ayments: 1. Company cheques are not prenumbered and are kept in an unlocked file cabinet in the controller's office. 2. Cheques must be signed by the controller. 3. The purchasing agent verifies that the goods have been received, verifies the accuracy of the invoice, and authorizes the controller to issue a cheque for the purchase. 4. After the controller prepares and signs the cheque, she stamps the invoice "Paid" and files it. She then records the cheque in the journal. 5. Background checks are not conducted on personnel hired for senior positions such as the purchas-
ayments: 1. Company cheques are not prenumbered and are kept in an unlocked file cabinet in the controller's office. 2. Cheques must be signed by the controller. 3. The purchasing agent verifies that the goods have been received, verifies the accuracy of the invoice, and authorizes the controller to issue a cheque for the purchase. 4. After the controller prepares and signs the cheque, she stamps the invoice "Paid" and files it. She then records the cheque in the journal. 5. Background checks are not conducted on personnel hired for senior positions such as the purchas-
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Answer a and b. Show all work.
Transcribed Image Text:E7-5 The following control procedures are used in Centennial Bay General Merchandise for cash
payments:
1. Company cheques are not prenumbered and are kept in an unlocked file cabinet in the controller's
office.
2. Cheques must be signed by the controller.
3. The purchasing agent verifies that the goods have been received, verifies the accuracy of the invoice,
and authorizes the controller to issue a cheque for the purchase.
4. After the controller prepares and signs the cheque, she stamps the invoice "Paid" and files it. She
then records the cheque in the journal.
5. Background checks are not conducted on personnel hired for senior positions such as the purchas-
ing agent or controller.
6. The company owner is impressed with how hard the purchasing agent works. He hasn't taken a
vacation in two years.
7. Although the controller uses all of her vacation days each year, she uses them to take three-day
weekends from May through September. This ensures that she is never out of the office for long.
Instructions
(a) For each procedure, explain the weaknesses in internal control, and identify the control activity that
is violated.
(b) For each weakness, suggest a change in procedure that will result in good internal control.
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