The Importance of Internal Controls for Preventing Inventory Loss

School: Southern New Hampshire University - Course: ACC 201 - Subject: Accounting

Internal Controls are necessary for a business. The primary reason there are internal controls is to provide a system of checks and balances to ensure that a financial transaction is accurate and that there are measures to be able to find theft quickly and even prevent it. In the scenario a friend has opened an electronic business. The friend is having issues with inventory being wrong or missing. I have been asked because of my experience and familiarity with accounting principles to help prevent this issue from happening again. Two things we can do using internal controls to prevent material from going missing are having Physical controls and Reconciliation procedures. Physical controls could be having locks on the warehouse doors and also making sure that material is in restricted areas with cameras. This can help make sure that only authorized people who work with the company are able to have access to the merchandise/inventory. Reconciliation procedures could help as well. Some examples of Reconciliation procedures are scheduled and frequent inventory counts. You then can compare the inventory counts to the stock on hand. This can help by noticing quickly that there are missing items as well as being able to see if there is an issue with theft. This can help with being able to stop or prevent a business from losing too much money. The warehouse could also start using a barcode system.

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