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Machu Traders buys goods on credit from Pikor Suppliers - NSC Accounting - Question 1 - 2016 - Paper 1
Question 1
Machu Traders buys goods on credit from Pikor Suppliers. The business received a statement for April 2015 from the creditor. REQUIRED: 1.1 Explain how the Creditor... show full transcript
Worked Solution & Example Answer:Machu Traders buys goods on credit from Pikor Suppliers - NSC Accounting - Question 1 - 2016 - Paper 1
Step 1
Explain how the Creditors' Reconciliation Statement can assist the business in terms of their internal control measures. State TWO points.
Answer
The Creditors' Reconciliation Statement plays a crucial role in maintaining effective internal control measures for Machu Traders. It helps in several ways:
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Identifying Errors and Omissions: The statement assists the business in detecting any errors or omissions in their books. This ensures that all transactions are accurately recorded, helping to maintain reliable financial records.
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Fraud Detection: It provides a mechanism to detect fraudulent activities by comparing the creditor's records with those of the business. Any discrepancies can be investigated promptly to reduce the risk of loss.
Step 2
Calculate the correct balance of Pikor Suppliers in the Creditors' Ledger Account of Machu Traders. Show the changes to the figure R116 400.
Answer
To calculate the correct balance, we review the adjustments needed from the initial figure of R116 400:
- Start with R116 400
- Add in missing invoices: 780
- Subtract overstatement on invoices: 480
- Subtract additional transactions: 27 300
- Subtract discrepancies: 810
- Subtract misreported transactions: 10 800
The calculations are as follows:
egin{align*} 116400 + 780 - 480 - 27300 - 810 - 10800 = 77790 ext{Thus, the correct balance is R77 790.} \end{align*}
Step 3
Prepare a Creditors' Reconciliation Statement for Pikor Suppliers on 30 April 2015.
Answer
The Creditors' Reconciliation Statement for Pikor Suppliers on 30 April 2015 is detailed below:
| Details | Amount |
|---|---|
| Balance per statement of account | R121 800 |
| Credit amount to correct invoice overstated | (R30 000) |
| Debit amount wrongly credited | R30 000 |
| Transfer of balance | (R9 300) |
| Credit payment after statement date | (R22 300) |
| Credit discount after statement date | (R10 800) |
| Correct balance | R77 790 |
Step 4
The owner of Machu Traders is not completely satisfied with the service and quality of goods received from Pikor Suppliers. Suggest TWO factors he should consider before changing suppliers.
Answer
Before making a decision to change suppliers, the owner of Machu Traders should consider the following factors:
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Credit Terms Offered: Assess whether the credit terms from potential new suppliers are more favorable than those currently provided by Pikor Suppliers. This includes payment terms, credit limits, and interest rates.
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Quality of Goods and Service: Examine how new suppliers' product quality and customer service compare with Pikor Suppliers. It’s essential to ensure that new suppliers can meet the business's requirements effectively.