SU 8 Flashcards
(51 cards)
1
Q
What is the nature of the i&p cycle (2)
A
- Managing & safeguarding inventory
- Controlling production process
2
Q
What happens if inventory isn’t safeguarded
A
Theft & damage = strain on cash flow = bankruptcy
3
Q
What happens if production process isn’t controlled
A
Products not saleable / poor quality = damage to entity reputation
4
Q
Purpose of i&p cycle (3)
A
- Safeguard inventory against theft / damage
- Control movement of inventory during production process
- Control production process for manufacturing entities
5
Q
What 2 functions form part of i&p cycle
A
- Business function
- Accounting function
6
Q
Where does the i&p cycle begin
A
P&p cycle - receiving goods
7
Q
Where does the i&p cycle end
A
R&r cycle - despatching goods
8
Q
Types of inventory (3)
A
- Finished goods
- Raw materials
- Work-in-progress (in factory, not warehouse)
9
Q
Typical transactions in cycle in retail entity (6)
A
- Order goods from supplier when inventory reached min level: p&p cycle
- Receiving goods from supplier & preparing GRN: p&p cycle
- Goods transferred to warehouse: p&p cycle
- Storing & safeguarding goods: i&p cycle
- Transferring goods for despatch: r&r cycle
- Delivering goods to customers: r&r cycle
10
Q
2 Major accounts affected by cycle
A
SoPL
- Cost of sales (perpetual system)
- Purchases (periodic system)
SoFP
- Inventory
11
Q
IAS2 accounting treatment for inventory
A
Inventory is recognised at the lower of cost or net realisable value
12
Q
8 Functional areas of i&p cycle
A
- Storage of raw materials
- Production planning
- Transfer of materials to production
- Production
- Transfer of finished goods to warehouse
- Storage of finished goods
- Cost allocation & updating inventory records
- Maintenance of inventory records
13
Q
Purpose of ‘storage of finished goods’
A
Safeguard finished goods against theft & damage
14
Q
Main activities of ‘storage of finished goods’ (2)
A
- Inspecting goods received at warehouse
- Protecting inventory in storage
15
Q
Persons involved in ‘storage of finished goods’
A
Warehouse staff
16
Q
Documents involved in ‘storage of finished goods’ (4)
A
- Inventory list
- Inventory count sheets
- Inventory tags
- Inventory adjustment form
17
Q
Risks associated with ‘storage of finished goods’ (2)
A
- Inventory damaged due to poor physical conditions / nature of inventory
- Inventory stolen / misappropriated
18
Q
Control objective for ‘inventory damaged due to poor physical conditions / nature of inventory’
A
Inventory properly protected against damage
19
Q
Manual controls of ‘inventory damaged due to poor physical conditions / nature of inventory’ (2)
A
- Implement proper physical controls (environmental controls)
- Neatly pack goods in warehouse
20
Q
Control objective for ‘inventory stolen / misappropriated’
A
Costs allocated to inventory correctly recorded
21
Q
Manual controls of ‘inventory stolen / misappropriated’ (3)
A
- Implement proper physical controls (access controls)
- Perform independent cycle counts
- Reconcile physical inventory to recorded inventory on regular basis
22
Q
Purpose of ‘cost allocation & updating inventory records’
A
Update costing for manufactured inventory on inventory records
23
Q
Main activities of ‘cost allocation & updating inventory records’ (5)
A
- Calculation
- Review & recording cost of finished goods
- Record inventory movement
- Perform inventory counts
- Updating records
24
Q
Persons involved in ‘cost allocation & updating inventory records’ (3)
A
- Cost accountant
- Accounting clerk
- Warehouse personnel
25
Documents involved in 'cost allocation & updating inventory records' (3)
- Inventory records
- Overhead, labour, production cost records
- GJ
26
Risks associated with 'cost allocation & updating inventory records' (2)
- Costs allocated to inventory inaccurate, invalid, incomplete
- Costs allocated to inventory incorrectly recorded
27
Control objective for 'costs allocated to inventory inaccurate, invalid, incomplete'
All costs allocated to inventory accurate, valid, complete
28
Manual controls of 'costs allocated to inventory inaccurate, invalid, incomplete' (3)
- Cost accountant allocates raw material & labour costs to quantities of inventory recorded based on records
- Calculation of costs allocated to inventory reviewed by another staff member
- Actual cost per inventory item compared to budgeted cost per item & variances investigated
29
Control objective for 'costs allocated to inventory incorrectly recorded' (2)
- Costs allocated to inventory correctly recorded
- Accuracy
30
Manual controls of 'costs allocated to inventory incorrectly recorded'
2nd employee reviews recording of allocated costs
31
Purpose of 'maintenance of inventory records'
Keep inventory records up to date
32
Main activities of 'maintenance of inventory records'
Record adjustments required to inventory records
33
Persons involved in 'maintenance of inventory records'
Accounting clerk
34
Documents involved in 'maintenance of inventory records' (2)
- Inventory adjustment form
- Inventory master file
35
Risks associated with 'maintenance of inventory records' (2)
- Inventory items incorrectly added / deleted
- Quantities of inventory items on hand incorrectly adjusted
36
Control objective of 'inventory items incorrectly added / deleted' (3)
- Additions & deletions from inventory are authorised & correctly & completely processed
- Validity
- Completeness
37
Control objective of 'quantities of inventory items on hand incorrectly adjusted' (2)
- Changes are authorised & correctly & completely processed
- Validity, accuracy, completeness
38
Manual controls of 'maintenance of inventory records' (2)
- Member of management inspects supporting documents for all inventory adjustments & authorises adjustments with their signature
- Accountant compares inventory adjustments recorded to details on authorised inventory adjustment forms
39
Name & explain 2 types of inventory counts
Floor-to-list
- Humans physically count stock
List-to-floor
- Compare list with count to check accuracy of count
40
Why is an information system important (2)
- Proper record keeping of transactions on source documents in journals & ledgers for reliable financial reporting
- For financial statements to not be materially misstated & unreliable
41
Documents & journals involved in i&p cycle (5)
- Inventory count sheet
- Inventory tags
- Inventory adjustment form
- GJ
- GL
42
What is an 'inventory count sheet' (2)
- Used to record inventory quantities on hand during inventory counting process
- Quantities on sheets compared to entity's inventory records
43
What are 'inventory tags' (2)
- Attached to inventory items during inventory count process
- Used to record inventory quantities on hand
44
What is an 'inventory adjustment form'
Used to adjust differences between actual inventory counted & theoretical inventory from records
45
Explain 'inventory reconciliation' (2)
- Takes place during inventory counts between quantities recorded on inventory sheets & theoretical inventory
- Detect inventory shortages/surpluses
46
Risks in the cycle (2)
- Costs incorrectly allocated to inventory = inaccurate carrying amount of inventory
- Inventory stolen / damaged = losses
47
Computer technologies used in cycle
Barcode scanning
48
3 Processes of inventory counts
- Planning
- Conducting
- Finalising
49
6 Steps of 'planning inventory counts'
1. Planning meeting - date of count, nr of people needed
2. Prepare floorplan of all areas where inventory kept & nr areas on plan & floor
3. Draft & communicate detailed instructions for inventory count
4. Allocate staff specific functions - inventory count controller, supervisor, counters
5. Prepare & print stationery for count - sequentially nr count sheets, control sheets, register
6. Ensure all inventory neatly arranged in warehouse
50
8 Steps of 'conducting inventory counts'
1. Preprinted sequentially nr count sheets issued to each counter by count controller
2. Inventory counted by teams of 2
3. All inventory counted twice by 2 different teams
4. Count sheets completed manually & stickers used to mark items already counted
5. Any open spaces on count sheet cancelled. All count sheets signed by counter & handed back to count controller
6. Counters identify damaged/obsolete inventory & indicate on count sheet
7. Count supervisors perform spot checks on items counted, compared to quantities on completed & signed count sheets. Follow up on differences
8. Count controller limits inventory movement during count - scheduling & tracking inventory movement
51
4 Steps of 'finalising inventory counts'
1. Count controller inspects sequence of count sheets after count = ensures all count sheets returned
2. Count controller inspects count areas on floor to ensure all inventory marked with sticker
3. Count controller compares quantities counted by both teams & recount done if differences noted
4. Final inventory count sheets sent to inventory clerk for comparison to inventory records. Differences followed up on & adjustments made as per 'maintenance of inventory' functional area
