Ch 3 HW

docx

School

University of Houston, Victoria *

*We aren’t endorsed by this school

Course

4321

Subject

Accounting

Date

Apr 3, 2024

Type

docx

Pages

Uploaded by CountOtterMaster3243

ACCT 4321 Ch. 3 HW Yasmin Castro 3-17 Brown Company provides office support services for more than 100 small clients. These services include supplying temporary personnel, providing monthly bookkeeping services, designing and printing small brochures, copying and reproduction services, and preparing tax reports. Some clients pay for these services on a cash basis, some use thirty-day charge accounts, and others operate on a contractual basis with quarterly payments. Brown's new office manager was concerned about the effectiveness of control procedures over sales and cash flow. At the manager's request, the process was reviewed by conducting a walkthrough. The following facts were identified. Review the identified facts (listed as A through L) and complete the following. a. What is a walkthrough, and why would it be useful for assessing controls over sales and cash flow? A walkthrough is a process where the management or auditor to follow the transaction from beginning through the organization’s processes until it is reflected in the organization’s financial records to see if the controls are effective and applied. I believe that this is useful for assessing controls over sales and cash flow because it gives the users such as management and the company to see a clearer picture of the transactions made, if they find some errors, it can be changed if needed. b. List at least eight elements of ineffective internal control at Brown Company. 1. Lack of segregation of duties: Contracts are written by account executives and passed to the accounts receivable department without proper checks and balances. 2. Absence of detailed documentation: The company lacks detailed documentation for some transactions, making it challenging to track and verify the completeness and accuracy of the information. 3. Limited control over contract payments: While contract payments are identified on the contract, there is no indication of a systematic review or verification process to ensure accurate and timely payments. 4. Inconsistent handling of transactions: Different services, such as bookkeeping and design/printing, are treated inconsistently in terms of billing and recording, leading to a lack of uniformity in control procedures. 5. Weakness in cash handling: The company's handling of cash transactions, especially in reproduction work, lacks consistency, and there is room for error or mismanagement. 6. Inadequate monitoring of open accounts: For transactions on open accounts, there is a lack of systematic monitoring and follow-up to ensure timely payment. 7. Limited reconciliation procedures: The absence of regular reconciliations, especially in matching cash receipts with accounts receivable evidence, increases the risk of errors and discrepancies.

ACCT 4321 Ch. 3 HW Yasmin Castro 8. Insufficient controls over financial statement marking: The process of marking financial statements as "Unpaid" without a systematic follow-up process may lead to delays in cash collections. c. List at least six elements of effective internal control at Brown Company. 1. Contracts with limitations: Contracts have limitations on services and payment amounts, providing a structured framework for business transactions. 2. Payment receipts and contract file organization: The use of payment receipts and organized contract files enhances tracking and verification of contract payments. 3. Periodic contract file reviews: Regular reviews of contract files help determine their status, ensuring that the company stays informed about the progress and compliance of ongoing contracts. 4. Work order documentation: Work orders related to contract services are documented, and accounting entries are appropriately recorded, enhancing transparency and accountability. 5. Timely handling of cash sales: Daily deposits of cash sales demonstrate a commitment to timely and secure handling of cash transactions. 6. Documentation for unpaid invoices: The practice of marking financial statements as "Unpaid" and placing them in a cash-pending file provides visibility, reminding the company to follow up on outstanding payments. A. Contracts were written by account executives and then passed to the accounts receivable department, where they were filed. Contracts had a limitation (ceiling) on the types of services and the amount of work covered. Contracts were payable quarterly in advance. B. Client periodic payments on contracts were identified on the contract, and a payment receipt was placed in the contract file. C. Periodically, a clerk reviewed the contract files to determine their status. D. Work orders relating to contract services were placed in the contract file. Accounting records showed Debit Cost of Services; Credit Cash or Accounts Payable or Accrued Payroll entry. E. Monthly bookkeeping services were usually paid for when the work was complete. If not paid in cash, a copy of the financial statement (marked "Unpaid___") was put into cash-pending file. It was removed when cash was received, and accounting records showed Debit Cash; Credit Revenue entry. F. Design and printing work was handled like bookkeeping's work. However, a design and printing order form was used to accumulate costs and compute the charge to be

ACCT 4321 Ch. 3 HW Yasmin Castro made to the client. A copy of the order form served as a billing to the client and, when cash was received, as a remittance advice. G. Reproduction (copy) work was generally a cash transaction that was rung up on a cash register and balanced at the end of the day. Some reproduction work was charged to open accounts. A billing form was given to the client with the work, and a copy was put in an open file. It was removed when paid. In both cases, when cash was received, the accounting entry was Debit Cash; Credit Revenue. H. Tax work was handled like the bookkeeping services. I. Cash from cash sales was deposited daily. Cash from receipts on account or quarterly payments on contracts was deposited after being matched with the evidence of the receivable. J. Bank reconciliations were performed using the deposit slips as original data for the deposits on the bank statements. K. A cash log of all cash received in the mail was maintained and used for reference purposes when payment was disputed. L. Monthly comparisons were made of the costs and revenues of printing, design, bookkeeping, and tax service. Unusual variations between revenues and costs were investigated. However, the handling of deferred payments made this analysis difficult. 3-20 For each of the following situations (indicated A through E), evaluate the segregation of duties implemented by the company and indicate the following: a. Any deficiency in the segregation of duties described. (Indicate "None" if no deficiency is present.) b. The potential financial statement misstatements that might occur because of the inadequate segregation of duties. c. Additional controls that might mitigate potential misstatements. A. The company's payroll is computerized and is handled by one person in charge of payroll who enters all weekly time reports into the system. The payroll system is password protected so that only the payroll person can change pay rates or add/delete company personnel to the payroll file. Payroll checks are prepared weekly, and the payroll person batches the checks by supervisor or department head for subsequent distribution to employees. A, B & C B. A relatively small organization has segregated the duties of cash receipts and cash disbursements. However, the employee responsible for handling cash receipts also reconciles the monthly bank account. A, B & C

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

ACCT 4321 Ch. 3 HW Yasmin Castro C. Nick's is a small family-owned restaurant in a northern resort area whose employees are trusted. When the restaurant is very busy, any of the servers have the ability to operate the cash register and collect the amounts due from the customer. All orders are tabulated on "tickets." Although each ticket has a place to indicate the server, most do not bother to do so, nor does management reconcile the ticket numbers and amounts with total cash receipts for the day. A & C D. A sporting goods store takes customer orders via a toll-free phone number. The order taker sits at a terminal and has complete access to the customer's previous credit history and a list of inventory available for sale. The order clerk has the ability to input all the customer's requests and generate a sales invoice and shipment with no additional supervisory review or approval. A, B & C E. The purchasing department of Big Dutch is organized around three purchasing agents. The first is responsible for ordering electrical gear and motors, the second orders fabrication material, and the third orders nuts and bolts and other smaller supplies that go into the assembly process. To improve the accountability to vendors, all receiving slips and vendor invoices are sent directly to the purchasing agent placing the order. This allows the purchasing agent to better monitor the performance of vendors. When approved by the purchasing agent for payment, the purchasing agent must forward (a) a copy of the purchase order, (b) a copy of the receiving slip, and (c) a copy of the vendor invoice to accounts payable for payment. Accounts payable will not pay an invoice unless all three items are present and match as to quantities, prices, and so forth. The receiving department reports to the purchasing department. None