Assignment on a very obvious fraud and it mainly due to inadequate control measures. Following measures should be taken to avoid any such scenario in future;

Proper authorization:

Without sound evidence nothing can be proved, so there is a need of proper authorization before carrying out any transaction. There needs to be a proper entry for any sales made, and in this way, the receipts for any sale can be tracked and the chances of any fraud or discrepancy will be mitigated.

No oversight and review     

There was no review procedure performed in the restaurant. The manger should take enough time and interest in the financial records. This is an important step to prevent any fraud. It would not take much time to review, the records of monthly revenues, the reports of expenditure, inventory reports, budgeted amount vs. actual amount, and variance reports. It will give the owner and the manager an insight of how the business is performing and also any discrepancy will be caught then and there.

Lack of physical and logical security

“The assets of the business and the resources could be lost or damaged”. The access of equipment, petty cash, and check stock should only be restricted to the adequate individuals and should be stored or locked in a secured location. In this case the Assistant Manager sometimes works with the cashier that is not a good practice, it could have let him enough freedom to take the cash out, and also no doubts would go at him as he apparently helps the cashier.

Accountability

There are accountability from anyone who has been assigned duties. The people who perform any tasks should be accountable to any task they perform. Now in this case there are discrepancies in the sales ledger but no one is held accountable for that and far more than that, no one has even detected any faults in the ledger. It is the accountant only who has got a bit of a hint. So the people should be held accountable for their tasks in this way they would now that in case of any wrong doing they would be answerable.

Task 2
Pre-payments

Prepayments are payments that have been paid but the benefits of the payments made would be received in the future period. Any payment paid ahead of its time is a prepayment. A prepayment is not totally different to a deposit but the former has a more established time period for receiving the benefits of the payments made. Usually, the payments are made after the goods have been received, but some goods and services are such that they require to be paid in advance, like insurance is a regular example of this kind of expense.

Example of income received in advance

For commission received in advance, rent received in advance etc, such advances received would be treated as a liability.

Expense paid in advance

If we pay rent in advance, that would be our asset;

Accruals

An accrual is an accounting concept, in this method of accounting the payments are recorded when the actual financial event occurs not when the cash is exchanged. Accruals are used for benefits that have already been used by the company but not paid, and for services that have been provided but the payment for them have not been received.

Example for accrued expense

The interest paid on loans at the end of the accounting period,

Example for Accrued Income

Interest received on loan at the end of the accounting period;

Task 3
Credit Terms

The agreement between a seller and a buyer is called as credit terms or terms of credit. It lists the timing and the amount of payments that the buyer will make in future according to the agreement. This contract basically, described the specific details of the seller’s payment requirements, which the buyer is required to meet to purchase the goods on account. The credit terms are established before a credit sale is made. Most of the times these terms are dictated by the industry practices and by the specific goods that are sold in those practiced.

Example

 “2/10 net/30”is an example the standard term rate that is applied across most of the industries generally. It means that on payment made within 10 days there will be a discount of 2%, whereas if the payment is made after 10 days there would be no discount and the payment must be made within 30 days.

Factors to be considered while relaxing credit terms

The factors to be considered while relaxing credit standards are as follows;

Cost of goods sold

It refers to all the direct cost of goods that you have offered to sale. This includes the raw material that is used to make those goods, the labor costs involved, and any other overheads of manufacturing that are directly tied associated to the product. When a trade credit is offered it means that you aren’t going to get paid for the goods, you have to consider that you are losing the interest money that you could have got if the terms of credit weren’t very low.

The cost of goods sold in the income statement is shown the company expense which has to paid the source, manufacture along with the ship services and product to the end of customers. The cost of goods also sold per dollar which should differ and depending upon the various kinds of the business and the buy shares.

Delayed revenue

When a trade credit is offered, it means that the buyer can order now and can pay for it later. It means that the seller would be deprived of any payments for that period. In some cases such trade credit can be made easily if the business has enough money in their bank to do any businesses. But if the business does not have any money itself and is relaxing credit standards than that is just simply reaping losses.

Bad Debts

The threat of bad debts is always there, no matter how many precautions a business takes. If relaxing payments is going to increase the risk of bad debts than there is no benefit in relaxing credit standards. Because sometimes relaxing the credit standards only makes people more reluctant to paying.

The bad debt which is occasionally known as the account expense and the monetary amount is owned to the creditor which is unlikely to pay and that is the creditor is not willing to take several actions which collect the different reasons.