Inaccurate and unreliable information can spell financial disaster for businesses and persons who use this information for decision-making purposes. From the standpoint of a business, accurate and reliable information is necessary in order for a potential investor to have when they are considering investing with the company. If the information is not accurate and reliable, this will potentially harm the investor. Inaccurate financial information may be due to the incompetence of the accountant who prepared the financial statements or due to dishonesty and an attempt to conceal information. Internal control is the system of policies and procedures that a company puts in place to provide reasonable assurances that: The companyâs operations are effective and efficient The companyâs financial reporting is reliable, and The company is complying with applicable laws and regulations
1. In your first post, respond to the following questions:
a. How can a business ensure that the employee who is preparing the financial statements is capable of doing so accurately?
b. What internal controls might you recommend to the company to be sure that an attempt to conceal information has not occurred?
c. On a personal note, how do you minimize risk for errors in your work? This may include your schoolwork or the work that you do for your employer.
Inaccurate and unreliable information can spell financial disaster for businesses and persons who use this information for decision-making purposes. From the standpoint of a business, accurate and reliable information is necessary in order for a potential investor to have when they are considering investing with the company. If the information is not accurate and reliable, this will potentially harm the investor. Inaccurate financial information may be due to the incompetence of the accountant who prepared the financial statements or due to dishonesty and an attempt to conceal information. Internal control is the system of policies and procedures that a company puts in place to provide reasonable assurances that: The companyâs operations are effective and efficient The companyâs financial reporting is reliable, and The company is complying with applicable laws and regulations
1. In your first post, respond to the following questions:
a. How can a business ensure that the employee who is preparing the financial statements is capable of doing so accurately?
b. What internal controls might you recommend to the company to be sure that an attempt to conceal information has not occurred?
c. On a personal note, how do you minimize risk for errors in your work? This may include your schoolwork or the work that you do for your employer.
Related questions
Henriettaâs Pine Bakery
Background
You are an Analyst for the professional service firm, BUSI 1043LLP. Your firm specializes in providing a wide variety of internalbusiness solutions for different clients. Given the outstandingfeedback you received on your first engagement working for BigSpenders Inc., a Senior Manager in the Financial Advisory grouprequested your support on a compilation engagement.
Additional Information
Henriettaâs was established in 1963 when it first opened itsdoors in Dwight, Muskoka on highway 60. Over the past 50 years,there have been four owners and is currently owned by Carine &Geoff Harris who incorporated and took over the store on January 1,2013. Their sons, Kyle and Nicholas have been an intricate part ofthe business from dishwashing to head bakers. Henrietta's has grownover the years with the addition of new items all the time, but the"Sticky Buns and Clouds" remain the most popular items amongst the150 varieties of breads and pastries.
Henriettaâs runs out of 90 square meters (1,000 share feet) ofspace. It has one entrance into the bakery and doors leading out tohighway 60. Henriettaâs pays $5,000 per month for the rental of thespace. Carine and Geoff were able to negotiate with the landlordand were not required to pay the first monthâs rend in advance. Allof the rental payments are current and up to date. For the last twoyears, Henriettaâs has had a very reliable accountant prepare itsyear-end financial statements and everything has been correct. Thisyear, Henriettaâs accountant retired and Geoff did the best hecould recording his own financial information. For the informationhe was not sure about, he kept all of the required supportingdocumentation. Geoff hired your firm, BUSI 1043 LLP to prepare hisfinancial statements for the year. Geoff supplied you with hisunadjusted trial balance and the information in Exhibit I to assistyou.
Supplementary information:
The amount currently sitting in prepaids arose due the insurancepolicy last year. Geoff didnât know how to correct it, so he leftit. This yearâs insurance policy was purchased on November 1 for$9,000. The policy runs from November 1 to October 31 of eachyear.
Geoff has a note that he owed $900 in wages to his employees forthe period ending December 31st.
The loan was incurred when the bakery was opened. The loancarried an interest rate of 8%. The interest is payable two monthsafter year end and the principal is due in 2019.
Henriettaâs will sometimes book special events with smallorganizations that are allowed to pay after the event has takenplace. On December 29th, a small company had a gatheringat the bakery. The company was billed $1,089 and has 30 days to payit. Geoff has not yet recorded this in his financial records.
Henriettaâs declared a dividend of $5,000 on December30th.
Geoff didnât know how to record amortization for the year and soleft it for you to record. Amortization for all assets is chargedusing a straight-line method by taking the cost of the asset anddividing it by its expected useful life. The assets have expecteduseful lives as follows:
Computer: 5 years
Bakery equipment: 10 years
Furniture and fixtures: 20 years
The information shows that Henriettaâs owes $400 for a telephonebill and $400 for electricity for December. These amounts have notbeen recorded yet.
Exhibit I
Henriettaâs Pine Bakery
Unadjusted Trial Balance
December 31, 2015
Account Name | Debit | Credit |
Cash | $35,000 | |
Accounts Receivable | 5,600 | |
Food Inventory | 21,000 | |
Merchandise Inventory | 62,500 | |
Prepaids | 3,400 | |
Computers | 30,000 | |
Accumulated Amortization â Computers | 12,000 | |
Bakery Equipment | 90,000 | |
Accumulated Amortization â Bakery Equipment | 18,000 | |
Furniture and Fixtures | 150,000 | |
Accumulated Amortization â Furniture and Fixtures | 15,000 | |
Accounts Payable | 18,000 | |
Accrued Liabilities | - | |
Interest Payable | ||
Dividend Payable | - | |
Long-term Loan | 220,000 | |
Common Shares | 50,000 | |
Retained Earnings | 22,000 | |
Food Revenue | 468,500 | |
Internet Revenue | 127,000 | |
Merchandise Revenue | 103,000 | |
Food Expense | 240,000 | |
Internet Expense | 54,000 | |
Electricity Expense | 65,000 | |
Telephone Expense | 20,000 | |
Interest Expense | 0 | |
Salary Expense | 200,000 | |
Insurance Expense | 9,000 | |
Supplies Expense | 8,000 | |
Depreciation Expense | - | |
Rent Expense | 60,000 | |
1,053,500 | 1,053,500 |
Required
Based on the information you have, prepare the adjusting journalentries, an adjusting trial balance, the statement of earnings(income statement), statement of financial position (balancesheet), and statement of retained earnings. After you havecompleted the statements, prepare the closing journal entries andthe posting closing trial balance. Ensure you show all of yourwork, and prepare proper journal entries and properly formattedfinancial statements.
