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Internal Check Trading Transactions
The following system of internal check may be adopted as regards purchases.
1. A purchase department should supervise and control the entire purchase transactions of the organisation.
2. The procedure for purchases should start with issuing purchase requisition, making enquiry about the terms and conditions of purchases from different suppliers.
3. Purchase requisition should be in a printed form and serially numbered. They should be given to all the departments in the organisation.
4. On receipt of requisition from various departments, the purchase department should send enquiry letter to the suppliers.
5. The purchase department, after verifying the quotation should place an order with the supplier.
6. All the purchase orders should be signed only by the Purchase Manager or any responsible person on his behalf.
7. Goods should be received by a responsible official and entered in the goods received note and the same should be recorded in the goods received register.
8. On receipt of invoice from the supplier, the purchase department should check the invoice with the goods received note and verify the rate, discount, quality and quantity of goods.
9. Goods received should also be entered in the stores ledgers and entries should be made in the bin card.
10. The accounts department should verify the purchase invoice with the goods received note and purchase order before making payment.
11. After making payment, the accounts department should affix a rubber stamp on the invoices in order to avoid duplication of payments.
12. At frequent intervals a responsible person should check the entries in the purchase book with supplier ledger account.
1. When goods are returned to the supplier it should be entered in purchase returns book.
2. A credit note should be obtained from the supplier for each return of goods and the note should be attached to the invoice.
3. The purchase department should check such advice note with invoice and enter in purchases returns book.
4. When only part of the goods or returned to the supplier, the goods which are accepted alone should be entered in the stores ledger.
Sales are the most important source of revenue in a business and hence the possibilities of errors and frauds taking place are greater. Frauds maybe committed in the following ways:
· Sales may be omitted from recording in the sales book.
· Fictitious sales may be accounted.
· Sale of fixed assets may be treated as sale of goods.
In order to overcome the occurrence of such type of frauds, an effective system of internal check as regards credit sales is necessary that may be in the following manner.
1. On receipt of order from the customers, it should be numbered and the particulars entered in the order received book.
2. The order copy should be handed over to the dispatch department who makes necessary arrangements for delivery of goods.
3. When the goods ordered or ready for delivery the dispatch department should inspect the goods with the order copy and enter the details of goods delivered in the dispatch memo.
4. The invoice should be prepared based on the dispatch memo in three copies, one copy should be sent to the customer, second copy to the accounts department and third copy will be retained by the sales department.
5. A responsible official should check the particulars in the invoices and also confirm that the terms and conditions in the order have been duly followed and finally he should put his initial on the invoice.
6. The gatekeeper should record particulars of the goods leaving the premises in the goods outward book.
7. The persons who are responsible for preparing the invoices should not be allowed to post the entries in the customer’s accounts.
8. At frequent intervals, the balances in the customers’ accounts should be verified with the confirmations received from the customers.
9. A responsible official should verify that only sale of goods are accounted in sales day book and sale of assets are not accounted.
10. A responsible official should deal with customers enquiries, overdue accounts and writing off bad debts.
1. The goods returned by customer should be entered in the sales return book and reason for the return should also be recorded.
2. The gatekeeper should also enter the goods received in the goods inward book.
3. A credit note should be prepared, duly checked and initiated by a responsible official.
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