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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 is essential for internal controls as it helps in:
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Detecting Errors and Omissions: It allows the business to identify discrepancies between their records and those of the creditor, ensuring all transactions are accurately recorded.
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Fraud Detection: This statement also plays a critical role in uncovering fraudulent activities by comparing records, which can reveal unauthorized transactions or errors.
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 of Pikor Suppliers:
Starting balance: R116,400
Adjustments:
- Add: (incorrect invoice)
- Subtract: (excess amount)
- Subtract: (additional invoice not found)
- Subtract: (previously recorded refund)
- Subtract: (another refund)
Calculation:
Thus, the correct balance is R77,790.
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 as follows:
| Details | Amount |
|---|---|
| Balance per statement of account | R121,800 |
| Credit amount to correct invoice overstated | (R30,000) |
| Debit amount wrongly credited | (R10,800) |
| Transfer of balance | (R3,000) |
| Credit payment after statement date | (R93,000) |
| Credit discount after statement date | (R7,210) |
| Correct Balance | R77,790 |
This table illustrates the adjustments made to arrive at the correct balance.
Step 4
Suggest TWO factors the owner should consider before changing suppliers.
Answer
When considering changing suppliers, the owner of Machu Traders should evaluate:
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Credit Terms Offered: Assess whether the new supplier offers more favorable credit terms that align with the cash flow needs of the business.
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Quality and Reliability of Service: Investigate if the new supplier can consistently provide high-quality goods and reliable delivery service to meet the demands of the business.