Exercise 7-06 a The following control procedures are used in Bunny’s Boutique Shoppe for cash disbursements.(a) For each procedure, explain the weakness in internal control and identify the internal control principle that is violated. Procedure Weakness Principle Violated 1. Each week, 100 company checks are left in an unmarked envelope on a shelf behind the cash register. select a weakness The bank reconciliation is not independently preparedUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than onceThe approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesChecks are not stored in a secure area select a principle violated Physical controlsSegregation of dutiesDocumentation proceduresIndependent internal verificationEstablishment of responsibilityHuman resource controls 2. The store manager personally approves all payments before she signs and issues checks. select a weakness The approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesUnauthorized employees making purchasesChecks are not stored in a secure areaFiling does not prevent a bill from being paid more than onceThe bank reconciliation is not independently prepared select a principle violated Segregation of dutiesIndependent internal verificationEstablishment of responsibilityPhysical controlsHuman resource controlsDocumentation procedures 3 (i). The store purchases used goods for resale from people that bring items to the store. Since that can occur anytime that the store is open, all employees are authorized to purchase goods for resale by disbursing cash from the register. select a weakness The bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesThe approval and payment of bills is done by the same individualChecks are not stored in a secure areaUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than once select a principle violated Independent internal verificationEstablishment of responsibilityHuman resource controlsPhysical controlsDocumentation proceduresSegregation of duties 3 (ii). The purchase is documented by having the store employee write on a piece of paper a description of the item that was purchased and the amount that was paid. The employee then signs the paper and puts it in the register. select a weakness The bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure areaThe approval and payment of bills is done by the same individualUnauthorized employees making purchases select a principle violated Physical controlsHuman resource controlsSegregation of dutiesDocumentation proceduresIndependent internal verificationEstablishment of responsibility 4. After payment, bills are “filed” in a paid invoice folder. select a weakness The bank reconciliation is not independently preparedThe approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure area select a principle violated Physical controlsSegregation of dutiesEstablishment of responsibilityHuman resource controlsIndependent internal verificationDocumentation procedures 5. The company accountant who records cash transactions also prepares the bank reconciliation and reports any discrepancies to the owner. select a weakness Unauthorized employees making purchasesThe bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure areaThe approval and payment of bills is done by the same individual select a principle violated

Exercise 7-06 a The following control procedures are used in Bunny’s Boutique Shoppe for cash disbursements.(a) For each procedure, explain the weakness in internal control and identify the internal control principle that is violated. Procedure Weakness Principle Violated 1. Each week, 100 company checks are left in an unmarked envelope on a shelf behind the cash register. select a weakness The bank reconciliation is not independently preparedUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than onceThe approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesChecks are not stored in a secure area select a principle violated Physical controlsSegregation of dutiesDocumentation proceduresIndependent internal verificationEstablishment of responsibilityHuman resource controls 2. The store manager personally approves all payments before she signs and issues checks. select a weakness The approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesUnauthorized employees making purchasesChecks are not stored in a secure areaFiling does not prevent a bill from being paid more than onceThe bank reconciliation is not independently prepared select a principle violated Segregation of dutiesIndependent internal verificationEstablishment of responsibilityPhysical controlsHuman resource controlsDocumentation procedures 3 (i). The store purchases used goods for resale from people that bring items to the store. Since that can occur anytime that the store is open, all employees are authorized to purchase goods for resale by disbursing cash from the register. select a weakness The bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesThe approval and payment of bills is done by the same individualChecks are not stored in a secure areaUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than once select a principle violated Independent internal verificationEstablishment of responsibilityHuman resource controlsPhysical controlsDocumentation proceduresSegregation of duties 3 (ii). The purchase is documented by having the store employee write on a piece of paper a description of the item that was purchased and the amount that was paid. The employee then signs the paper and puts it in the register. select a weakness The bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure areaThe approval and payment of bills is done by the same individualUnauthorized employees making purchases select a principle violated Physical controlsHuman resource controlsSegregation of dutiesDocumentation proceduresIndependent internal verificationEstablishment of responsibility 4. After payment, bills are “filed” in a paid invoice folder. select a weakness The bank reconciliation is not independently preparedThe approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure area select a principle violated Physical controlsSegregation of dutiesEstablishment of responsibilityHuman resource controlsIndependent internal verificationDocumentation procedures 5. The company accountant who records cash transactions also prepares the bank reconciliation and reports any discrepancies to the owner. select a weakness Unauthorized employees making purchasesThe bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure areaThe approval and payment of bills is done by the same individual select a principle violated

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Exercise 7-06 a

The following control procedures are used in Bunny’s Boutique Shoppe for cash disbursements.

(a) For each procedure, explain the weakness in internal control and identify the internal control principle that is violated.

Procedure	Weakness	Principle Violated
1.	Each week, 100 company checks are left in an unmarked envelope on a shelf behind the cash register.	select a weakness The bank reconciliation is not independently preparedUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than onceThe approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesChecks are not stored in a secure area	select a principle violated Physical controlsSegregation of dutiesDocumentation proceduresIndependent internal verificationEstablishment of responsibilityHuman resource controls
2.	The store manager personally approves all payments before she signs and issues checks.	select a weakness The approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesUnauthorized employees making purchasesChecks are not stored in a secure areaFiling does not prevent a bill from being paid more than onceThe bank reconciliation is not independently prepared	select a principle violated Segregation of dutiesIndependent internal verificationEstablishment of responsibilityPhysical controlsHuman resource controlsDocumentation procedures
3 (i).	The store purchases used goods for resale from people that bring items to the store. Since that can occur anytime that the store is open, all employees are authorized to purchase goods for resale by disbursing cash from the register.	select a weakness The bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesThe approval and payment of bills is done by the same individualChecks are not stored in a secure areaUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than once	select a principle violated Independent internal verificationEstablishment of responsibilityHuman resource controlsPhysical controlsDocumentation proceduresSegregation of duties
3 (ii).	The purchase is documented by having the store employee write on a piece of paper a description of the item that was purchased and the amount that was paid. The employee then signs the paper and puts it in the register.	select a weakness The bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure areaThe approval and payment of bills is done by the same individualUnauthorized employees making purchases	select a principle violated Physical controlsHuman resource controlsSegregation of dutiesDocumentation proceduresIndependent internal verificationEstablishment of responsibility
4.	After payment, bills are “filed” in a paid invoice folder.	select a weakness The bank reconciliation is not independently preparedThe approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure area	select a principle violated Physical controlsSegregation of dutiesEstablishment of responsibilityHuman resource controlsIndependent internal verificationDocumentation procedures
5.	The company accountant who records cash transactions also prepares the bank reconciliation and reports any discrepancies to the owner.	select a weakness Unauthorized employees making purchasesThe bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure areaThe approval and payment of bills is done by the same individual	select a principle violated

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