Question 1: Single-Step Income Statement and a Multistep Income Statement

Pros and Cons of Single-Step Income Statement

A single-step income statement is one that analyses the expenses of a business in one column without subdividing it into sections. This income statement has two significant advantages. First is that it makes record keeping for a small business very easy because there is no need to subdivide the expenses column (Hanks, 2018). Secondly, it is easy to read and interpret. This statement is appropriate for a simple business that does not need much data recording.  The disadvantage of a single-step comment is that it is too much simplified that it ends up missing essential details of a business. This over-simplification may make the company miss out on potential investors.

Pros and Cons of a Multiple-Step Income Statement

A multiple-step income statement is one that is more detailed than the single-step report. The advantages of multiple steps are that it gives more details about a business venture. It shows the difference between its sales and the cost of goods sold (Hanks, 2018). This information is precise, and it can benefit the business in many ways. The major disadvantage of this statement is that it is tiring to make for a small business venture since it requires so many details. If it is wrongly done, it can result in misinterpretation that may make the business to miss out on potential investors.

In a Multistep statement, two essential items are critical for creditors. The first one is that it shows net profit and gross income. The second significant value is that things are placed in different categories. These two features are of importance to the creditors. They help a creditor to examine the real profitability of a business. It implies that creditors can analyze a business’s potential in repaying their money. This statement allows creditors to make an informed decision on whether to offer loans and credit to a business venture.

Question 2: Principles of Control Activity

Control activities are actions by the management of a business that are supposed to regulate or minimize the chances of the occurrence of a risk (Frazer, 2012). These control activities are:

Responsibility Establishment: This is assigning responsibilities, and tasks are assigned to specific employees. The argument behind this activity is that employees are likely to be more responsible when duties are attached to them individually and not in a group. Increasing employee responsibilities reduces risks that are caused by careless behaviour.

Segregated Tasks: Duties at a workplace should be differentiated. Specific employees should only perform particular tasks. The isolated job makes the employees assigned a specific to become more expert in their area as they progress. This expertise reduces risks that arise from employees lacking enough skills.

Documentation Procedures: Having a proper documentation procedure is necessary for reducing risks. Documentation ensures that all the information is safe and that all activities can be tracked through the documentation. Documentation is essential in reducing risks like loss of items.

Physical Control: This is taking care of assets physically. An organization can put in place policies that ensure that assets are taken care of physically. The physical control process safeguards the assets of a business from physical damage.

Internal Verification:  Organizations should have clear procedures of verification. Cases of discrepancies should be reported to the top management for further examination. Verification reduces the risk of fake items that may be faulty, causing losses.

Human Resource Control: Organizations should have an excellent human resource control process. The employees in a company should be treated well. Happy and satisfied employees result in better performance, increased productivity and reduced risks.

The essential principles for an online business venture are documentation and verification. In online business ventures, customers and clients often do not meet. Business ventures need to maintain proper documents in case the client complains that the products did not reach them or they were in bad condition; then, the documentation process can be used to follow up and reduce the risk. Verification is also necessary for online businesses. The customer’s payment must be verified before the shipping of products. This verification helps in reducing risks that may occur in online payment transactions.

The essential principles for a brick and motor retail business are physical control and responsibility establishment. Physical control helps a brick and motor business to ensure that customers as they check and test the goods they do not damage or steal the goods. The use of CCTV cameras can achieve this physical control. Responsibility establishment is also necessary for a brick and motor business. When employees are placed to be responsible for various tasks, they will be more careful in minimizing the chances of losses occurring. Responsibility also makes employees take care of the property well and watch clients properly to avoid property destruction

References

Frazer, L. (2012). The effect of internal control on the operating activities of small restaurants. Journal of Business & Economics Research (JBER), 10(6), 361-374.

Hanks, G. (2018, July 27). Multistep Income Statement vs. Single-Step Statement [Blog post] Retrieved from https://smallbusiness.chron.com/multistep-income-statement-vs-singlestep-statement-80165.html