facebook-circle  linkedin-circle  twitter-circle

For enquiries, enrolment & free demo:
Email
enquiries@learnac.co.uk or call on 01 908 904 911.

(this technical article will be useful to the students of AAT Level 4, Financial Statements unit and the students of ACCA paper F7, Financial Reporting).

IAS-2 is one of the oldest standards and is entirely based on the accounting concept of prudence. It stipulates that the closing inventory should be valued at the lower of the following:
a - cost
b - Net Realisable Value

The cost will include the following:
Cost of purchase, any input tax (if not claimable), transportation charges and any other charge which is necessary to bring to product to your premises
Cost of conversion/manufacturing including all the manufacturing overheads

While calculating the costs, you should not include the following:

Read more: Valuation of closing inventory based on IAS-2

These accounting procedures are carried out by all the accountants in all the organisations (for profit or non-profit). However, I do not know of a single accounting text book that shows the best practices.

Let us start with some clarifications:

  1. Even though the term 'year-end' suggests that these procedures are carried out at the end of the financial year, the same process and philosophy can be applied to the month end accounting (also called monthly management accounts).
  2. There are no set procedures – each organisation has to work out what is best for them. This can be a problem in the sense that you may be missing a few steps or tasks.
  3. Most of the financial transactions originate in such a way that you have to take the notice and record them in your accounting records. For examples, payments made to outsiders, invoices for goods sold on credit, invoices for credit purchases and so on. If you do not record them, your accounting records will be incomplete – for example, your bank statement will show some transactions but that are not recorded in your accounting records. You will, therefore, have to record them. However, the year-end procedures are such that the initiative has to come from you as an accountant. Nobody forces you to carry them out but it would be good to carry them out.

What are the objectives?

  1. Read more: Year-end accounting procedures

When a business grows from being very small to being quite large, the span of control changes. The way a small business owner controls their business differs from the way a CEO would control their business. In a large business, there would be division of functions and responsibilities. There would also be hierarchy with levels of authority and responsibility. The work would be carried out delegation and functional responsibilities.

Internal control refers to checks and balances embedded in the business systems (including the accounting system) aimed at controlling resources of the business; preventing fraud and misappropriation and safeguarding overall economic interests of the business.

An effective system of internal control would employ various tools, procedures and policies to implement the above objectives. An effective accounting system with inbuilt checks and balances would be one of the tools (albeit a major one) of achieving those objectives.

How can an accounting system be designed to achieve internal control?

1 – Physical checks: Cash/Petty Cash should be checked at regular intervals including random checking. Inventory should also be checked at regular intervals including random checking. Shortfall and variances should be investigated.

Read more: Internal Control and Accounting Systems

FREE Live Demo

We are confident that once you experience our interactive Online Classroom, you will love the convenience and benefits it offers.

That is why we offer a FREE, no obligation, Live Demo session of our Online Classroom.

To sign up for one, send us an email at enquiries@learnac.co.uk or fill in the form on the Contact Us page.

Training Provider & Exam Centre

We'd love to hear from you

If you have any questions about our delivery method, our Online Classroom, or how AAT can benefit your career or business, please feel free to get in touch with us.

Email us, call us or tweet us. We're here to help.

Drop us a line at:
enquiries@learnac.co.uk

Or leave a message:
 01 908 904 911

@LearnAca
Learning Academy LinkedIn Page
Learning Academy Facebook Page

Find us on:  
Hotcourses
Floodlight
b2blistings