Question

What major safeguards should be built into a system of internal control for purchases of goods?

What is the purpose of a credit memorandum?

What is a purchase return?

Why is money coming in considered the most important asset for any company?  

Answer 1

1) The major safeguards that should be built into Internal Control System towards the purchases of goods are: a) Goods receipt Note accepted at the store should tally with quantity on the invoice. b) The quality should confirm the sample quality and well certified by Quality department. c) The price of received goods should tally with the accepted price on Purchase Order.

2) The purpose of a credit memorandum is to intimate the Debtors towards credit entry executed in their account. It is also provided in case of short Invoice received from Creditors.

3) A Purchase return is excess or “not fit to order” goods sent back to the seller or supplier. This is the reverse of the “Making Purchases”.

4) The money coming in is considered to the most important asset for any company because (a) It is the most liquid asset, (b) everything starts with money/cash first, (c) it can be molded into any asset, (d) it is the beginning and end point any transaction, (e) all businesses are done to achieve money.