T1 PPT Internal Control OF Asset Management Flashcards
What is the purpose of internal control?
To ensure assets are protected, used efficiently, and provide managers with useful information.
What are the key goals of internal control?
Protect assets from loss or damage, ensure effective utilization, and provide information for decision-making.
Why is asset management important?
Assets are expensive, must generate cash flow for liquidity, and provide a return to owners.
What is the main cause of business failure related to asset management?
Poor asset management.
What are the costs associated with inventory?
Purchasing, storing, and insuring.
What should a business do to maintain good inventory control?
: Avoid slow-moving stock, have good re-order points, prevent over/underinvestment, and safeguard inventory.
How can a business protect its inventory?
Secure storage, separation of handling and recording duties, and using a perpetual inventory system.
Why is cash a vulnerable asset?
: It is highly negotiable and easily stolen.
What are key internal controls for cash?
Separation of duties, daily banking system, proper authorization for payments, and secure storage.
Why can large amounts of accounts receivable be risky?
It can lead to bad debts, opportunity cost, and liquidity problems.
What steps should a business take to manage accounts receivable effectively?
Check credit history, impose credit limits, send monthly statements, follow up overdue accounts, and separate cash handling from recording.
: How should a business finance non-current assets?
With long-term or equity finance.
What happens if a business underinvests in non-current assets?
stifles business growth.
How should a business protect non-current assets?
Safeguard from theft/damage, monitor usage, and ensure efficiency.
What are the risks of overinvestment in non-current assets?
Low productivity and poor return to owners.
What happens if debt is not paid on time?
The business may become insolvent.
How can a business prepare for debt repayment?
Use cash budgets to predict shortages or surpluses.
What is a key financial principle regarding debt?
business should never owe more than it owns.
What additional cost must be considered with loans?
Interest payments.
What is gearing in finance?
The ratio of external debt to equity debt.
What should a business ensure regarding its gearing level?
It should not be too high or too low.
Why should loans be regularly reviewed?
To ensure they are still appropriate.
What assets require safeguards?
Inventory, cash, accounts receivable, non-current assets, short/long-term debts, and equity capital.
