question archive Auto Industries Company (Auto) manufactures brake shoes
Auto Industries Company (Auto) manufactures brake shoes
Subject:AccountingPrice: Bought3
Auto Industries Company (Auto) manufactures brake shoes. It has one operating site and a customer base spread across Montego Bay. The company's year-end was
31 December 2019. Below is a description of the purchasing and payments system.
Purchasing System
Whenever production materials are required, the relevant department sends a requisition form to the ordering department. An Order Clerk raises a purchase order and contacts a number of suppliers to see which can despatch the goods first.
The supplier is then chosen. The Order Clerk sends out the purchase order. This is not sequentially numbered and only orders above $35,000 require authorisation.
Purchase invoices are input daily by the Purchase Ledger Clerk, who has been in the role for many years and as an experienced team member, he does not apply any application controls over the input process. Every week, the purchase day book automatically updates the purchase ledger. The purchase ledger is then posted manually to the general ledger by the purchase ledger clerk.
Payments System
Auto maintains a current account and a number of saving (deposit) accounts. The current account is reconciled weekly but the saving (deposit) accounts are only reconciled every two months. In order to maximise their cash and bank balance, Auto has a policy of delaying payments to all suppliers for as long as possible. The suppliers are paid by a bank transfer. The Finance Director is given the total amount of the payments list, which he authorises and then processes the bank payments.
Required:
Identify and explain FOUR (4) application controls that should be adopted by Auto Industries Company, to ensure the completeness and accuracy of the input of purchase invoices.
(12 marks)
