Question

iscussion question 1: Briefly explain how accounting for sales if different for a merchandiser compared to a service based business. Discussion question 2: What would be considered strong internal procedures in the area of inventory (e.g., purchases, sales, returns, access) Discussion question 3: Why do you think accounting for payroll and payroll taxes important are areas of importance for all businesses?

Answer 1

(1): Accounting for sales for a merchandiser is different from that of a service based business due to the fact that for a merchandiser there is “inventory” in their case but for a service based business there is no inventory. Due to inventory the accounting for sales for a merchandiser will involve an account called ‘cost of goods sold’. This account is not there in case of a service based business. The cost of goods sold account shows the cost of purchasing inventory and the amount is computed by adding purchases to the beginning inventory and then deducting ending inventory. In case of a service based business there is no cost of goods sold as such and its main expenses will be salaries of its employees who provide the service.

(2): Strong internal procedures in the area of inventory will consist of procedures to protect its inventory, to ensure compliance with different policies and law, and to ensure accurate accounting reports. The internal procedures to protect inventory will consist of segregating the duties of employees. This will mean that a different employee will safeguard inventory and a different employee will maintain books of accounts for inventory. This will ensure that there is no scope for theft or pilferage. Secondly companies should maintain accurate and reliable inventory records and this should be augmented by periodic supervision of the inventory record keeping. Thirdly inventory management systems should be efficient and proper and should be supported by regular physical inventory count.

(3): Accounting for payroll and payroll taxes are important for all businesses because proper accounting will ensure that employee payments are safeguarded and the payments are in accord with management’s general business plans. To ensure that each employee receive their payment on time the accounting for payroll should be efficient enough and robust enough to guarantee timely recording of data. Secondly business entities have to comply with federal and state tax laws with regards to amount of payment withheld from employees and this makes accounting for payroll and payroll taxes important. Thus accounting for payroll and payroll taxes ensures that a business complies with all applicable federal, state and local laws.