Author Question: If a company mistakenly counts less items during a physical inventory than actually exist, how will ... (Read 43 times)

MirandaLo · **on:** Jul 5, 2018

If a company mistakenly counts less items during a physical inventory than actually exist, how will the error affectthe cost of merchandise sold?
a. understated
b. overstated
c. no change
d. only inventory will be affected

Question 2

Describe internal controls and discuss why internal controls are necessary for a business.

What will be an ideal response?

ktidd · **Reply #1 on:** Jul 5, 2018

Answer to Question 1

b

Answer to Question 2

Internal controls are the policies and procedures used by a business to protect the assets of a business and to ensure the accuracy and reliability of the accounting records. Business owners and managers use these controls to minimize the risk of the loss of assets and to maintain control over the operations of a business. Internal controls can be organized into three categories: preventive, detective, and corrective controls.

Preventive controls are designed to prevent an error or irregularity. An example would be keeping cash in locked cash drawers or in a safe. Detective controls are designed to identify when an error or irregularity has occurred. A cash (bank) reconciliation is an example of a detective control. Corrective controls are designed to fix errors. For example, denying credit to a customer who has not paid an account would be a corrective control.