stock must be locked up when not in use.

B -  Review all employee advances with the payroll and payables staff at least once per month.

C - Require approval of bad debt writeoffs.

D - Audit shipment terms.

E - Require approval of bad-debt writeoff.

F-  Review Uncashed Checks.

G- Audit the receiving dock.

H - Compare capital investment projections to actual results.

I -  Require supervisory approval of all borrowings and repayments.

J - Require approval of credits.

K- Perform a physical inventory of plant equipment every three months.

Matching Items

Answer Items

  1. Cash
  2. Accounts Receivable
  3. Prepaid Expenses
  4. Fixed Assets
  5. Debt
  6. Inventory

5) The company sells widgets for $3 each. Variable costs are .50 cents per unit. Fixed costs are $100,000. The number of units the company needs to sell to break even is

a.33,333

b.40,000

c.50,000

d.25,000

6)SG&A in a medium to large sized company would typically include the costs of all of the following departments except:

a.Accounting Department

b.Legal Department

c.Overhead

d.Marketing Department

7)Name and define two methods of valuing inventory. Name several pros and cons of each.

8)What is receivables float? What is payables float?

9)What is the Payback Method? When would the controller use this calculation? Name several advantages and disadvantages of using this method.

10) Describe at least two roles of the controller you would enjoy if you were the controller of a company. What do you find interesting about these roles? What would be challenging about these roles? What kind of background would you need to perform these roles adequately for a company?

Question 1: AR Clerk handling receipts and bank reconciliation

Answer 1

No, it would not be okay if the accounts receivables clerks is also handed over with the work of bank reconciliation as it may enable the AR clerk to commit fraud. The fraud in relation to this issue is termed as lapping. Lapping involves delayed recording of payment received from customers so as steal the cash by gaining undue advantage of functions of records handling. If an employee is handed over with both the functions at the same time the chances of fraud will increase as it will become easier for the employee to misappropriate the cash receipts from the customers for their personal benefits by making alterations to the receipts account.

Answer 2

Tone at the top is not the external environmental factor influencing the company.

Answer 3

Two methods that are commonly used to speed up the receivables collections are:

Rewards and penalties: To speed up the process of cash collection from the account receivables firm can offer discounts and other rewards for making the early payments and also it must set out the strict policies for those who makes payment after due date such as penalties imposition or interests for the late payments.

Outsourcing of receivables: outsourcing can be opted for if the firm has significant amount involved in accounts receivables as it will enable business to generate the cash inflows from the receivables on time through the use of expert services in this area i.e. the services of collecting agencies.

Answer 4

A

All check stock must be locked up when not in use.

INVENTORY

B

Review all employee advances with the payroll and payables staff at least once per month.

PREPAID EXPENSES

C

Require approval of bad debt write-offs.

ACCOUNTS RECEIVABLES

D

Audit shipment terms

ACCOUNTS RECEIVABLES

E

Require approval of bad-debt write-off.

ACCOUNT RECEIVABLES

F

Review Uncashed Checks.

CASH

G

Audit the receiving dock.

ACCOUNT RECEIVABLES

H

Compare capital investment projections to actual results.

FIXED ASSETS

I

Require supervisory approval of all borrowings and repayments

DEBT

J

Require approval of credits.

ACCOUNT RECEIVABLES

K

Perform a physical inventory of plant equipment every three months.

FIXED ASSETS

Answer 5

Selling price                      3

Variable cost                    .50

Contribution per unit        2.50

Break even sales units= Total Fixed Cost/Contribution per Unit            (Cafferky, 2010)  

Therefore, answer is (b).

Answer 6

Cost of Legal department will be excluded.

Answer 7

The two methods of valuing the inventories of any business are:

First in, First out (FIFO): It assumes that the inventory that is oldest in the store will move first at the time of issue of inventories to the production department (Parlar, Perry & Stadje, 2011).

Pros:

  • FIFO has a wide acceptance by various regulatory bodies like IFRSs and GAAP.
  • Helps in maintenance of inventory records in the natural way as inventory is recorded in the same sequence in which they were purchased or produce. Hence easy to relate.

Cons:

  • It can get difficult if many orders of goods having fluctuating price are made.
  • It results in overstatement of profits mainly in inflation.

Last in, First out (LIFO): It assumes that the latest inventory that has been entered to the warehouses will move first at the time of issuing inventories to the production units (Jesswein, 2010).

Pros:

  • LIFO helps in avoiding inventory deterioration as the old stock is quickly moved to production.
  • LIFO eliminates or minimises the risk of write downs to market and hence the net profit does not get affected by the decline in future prices of inventory.

Cons:

  • Firm using LIFO can easily manipulate its earnings by making change to the purchase pattern at year ending.
  • In LIFO, balance sheet carries the oldest cost of inventory which sometimes underestimates the firm’s profit.

Answer 8

Receivable float: It is the time gap between the day when the customers or the debtors of the firm had made the payment and the day when funds are actually available for the deployment, in the bank account of firm (Kuen-Chor, 2014). There can be several reasons of this time gap. For example,

  • Delayed presentation of cheques before the bank for the collection.
  • The time required by the bank to make cheque clearance.

Payable float: It can be defined as the time gap between the day on which check is being written and the day when the amount was deducted from the bank account of company.

Answer 9

Payback method: This is the method used in capital budgeting regarding the acceptance or rejection of a project plan based on payback period of the project. Payback period is the period in which the project will recover all its invested funds from the project. It is measured in terms of years. A project is accepted if it has the ability to recover the costs of the project in the shortest possible time (Kerzner, 2013). 

It is calculated using a specific formula that is given below (Hall & Millard 2010).

Payback period= Investments required 

                           Net annual cash inflows

This calculation is used by the controller when it is to be evaluated that by what time the investors will receive back the funds invested in the project.

Advantages:

  • Provides useful information that helps in capital budgeting decision making.
  • Easily understandable and implementable by the project managers.

Disadvantages

  • It does not consider time value of money while calculating the payback period.
  • It does not also account for the useful life of the project and the cash inflows after the payback period.

Answer 10

The role of the controller depends upon the size of the organisation and hence it varies from firm to firm. However, the general roles of controller includes preparation of financial statements, maintenance of accounting records such as general ledgers, undertaking cost accounting, managing account receivables and payables, preparing various budgets, complying with tax and other regulations etc. (Weißenberger & Angelkort, 2011).

Role as the preparers of financial statements:

Preparation of financial statements involves undertaking various accounting operations so as to fulfil the company’s financial reporting requirements. As a part of this role the controller also has to supervise various accounting professionals and others who assist the controller in these functions.

Role as the tax managers:

Controllers can also be assigned with the responsibilities of managing tax compliances like filing of various tax returns, preparing tax reports by calculating the correct amount of tax required to be paid (Hartmann, 2014).

The interesting thing about the controller’s roles is that it requires them to possess the knowledge in several fields such as knowledge of accounting functions, managerial functions, taxation structures, cost accounting and other related functions. These roles enables the controller to act as all-rounder.

However, it is quite difficult for the controllers to remain updated with the changing requirement in all areas of responsibility in this rapidly changing environment.

To perform the above mentioned roles, the controller needs accounting or financial background to perform his basic responsibilities.

References

Cafferky, M. (2010). Breakeven Analysis: The definitive guide to cost-volume-profit analysis. Business Expert Press.

Hall, J. and Millard, S. (2010). Capital budgeting practices used by selected listed South African firms. South African Journal of Economic and Management Sciences, 13(1), pp.85-97.

Hartmann, F. (2014). Studying Controllership. Mercury, 2014(7-8), 92-96.

Jesswein, K. R. (2010). The changing LIFO-FIFO dilemma and its importance to the analysis of financial statements. Academy of accounting and financial studies journal, 14(1), 53.

Kerzner, H. (2013). Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.

Kuen-Chor, K. (2014). Factoring and Accounts Receivable Financing. Handbook of Singapore—Malaysian Corporate Finance, 199.

Parlar, M., Perry, D., & Stadje, W. (2011). FIFO versus LIFO issuing policies for stochastic perishable inventory systems. Methodology and Computing in Applied Probability, 13(2), 405-417.

Weißenberger, B. E., & Angelkort, H. (2011). Integration of financial and management accounting systems: The mediating influence of a consistent financial language on controllership effectiveness. Management Accounting Research, 22(3), 160-180.

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