Explain the concept of prepayments and accruals


Assignment Task: Financial Accounting Application of Concept

Scenario or Task:

Refer to the case scenarios provided with this assignment. Answer both the questions given along the scenario. Problem Task 1 includes 8 questions. 6 questions carries 2 mark each and two questions carry 3 marks each. Problem Task 2 includes 3 questions (6+3+3) of total 12 marks. Show relevant working in a proper format for both the tasks. Give your opinion/critical view on the Problem Task wherever required. Support your answer with proper literature review and in-text referencing.

Problem Task 1:

JJRestaurants Topic: Internal Control weaknesses

Characters: Smith, Manager of restaurants Franchise

Green, Assistant Manager of restaurant

Carol, Staff Accountant of Franchise

John, cashier

There are 20 restaurants that are owned by the Franchise in a widely spread geographic area. Smith is manager of all the locations of the restaurant franchise and Green, distantly related to him, is the Assistant Manager working solely at his location.

Johnis a cashier and collects the cash from customers. At the end of the day, he adds up the cash receipts, reconciles his sales and hands over the cash to Green.

Green prepares the bank deposit slip, deposits the cash in the bank, and keeps the bank receipts in the office safe to which he has the only key. Green also prepares the bank reconciliation statements and submits weekly sales reports to Carol.

Of late, Green has volunteered quite frequently to speed up the cash collection on crowded days by working John's station at the cash counter. Smith has not objected to this practice.

During the past month Green has been seen driving a fancy new MBW to work and seen dining with friends at the town's expensive restaurants. Carol finds from Green's reports that sales have shown no change from previous weeks, even though there appears to be an obvious and significant increase in restaurant customers during the summer season. This puzzles Carol, who suspects this apparent discrepancy is being pocketed by Green. More puzzling, why hasn't Smith also noticed this problem?

You are required to analyze fraud using information given in above case study and suggest internal control measures that JJ Restaurants Franchise should implement to avoid any such fraud in future.

Problem Task 2:

As we know that all accounts are prepared on the basis of the Accrual concept. In order to determine the correct earnings and loss and the true and fair financial position at the end of the year.

Required:

Q1. Explain the concept of prepayments. Give an example each for income received in advance and expenses paid in advance.

Q2. Explain the concept of accruals. Give an example each for accrued income and accrued expenses.

Problem Task 3:

Accounts receivable is the amount owed to a company resulting from the company providing goods and/or services on credit. The term trade receivable is also used in place of accounts receivable. The amount that the company is owed is recorded in its general ledger account entitled Accounts Receivable.

With reference to Accounts for Receivables:

Q1. Explain with example the concept of Credit Terms.

Q2. Explain what factors should be considered while deciding whether to relax credit standards or not.

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Financial Accounting: Explain the concept of prepayments and accruals
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