American College Of The Middle East 2020 Financial Accountin

American College Of The Middle East 2020financial Accounting Act 200

Presented below is the information for Midler Company for the month ended December 31, 2019: Cost of goods sold $1,200,000 Depreciation expense $32,000 Supplies expense 10,000 Sales discounts 15,000 Rent expense 30,000 Sales returns and allowances 50,000 Salaries and wages expense 200,000 Sales revenue 3,500,000 Interest expense 86,000 Required: Prepare a multi step income statement for the month ended December 31, 2019.

Mention two principles of internal control activities and illustrate your answer by examples.

Indicate whether each statement is true or false (20 points – 5 points each):

a) Responsibility for record-keeping for an asset should be separate from physical custody of that asset. True/False

b) Internal control is most effective when several people are responsible for a given task. True/False

c) In order to prevent a transaction from being recorded more than once, a company should maintain only one book of original entry. True/False

d) Firms use physical controls primarily to safeguard their assets. True/False

The following information is available for Scott Enterprises Ltd.: Freight In $20,000 Purchases $35,000 Purchase Returns and Allowances $10,000 Sales Revenue $120,000 Sales Discounts $8,000 Sales Returns & Allowances $2,000 Beginning Inventory $26,000 Ending Inventory $10,000

Calculate cost of goods sold and gross profit. Show your calculations.

On November 16, Stars Department Store sells merchandise on account. The selling price of the goods is $20,000, and the cost of goods sold was $12,000. Prepare journal entries for this transaction on the books of Stars Department Store.

Paper For Above instruction

Introduction

Financial accounting is vital for assessing a company's financial health, ensuring proper internal controls, and accurately reporting financial data to stakeholders. This paper addresses the preparation of a multi-step income statement based on provided data, explores internal control principles through examples, analytically assesses true/false statements related to internal controls, calculates the cost of goods sold and gross profit using given data, and finally, journals a sales transaction for Stars Department Store. Each section combines theoretical understanding with practical application, emphasizing accuracy and adherence to accounting standards.

Part 1: Multi-step Income Statement for Midler Company

The multi-step income statement segregates operating revenues and expenses from non-operating items, providing a clear picture of physical and operational profitability.

Part 2: Principles of Internal Control Activities

Two fundamental principles of internal control are segregation of duties and physical safeguards.

Segregation of Duties

This principle entails dividing responsibilities among different individuals to reduce risk of errors and fraud. For example, the employee responsible for recording transactions should not have custody of the related assets. If one person both records and possesses physical custody of cash, they might misappropriate funds without detection.

Physical Controls

Physical safeguards involve protecting assets through physical barriers and controls. For instance, locking up cash in safes or secure storage rooms, and using safes or safes to restrict access, prevent theft, and ensure only authorized personnel can handle or access valuable assets.

Part 3: True/False Statements Analysis

a) Responsibility for record-keeping for an asset should be separate from physical custody of that asset.

True. Segregation of duties helps prevent fraud and errors by ensuring that no single individual has control over both the record-keeping and physical access to assets.

b) Internal control is most effective when several people are responsible for a given task.

False. Internal control is most effective when responsibilities are segregated; however, involving multiple people in the same task without segregation can increase risk of collusion.

c) To prevent a transaction from being recorded more than once, a company should maintain only one book of original entry.

False. A company typically maintains multiple records—such as journals and ledgers—to ensure accuracy and facilitate cross-verification, not just one book.

d) Firms use physical controls primarily to safeguard their assets.

True. Physical controls are primarily aimed at protecting physical assets from theft, loss, or damage.

Part 4: Calculation of Cost of Goods Sold and Gross Profit

Given Data:

- Beginning Inventory: $26,000

- Purchases: $35,000

- Purchase Returns & Allowances: $10,000

- Freight-In: $20,000

- Ending Inventory: $10,000

Part 5: Journal Entry for Stars Department Store Sale

Given:

- Sale Price: $20,000

- Cost of Goods Sold: $12,000

1. Record the sale:

   Accounts Receivable    $20,000
   Sales Revenue             $20,000
   

2. Record the cost of goods sold:

   Cost of Goods Sold    $12,000
   Inventory                      $12,000
   

These entries recognize the revenue earned and the expense of goods sold, reflecting a complete transaction recording for the sale.

Conclusion

This comprehensive analysis combines practical accounting procedures, internal control principles, and financial calculations. Preparing an accurate multi-step income statement enables stakeholders to evaluate profitability, while understanding internal controls aids in safeguarding assets and ensuring reliable financial reporting. Correctly computing cost of goods sold and gross profit provides vital insights into operational efficiency, and proper journal entries ensure transparent and accurate financial records. These fundamental accounting practices underpin sound financial management and compliance with regulatory standards.

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