Communicating in Practice — BTN 8-4B
Memorandum
To: “Owner”
From: “Consultant”
Date: __________
Subject: Advice on monitoring purchase discounts
[Instructor’s Note: The response should acknowledge the owner’s concern and
recommend the net method of recording purchases. It should explain how this method
results in the recording of “Discounts Lost,” which will flow through to the income
statement, thus providing the information desired. The memo might look something like
the following.]
The net method gives management an advantage in controlling and
This means that the amount of any discounts lost is not reported in any
account or on the income statement. Consequently, discounts lost are
This practice gives management better control over persons responsible
for paying bills on time to take advantage of favorable discounts. This also
means it’s less likely that favorable discounts are lost.
Taking It to the Net — BTN 8-5
[Instructor Note: These answers were taken from the ACFE’s 2014 Report to the Nations.]
http://www.acfe.com/rttn/docs/2014-report-to-nations.pdf
3. The median duration — the amount of time from when the fraud
4. Asset misappropriations are the most common fraud, occurring in 85% of
5. Only 9% of cases involved financial statement fraud, but those cases had
7. Owners/executives only accounted for 19% of all cases, but they caused a
8. Approximately 77% of the frauds in our study were committed by
9. The vast majority of occupational fraudsters are first-time offenders; only
Teamwork in Action — BTN 8-6
Common internal controls visible in a typical retail store include:
1. Door locks and roll-down screens for after-hours lock-up.
2. Electronic detection devices stationed at entrances or anti-theft
devices on merchandise that must be removed by cashier with special
equipment.
3. Security cameras.
Entrepreneurial Decision — BTN 8-7
1. Seven principles of internal control along with examples are:
a. Establish responsibilities. The clerks at the counter should be
responsible for handling cash. The other employees should be
b. Maintain adequate records. The clerks at the counter should enter
all sales on the cash registers. The cash registers should include a
c. Insure assets and bond key employees. The owner should acquire
d. Separate recordkeeping from custody of assets. The employee
e. Divide responsibility for related transactions. The employee
f. Apply technological controls. The owner should invest in
2. As the business grows, controls will become more important. The
Hitting the Road — BTN 8-8
No formal solution exists for this activity. It is usually interesting for the
class to exchange their discoveries via class discussion. This is
particularly the case with respect to popular college service/product
centers. Common controls found in college units include:
1. Door locks and roll-down screens for after-hours lock-up.
2. Electronic detection devices stationed at entrances or anti-theft devices
on merchandise that must be removed by a cashier.
Global Decision — BTN 8-9
1.
(KRW millions)
Current
year
balance
Cash as
percent
of:
Prior
year
balance
Cash as
percent
of:
Cash (and equivalents)…………
16,284,780 — 18,791,460 —
Current assets…………………..
110,760,271 14.7% 87,269,017 21.5%
Analysis comment: Cash has decreased as a percent of current assets
and total assets compared to the prior year. Similarly, cash has
Global Decision (Concluded)
2. Cash, beginning-year (KRW millions)………………………………….18,791,460
3. Days’ Sales Uncollected Formula (KRW millions)
Days’ sales uncollected = x 365
The number of days of uncollected sales in accounts receivable has
decreased from the prior year to the current year. Samsung is collecting
its receivables more efficiently this year as compared to its prior year.
Accounts receivable
Net sales
201,103,613
27,875,934