CHAPTER I

INTRODUCTION

History of the Company

The Abul Pascual Store is a sole proprietorship type of business owned by Mrs.

Corazon A. Pascual. The store is a merchandising business (wholesale/retail) located at

Poblacion West 3, Aliaga, Nueva Ecija. The business sells all kinds of groceries. It is a well-

known store in the municipality of Aliaga. Most of the residents are regular customers of the

store. The grocery store gained customer satisfaction through the years of quality service.

Before it expanded into a bigger location, it started in a small stall in Aliaga Public Market in

March 11, 1988. The store existed in the market from 1988 up to 2010. Mr. and Mrs. Pascual

managed the store through the years until it expanded and moved out to a bigger place in

2010 with 7 employees working with them.

Through the years of existence, the store operated using manual recording of daily

transaction. The ordering of goods are done through phone calls to different supplier. The

supplier who can offer the lowest bid will be chosen. The purchasing and receiving of goods

are done by the owner’s daughter, Cherry Ladd Pascual. The goods are delivered directly to

the business’ warehouse. The employees of the business receive SSS benefits after 1 year of

employment. Every employee works 11 hours per day, which starts at 7 am to 6 pm. The

store closes during lunch break. The salary distribution of employees are done on a weekly

basis. Salary advances are not allowed because it triggers employee tardiness.
 During the past operations of the business, they encountered several theft incidents

done by outsiders and shoplifters. CCTVs are installed in the store but they are not

functioning well. There are incidents that customers deceive the cashier of the cash that they

tendered. But despite of all these experiences, the store remained in existence because of

good customer relationship. The owner emphasizes that customer relationship is very

important to maintain in the line of business. The business owner is planning to have a

program for loyal customers. They are allowed to have on credit purchase with no interest.

Through this way, a better customer relationship will be established.

Organizational Chart (Current)

CORAZON A. PASCUAL

Owner

RENATO. PASCUAL CHERRY LADD A. PASCUAL

Cashier Purchasing/Receiving Agent

ANGELICA REYES MAYRON ANICIETE

Saleslady Bagger

JOCELYN RUBIA JOMARI ABUL

Saleslady Bagger

KRISTEE REYES JERVY DELA CRUZ

Saleslady Bagger/Warehouse Custodian

LEA DELA CRUZ

Saleslady
Organizational Chart (Proposed)

OWNER

CASHIER PURCHASING

AGENT

SALES LADIES
RECEIVING
AGENT
BAGGERS

WAREHOUSE
BAGGAGE COUNTER CUSTODIAN
CLERK
 CHAPTER II

ACCOUNTING SYSTEM AND INTERNAL CONTROL

Threats

 The revenues of the store are not properly monitored.

The store does not actually have a system that monitors their daily sales.

Thus, every time they file tax returns, they only use a rough estimate. It becomes a

threat to the business because they will not know if they are deriving income or

suffering loss from the operations.

 The business doesn’t employ the “Entity Concept”.

It is important for a business to properly segregate the income of the store

from the separate funds of the owners. In this case, the store doesn’t have the policy

of depositing the money intact. Whenever the owner has to pay something, the money

will directly come from the receipts of the store. If this transaction will not be

recorded, there is a tendency that the income will be understated.

 The business does not have proper segregation of duties.

When it comes to the custody of documents and access to money, the store

has closed supervision. But when it comes to the custody of inventory, supervision is

not properly maintained. The warehouse custodian is also the bagger. The tendency
 is, there might be unauthorized person that will enter the warehouse (e.g. delivery

boy) because the warehouse is not properly secured.

 The business doesn’t have Financial Statements.

The store doesn’t employ an accountant that will prepare a financial

statements which reflects the end product of the annual operations. Because of this,

the business cannot compare their yearly operations. They can’t keep an eye whether

their sales are improving or not and if the benefits of the business exceed the cost or

they already incurring loss.

 Inventory control is weak.

The store employs First in First out (FIFO) method in selling their

inventories. However, this system is not properly applied. Whenever there is delivery

of new goods, the old stocks are getting piled up and sooner or later, expires.

Moreover, the store doesn’t employ physical count. They only use rough estimate

which may result to overstatement or understatement of inventory.

 The business security is weak.

The store has recorded issues of theft inside and outside the store. There was

a time that the store was robbed and some materials and inventories were destroyed

inside. Furthermore, there are also some buyers who do shoplifting and some

unauthorized personnel entered warehouse. These events and circumstances might

have big impact and may result to a great loss of the business.
Safeguards

 For the business to properly monitor their sales, it is important to have a copy or

duplicate of receipts. Currently, they are using a cash register but the system does not

leave them a record of transactions. For this matter, the store might want to consider a

carbon copy duplicate of receipt or they may adopt a system that will account their

sales weekly. In that way, every cash inflow will be recorded. They will know if the

actual receipts of cash and the record did tally. Hence, the business will determine

their earnings for the week and can eliminate or reduce the theft in the counter if ever

there is.

 For the business to employ the entity concept, the owner may decide to deposit their

weekly income intact in the bank so that it will not be used on personal purposes (i.e.

personal expenditures). In that way, the income of the business will be separated from

personal use. The entity concept will help the business to identify the level of their

income.

 For the business to have a proper segregation of duties especially in the warehouse,

the personnel must not have a dual work for him to properly monitor every inventory

that is entering the warehouse. It is also important to maintain the closed supervision

when it comes to access to documents and money.

 For the business to have financial statements, it is important for them to at least

employ an accountant that will prepare financial statements for their annual

operations. This will help them to maintain comparability on their yearly sales. In

addition to that, paying of taxes might be reduced if they will have a proper
 accounting system. For example, when they properly match their input and output

VAT, their VAT payable might be reduced.

 For the business to have a strong inventory control, the store has to strictly implement

the First in First out (FIFO) method. The implementation of this method boils down

to the warehouseman because he has the control over the inventory that will be

moved out from the warehouse to the store. In addition to that, it is important to

perform a physical count at least once a year to check the level of the inventories on

hand.

 For the business to have a strong security and to avoid the issue of theft, it will be

helpful if they will have a baggage counter and assign an employee to supervise the

baggage. They must also have a closed circuit television (CCTV) inside the store and

inside the warehouse to monitor the buyers and employees.