Obj. 3 EX 7-14 Internal control of cash payments Abbe Co. is a small merchandisi

Question

Obj. 3 EX 7-14 Internal control of cash payments Abbe Co. is a small merchandising company with a manual accounting system. An investigation revealed that in spite of a sufficient bank balance, a significant amount of available cash dis- counts had been lost because of failure to make timely payments. In addition, it was discovered that the invoices for several purchases had been paid twice. Outline procedures for the payment of vendors' invoices so that the possibilities of losing available cash discounts and of paying an invoice a second time will be minimized.

Explanation / Answer

Vendor payments are important aspects of any business. It builds up the reputation of any business if the payments to the creditors/payables are regular and accurate. Internal controls are the process and procedures to carry out a task in any organization which minimizes the probability of errors and reduces defects or drawbacks of the task being carried out. For payments to the creditors regarding purchases internal control can be placed on the following

1) Maintaining seperate accounts for each party or creditor

2) If the number of creditors are more then randomly allocate certain number of accounts to different employees to manage

3) Record retention of the invoices payable and paid

4) Regular reconciliation with the creditors for better management of invoices

5) Setting a minimum number of days for the payments of invoices to better avail the discounts

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