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AFM341 Chapter Notes - Chapter 6: Purchase Order, Accounts Payable

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reddeer171
22 Apr 2017
School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM341
Professor
Brian Ma

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Document Summary

Buying inventory from suppliers: sub-process: quality check (can use gateway) Make payments to suppliers receive items from suppliers *annotate: [record purchases, update accounts payable, cash disbursements: purchases are added to inventory (record purchases when you receive g/s!) Access controls li(cid:373)it the people (cid:449)ho ha(cid:448)e a(cid:272)(cid:272)ess to the syste(cid:373) (cid:894)not segregatio(cid:374) of duties tho (cid:895) Application controls system leaves audit trial system control assignment of purchase order & re(cid:272)ei(cid:448)e report #"s to (cid:373)ake a(cid:272)(cid:272)ou(cid:374)t for all of them range check that purchases are limited to valid amounts system supplies supplier addresses. E(cid:373)ployee (cid:373)aki(cid:374)g dis(cid:271)urse(cid:373)e(cid:374)ts (cid:272)a(cid:374)(cid:374)ot (cid:373)odify pur(cid:272)hase orders . Define purchases and po as two separate items when there is no one to one relationship. Supplier categories and product categories can be linked together when the summary info for both classes is dependent on both product and supplier.

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Related Questions

Company Background & Scenario
The Auto Zone Company is a well-established, publicly-held corporation, operating as a wholesaler in the auto parts industry. Specifically, Auto Zone purchases auto parts from manufacturers and sells them to large business customers. Most purchases and sales are on account, with trade credit terms (specified below).
You’re a Davenport University student pursuing a bachelor’s degree in business and employed at the Auto Zone Company this semester as an intern. You’ve worked in various departments and on several projects so far, learning a lot about the company’s business operations. Management seems impressed with your enthusiasm and the quality of your work.
The company’s accountant has just been called away for a family emergency and will likely be absent for a month or so. The General Manager asks you to take over the accountant’s regular duties on an interim basis. You’re nervous about doing so, but are confident that what you’ve learned in accounting class, plus your personal problem-solving skills, will make this a successful experience. What a great learning opportunity, not to mention an enhancement to your resume!
Part I
Journal Entries
a. Within the "Transactions" worksheet you will find journal entry statements. Use those statements to write the corresponding journal entries. You are to write the journal entries in the proper special journal. The special journals included within this workbook include the Sales Journal, Purchases Journal, Cash Receipts Journal and Cash Payments Journal. Any transaction that does natually work within one of the special journals should be written into the General Journal.
b.Within the "Transactions" worksheet you will find journal entry statements. At the end of this list you will find "adjusting" information. Use this "adjusting" information to write the respective adjusting journal entries. Write all adjusting entries in the worksheet labled "General Journal ADJ".
c. Before starting work, review the entire project: all instructions, business transactions descriptions, workbook sections, check figures, due dates, and submission requirements.
Credit Terms & Inventory Accounting
a. When Auto Zone purchases merchandise from a supplier or vendor on account, they receive credit terms of 2/15, net 30.
b. When Auto Zone sells merchandise to a customer on account, they offer that customer credit terms of 2/30, net 45.
c. Auto Zone uses a perpetual inventory accounting system and a last-in, first-out (LIFO) inventory costing method. Within this workbook there is a worksheet labeled "Inventory Control". You will need to use the "Inventory Control" worksheet to keep a perptual record of your inventory. As part of that process you will be calculating the value of CGS each time you generate a sale. Use the "Inventory Control" worksheet to calcluate your Cost of Goods Sold values.

d. Auto Zone uses the "Gross" method of accounting for purchases and sales. The "Net" method assumes that discounts are taken at the point of sale or purchase.

MAY JOURNAL TRANSACTIONS
May 1 Paid $2,100 to LG for utilities bill that was recorded in April as an Account Payable, Check #1000.
May 1 Purchased 3,000 GPS units on Credit from Yamaha for $35.00 per unit.
May 1 Purchases office supplies from Staples on credit for $1,800
May 1 Signed a one-year 15%, $150,000 note payable with Chase Bank.
May 2 Rented part of the warehouse to a new tenant and received $12,000 for three months rent (May, June, July).
May 2 Sold 2,000 Aux Cords on account to Tesla for $85 per units, Invoice #2000.
May 2 Sold 400 USB Ports for $70 per unit and 1,200 GPS units for $75 per unit on account to Dodge, Invoice #2001.
May 3 Received a bill from the law firm of Davenport Associates for $6,300, payable upon receipt, for bond consulting fees, Check #1001.
May 4 Sold 500 Aux Cords on credit to Buick for $77 per unit, Invoice #2002.
May 4 Purchased 2,100 USB Ports on credit from Shure for $45 per unit.
May 5 Paid for office supplies purchased at Staples on May 1st, Check #1002.
May 7 Sold 200 GPS units on account to Chevrolet for $49 per unit, Invoice #2003.
May 8 Issued 4,750 shares of common stock for $13 per share
May 11 Purchased 1,875 GPS units on credit from Sony for $25 per unit.
May 11 The Board of Directors declared a cash dividend of $7 per share for shareholders of record on May 13th, payable on May 17th.
May 12 Paid in full for the May 1 purchase from Yamaha, Check #1003.
May 13 Received and paid expense reports for travel and entertainment totaling $1,500, Check #1004.
May 13 Took advantage of a special deal to purchase 1,500 Aux Cords on account from Panasonic for $42 per unit.
May 15 Received payment in full from Tesla for the May 2nd sale.
May 15 Sold 1,050 USB Ports on credit to Chevrolet for $57 per unit, Invoice #2004.
May 16 Received payment from Buick for $125,000 of the $300,000 owed from April 5.
May 17 Paid the dividend that was declared on May 11th, Check #1005.
May 17 Check # 1006 was issued for payroll: $14,900 for salaries and $5,100 for wages.
May 20 Issued a credit to Chevrolet for the return of 150 defective units from the May 7th sale. These units has a cost basis of $35 per unit.
May 20 Returned the 150 defective units received from Chevrolet to Yamaha.
May 22 Purchased a $500 international phone card for one of the sales representative's upcoming European business trip, Check #1008.
May 23 Issued bonds payable at face value for $420,000
May 23 Purchased 2,080 USB Ports from Shure for $41 per unit paying in cash, Check #1009
May 24 Check #1010 was issued for payroll: $14,900 for salaries and $5,100 for wages.
May 25 Hired and paid a consultant $50,000 to devise a marketing plan. Auto Zone's management felt this was necessary to develop brand awareness. Check #1011.
May 26 While inspecting the May 11th purchase, it was discovered that the GPS units were programmed for Asia instead of North America. Auto Zone returned the entire order to Sony.
May 27 A bankruptcy judge disallowed Auto Zone's claim for $25,000 due from Jeep. Management Decided to write off this accounts receivable.
May 27 Sold 500 USB Ports on credit to GMC for $61 per unit, Invoice #2005.
May 29 Paid in full for the purchase from Panasonic on May 13, Check #1012.
May 29 Received payment in full from GMC for the May 27th transaction.
May 30 Auto Zone is behind in its mortgage payments to Fifth Third Bank. Paid a total of $20,000 ($5,000 principal and $15,000 interest), Check #1013.
May 31 Paid the first month's principal payment of $12,500 on the note payable. In addition, paid one month's interest, Check #1007
*All purchases on account terms of 2/15, n/30
**All credit sales have terms of 2/30, n/45
May Month-end Adjustments:
( A ) The Company took a physical count of Office Supplies on May 30 and found the following the value of inventory on hand to be $2,500. The beginning inventory was $3,200. Write the adjusting journal entry.
( B ) Auto Zone estimates bad debt expense on a monthly basis rather than waiting until year-end. The company uses the allowance method. Based on recent industry estimates, Auto Zone estimates that the allowance account should be 7.5% of accounts receivable. The ending AR balance is $850,000. At the end of the month (prior to this journal entry) there is a CREDIT balance of $19,000 in the Allowance for Doubtful Accounts account. Write the necessary adjusting entry.
( C ) The Balance of $23,000 in the prepaid insurance account at the beginning of May represents 5 months of coverage. Record the amount of insurance for May.
( D ) The Company took a physical inventory count on May 30 and found the following inventory on hand to be $100,641. The ending balance in the Inventory account (before this adjusting entry) was $128,947. Write the necessary adjusting entry.
( E ) Auto Zone has earned two months of the prepaid rent received from their tenant at the beginning of May.
( F ) Depreciation on the company's fixed assets for the month of May is as follows:
1. The furniture and equipment for the office was purchased last year for $7,350. these assets have a 5 year life, an expected salvage value of $500, and are depreicated using straight-line method.

2. The furniture and equipment for the warehouse was purchased a few years ago for $30,000. These assets have a 8-year life, an expected salvage value of $5,000, and are depreciated using the straight-line method.

Shoe: GPS
Beginning Inventory (BI) Purchases Sales Ending Inventory (EI)
Date BI Units BI $/Unit BI $ Purch Units Purch $/Unit Purch $ Sale Units (CGS) Sale $/Unit (CGS) Sale $ (CGS) EI Units EI $/Unit EI $
1-May 3300 $35.00 $115,500.00 $- $- $115,500.00
Shoe: Aux Cord
Beginning Inventory (BI) Purchases Sales Ending Inventory (EI)
Date BI Units BI $/Unit BI $ Purch Units Purch $/Unit Purch $ Sale Units (CGS) Sale $/Unit (CGS) Sale $ (CGS) EI Units EI $/Unit EI $
1-May 2500 $65.00 $162,500.00 $- $- $162,500.00
Shoe: USB Port
Beginning Inventory (BI) Purchases Sales Ending Inventory (EI)
Date BI Units BI $/Unit BI $ Purch Units Purch $/Unit Purch $ Sale Units (CGS) Sale $/Unit (CGS) Sale $ (CGS) EI Units EI $/Unit EI $
1-May 1400 $40.00 $56,000.00 $- $56,000.00

Solutions for E-Banking Security Holes:

Digital Security of software systems in Banks is very important to protect sensitive bank information, employee’s identity and customer’s privacy, also to avoid many legal problems. Strong security solutions are very important especially with the presence of online banking, banking software and workflow systems. The extensive usage of software systems in banks without strong security could lead to many legal problems. Normal security systems and policies do not stop internal or external hacking, and do not provide a legal way to proof any made transaction.

Online banking accounts are frequently targeted by cybercriminals. Security issues remain a major concern for customers and corporations alike. As a result, banks need to implement adequate security measures to protect themselves and their customer base.

Saudi Arabian Monetary Agency (SAMA) suggested the following solutions that aim to increase the level of security for online banking:

1- Identity Authentication

Banks should use appropriate measures in order to authenticate the identity of customers. It is important for any bank to check that each online transaction or access request is legitimate to ensure the safety of online banking. Banks therefore have to use reliable methods for verifying the identity and authorisation of new and existing customers. Showing the customers what has been done to secure them, makes them feel the system is secure and that there money are protected.

2- Segregation of Duties

Banks should promote adequate segregation of duties within e-banking systems, databases and application, which is critical for their security and soundness. Therefore, Banks are required to set up sophisticated internal control designed specially to reduce fraud risk in operational processes and systems and to ensure that transactions and equipment are properly authorised, recorded and safeguarded.

The classification of duties should cover authorization, custody, record keeping and reconciliation.

3- Protect Data Integrity

Data integrity of transactions, records and information are essential for any bank to be protected. If the bank did not give special attention to that, it may face financial losses as well as legal and reputational risk. In addition, banks should arrange and represent proper organisational, procedural and technical methods, which ensure that the integrity of financial and transactional data is maintained. Financial data recording should be stored securely, retrievable for inquiry or reporting, safeguarded against improper alteration, and mostly reflect the actual values involved.

4- Regular Update and Audit

Feasible updates of the online banking system would reassurance that the authentication platform is stay one step ahead of hackers and decrease there chances to stole the data and also minimize the security holes. Banks should ensure that the internal control system is adapted to e-banking services and that clear audit trails are maintained. Added to that, internal controls should be independently auditable by external agencies. Audit trail should:

Give adequate proof to show the transaction stream, from start to finish, and any accompanying control/procedural execution.

Be sufficient to fulfill the rules of the courts under which they could be used.

5- Preserve the Confidentiality

The advent of online banking introduces extra security challenges for banks since it increases the exposure that information transmitted over the public network or stored in databases may be accessible by unauthorised or inappropriate parties. Also, expand the use of service providers may uncover essential data of banks to other parties. So, the key data of the banks must remain private. Any abuse could result in exposing the bank to high impact reputation and legal risk. The protection of confidentiality should be commensurate with the impact of the risk of unauthorised exposure:

Confidentiality should be maintained by use of access controls and encryption.

Cryptographic techniques should be based on recognized algorithms that have not been disputed in their strength or use.

Access should only be permitted based on the “need to know” principle.

_______________________________________________________________

I think the best solution is number 5 but i need more information about :

Given what you learned about E-Banking Security Holes ?

what do you think would be the best solution to the problem?

Why you selecation this ?

What are the possible impacts?