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Identify the principles of internal control inherent in the maker checker procedure used

  • Independent internal verification because the request for replenishment must be approved before the check is written;
  • Discuss the basic principles of cash management.

Define fraud and internal control activities. Identify the principles of internal control. Explain the applications of internal control principles to cash receipts.

Explain the applications of internal control principles to cash disbursements. Prepare a bank reconciliation. Explain the reporting of cash. Discuss the basic principles of cash management. Identify the primary elements of a cash budget.

Explain the operation of a petty cash fund. Do It Review Exercises 3. Identify internal control weaknesses in cash receipts and cash disbursements. Prepare bank reconciliation and adjusting entries.

Prepare bank reconciliation and adjusting entries from detailed data. Prepare a bank reconciliation and adjusting entries. Prepare a cash budget. Prepare comprehensive bank reconciliation with theft and internal control deficiencies. Identify internal control principles for cash disbursements. Identify internal control weaknesses in cash receipts. Fraud is dishonest act by an employee that results in personal benefit to the employee at a cost to the employer.

The three main factors that contribute to employee fraud are opportunity, financial pressure, and rationalization. Opportunities that an employee can take advantage of occur when the workplace lacks sufficient controls to deter and detect fraud.

Financial pressure occurs when employees want to lead a lifestyle that they cannot afford on their current salary. Rationalization involves employees justifying fraud because they believe they are underpaid while their employer is making lots of money. The five components of a good internal control system are: Internal control is also concerned with the safeguarding of company assets, increasing efficiency of operations, and ensuring compliance with laws and regulations.

The Sarbanes-Oxley Act requires that a company develop sound principles of control over financial reporting and continually verify that these controls are working. In order to achieve and maintain the required level of control, all employees must be educated with regard to internal control principles and evaluated for compliance with expected procedures on a regular basis.

The principles of internal control are: This is a violation of the internal control principle of establishing responsibility. In this case, each sales clerk should have a separate cash register or cash register drawer. The two applications of segregation of duties are: Documentation procedures contribute to good internal control by providing evidence of the occurrence of transactions and events and, when signatures or initials are added, the documents establish responsibility for the transactions.

Expert's Answer

The prompt transmittal of documents to accounting contributes to recording transactions in the proper period, and the prenumbering of documents helps to ensure that a transaction is not recorded more than once or not at all.

Safes, vaults, and locked warehouses contribute to the safeguarding of company assets. Cash registers and computerized accounting equipment contribute to the accuracy and reliability of the accounting records, and electronic burglary systems and sensors help to safeguard assets.

  1. Post-dated check—Accounts Receivable; Balance Sheet 7.
  2. Cash equivalents may be reported with cash in the current asset section of the balance sheet.
  3. Checks paid by bank in November.................................. We would be pleased to discuss the weaknesses and our recommended improvements with you, at your convenience.

Ordinarily, a system of internal control provides reasonable but not absolute assurance, since absolute assurance would be too costly. A good system may become ineffective as the result of employee fatigue, carelessness, or indifference. Moreover, internal control may become ineffective as a result of collusion.

How do you identify the principles of internal control?

Daily cash counts pertain primarily to the principles of segregation of duties, documentation procedures, and independent internal verification. Daily cash counts also involve the establishment of responsibility for performing the counts. Cash registers are readily visible to the customer.

Thus, they prevent the sales clerk from ringing up a lower amount and pocketing the difference. In addition, the customer receives an itemized receipt, and the cash register tape is locked into the register for further verification, providing documentation and enabling independent internal verification.

Payment by check contributes to effective internal control over cash disbursements. However, effective control is also possible when small payments are made from petty cash. The procedure and related principle are: Procedure 1 Treasurer signs checks. Electronic funds transfer is a cash disbursement system that uses wire, telephone, or computers to transfer cash from one location to another.

A bank contributes significantly to internal control over cash because it: The lack of agreement between the balances may be due to either: The basic principles of cash management are: Cash equivalents are short-term highly liquid investments that may be converted to a specific amount of cash. Cash equivalents may be reported with cash in the current asset section of the balance sheet.

It reported no restricted cash. Establishment of responsibility for custody of the fund. Documentation procedures because the custodian must use a prenumbered petty cash receipt. Independent internal verification because the request for replenishment must be approved before the check is written.

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Entries are also required when the size of the fund is increased or decreased. An application for Birk Co. Increase efficiency of operations. An application is assignment of responsibility to specific employees. Ensure compliance with laws and regulations. All of these purposes are important to the success of any business endeavor.

  • The principle of independent internal verification has been violated because the cashier prepared the bank reconciliation;
  • Checks clearing bank in September;;;;;;;;;;;;
  • This financing can be very expensive.

Cash Over and Short. It also is used in making periodic independent bank reconciliations. Bank service charge—deducted from cash balance per books. Collection of note by bank—added to cash balance per books. Deposit in transit—added to cash balance per bank. Adjusted cash balance per bank. Checks paid by bank in November. Checks outstanding at the end of November. Checks written in December.

Checks paid by bank in December. Checks outstanding at the end of December. Plant expansion fund cash should be reported as a noncurrent asset, assuming the fund is not expected to be used during the next year. Excess of available cash over cash disbursements. Violates the control activity of documentation procedures. Source documents should be promptly forwarded to the accounting department so accounting entries can be made.

This control activity helps to ensure timely recording of sales transactions and contributes directly to the accuracy and reliability of the accounting records. Violates the control activity of segregation of duties.

Different individuals should be responsible for related activities, such as these three related purchasing activities. Many abuses could occur: Violates the control activity of establishment of responsibility. Deduct from balance per bank. A deposit in transit: Add to balance per bank. The bank charged to our account a check written by another company: A debit memorandum for a bank service charge: Deduct from balance per books.

Cash receipts for September. Cash disbursements for September. Excess deficiency of available cash over cash disbursements.

The employee records the transactions. The supervisor verifies and approves the transactions. Access to the computer system is password-protected and task-specific.

The counter clerk is responsible for handling cash. Other employees are responsible for making the pizzas. Employees who make the pizzas do not handle cash. The counter clerk uses your order invoice ticket in registering the sale on the cash register.