Theory

Ethics and internal control

Internal control is the set of checks that protects cash and stock, and ethics is doing the honest thing when a check is missing or when a personal gain clashes with the books.

CAPS

Grade 12 · Accounting · Theory

Accounting is a system: document, journal, ledger, then the statement.

The papers
Grade 12 Paper 1 is company financial statements, cash flow, and analysis with audit and ethics. Paper 2 is reconciliations, VAT, inventory and manufacturing or fixed assets as the paper sets them.
The logic
Assets equal owner’s equity plus liabilities. Every entry needs a source. VAT on sales is output VAT. VAT on qualifying purchases is input VAT. Profit is not the same as cash.
How a marker reads it
A common mix-up is to treat ethics as a slogan on the wall, or as an accounting equation. A control is a split in the work that would catch a missing amount.

Each paper is 150 marks. A foreign total that does not balance is wrong even if the individual entries look neat. Show the note or the calculation the face of the statement came from.

Worked theory

Worked theory. At a school tuck shop in Seshego, one learner used to take the cash, write the sales and prepare the deposit. In March the float was R400 short and the deposit slip matched the written sales, so the shortage was invisible. The teacher splits the work: one learner takes cash, another writes the sales sheet, and the teacher compares both to the bank deposit. The next shortage shows up the same day because the three records no longer come from one hand. The missing R400 was an internal-control failure, not a new kind of expense.

More worked examples

A supplier's gift
A buyer at a wholesaler in Germiston is offered R1 000 to choose one supplier's rice even though another quote is R2 cheaper a bag. Taking the money is a conflict of interest. The ethical step is to refuse and to record both quotes. The cheaper rice is the one the business should buy. A private gift that changes the order is not a discount.
The bookkeeper's bonus
A bookkeeper in Polokwane gets a bonus if profit looks higher than last year. She delays recording a R3 000 repairs bill until January. The December profit is overstated and the bonus is paid on a false figure. Matching and honesty both say the repair belongs in December. Moving the invoice is not a timing skill. It is a false statement.

In ordinary words

Division of duties means the person who handles cash is not the same person who records it or who agrees the bank statement. Documents are numbered and checked. A senior reviews journals. Ethics adds the duty to report a shortage, refuse a kickback, and not hide a loss to protect a bonus. A control that exists only on paper, while one person does every step, does not protect the business.

In South Africa

A Seshego school tuck shop, with one cash box and three different people checking it, is the control in daily use.

Part 1 / 4

What it is

Internal control is the set of checks that protects cash and stock, and ethics is doing the honest thing when a check is missing or when a personal gain clashes with the books.

More worked examples

Board walkthroughs on this topic. Open one, copy the working, then try the next.

Example 1 / 20

Case study: The cashier is also responsible for recording the cash receipts journal and banking. Identify the internal control weakness and suggest a solution.

How we got there

Read this like a teacher at the board. We go slowly, name every number, and say why we take each step.

Explain in another language · 11

1. What is the question asking?

Read the question twice. Circle the unknown. Underline every number and unit. The paper is asking: Case study: The cashier is also responsible for recording the cash receipts journal and banking. Identify the internal control weakness and suggest a solution.

In other words — as if you have never seen this before

If you have never seen this before: Division of duties. We will name a method in words, write the formula with no numbers, then substitute one line at a time.

2. What do we already know?

Same person handles cash and records.

3. Which method — and why this one?

Division of duties.

4. Step-by-step working

01 / 05
Explain
No division of duties: the cashier can steal cash and change records.
Why this step: We only do one job per line so a marker can follow the marks — and so you can find a slip without starting over.
02 / 05
Apply
Separate receiving, recording and banking; daily bank deposits; regular checks.
Why this step: We only do one job per line so a marker can follow the marks — and so you can find a slip without starting over.
03 / 05
Step G — Sense-check the size
Ask: is this the kind of number a Grade 10–12 paper would want? A speed of 3 000 ms for a learner walking, or a probability bigger than 1, means a unit or algebra slip. Estimate first: round the numbers and do the sum in your head.
Why this step: Markers write ‘unrealistic’ in the margin when the method is right but the size is wild. A 10-second head check often finds a missing 10² or a unit that never changed.
04 / 05
Step F — Box the answer with its unit
Lack of division of duties; separate tasks.
Why this step: A number without a unit is half a mark on a Physics paper, and a marker can miss a Maths answer that is buried in working.
05 / 05
Step H — What the marker is looking for
On an NSC memo you usually earn: (1) a method mark for naming the right formula or idea in words, (2) an accuracy mark for substituting the given numbers with units, (3) an accuracy mark for the boxed answer with its unit. Write those three lines even if you are unsure of the arithmetic — blank pages score zero.
Why this step: First-timers chase the final number and leave the method blank. The memo still pays out for the idea and the substitution even when the last line is wrong.

5. The answer

Lack of division of duties; separate tasks.

Copy onto your answer sheet — in this order

Answer: Lack of division of duties; separate tasks.

6. Check it like a marker

Rotate duties.

7. A trap first-timers fall into

First-timers often grab the first formula they remember, mix units (cm with m, minutes with seconds), or drop a minus sign. Write the formula in words first: “this equals that, because…”

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Manufacturing: production cost statement

Accounting

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