Levy Pizza Company sell pizzas. Customers’ ordered pizzas by calling the company fulfil the order by delivering through their delivery man. LPC has a large number of receivable balances, and these customers pay by cheque or cash, which is received by the delivery man, other payments are received via debit and credit cards. The following procedures are applied to the cash received cycle: 1. A junior clerk from the accounts department takes the cash and if any cheques from the delivery man, she records the receipts in the cash received log and then places all the monies into the locked small cash box. 2. The contents of the cash box are counted each day and every few days these sums are banked by whichever member of the finance team is available. 3. The cashier records the details of the cash received log into the cash receipts daybook and also updates the sales ledger. 4. Usually on a monthly basis the cashier performs a bank reconciliation, which he then files, if he misses a month then he catches this up in the following month’s reconciliation. For the cash cycle of LPC: (i) Identify and explain THREE deficiencies in the system. (ii) Suggest controls to address each of these deficiencies. (iii) List tests of controls the auditor of LPC would perform to assess if the controls are operating effectively. (iv) Why is cash control of vital important when the auditor is carrying out his audit on a client? NB: Plase answer question i-iv
Levy Pizza Company sell pizzas. Customers’ ordered pizzas by calling the company fulfil the order by delivering through their delivery man. LPC has a large number of receivable balances, and these customers pay by cheque or cash, which is received by the delivery man, other payments are received via debit and credit cards. The following procedures are applied to the cash received cycle:
1. A junior clerk from the accounts department takes the cash and if any cheques from the delivery man, she records the receipts in the cash received log and then places all the monies into the locked small cash box.
2. The contents of the cash box are counted each day and every few days these sums are banked by whichever member of the finance team is available.
3. The cashier records the details of the cash received log into the cash receipts daybook and also updates the sales ledger.
4. Usually on a monthly basis the cashier performs a bank reconciliation, which he then files, if he misses a month then he catches this up in the following month’s reconciliation.
For the cash cycle of LPC:
(i) Identify and explain THREE deficiencies in the system.
(ii) Suggest controls to address each of these deficiencies.
(iii) List tests of controls the auditor of LPC would perform to assess if the controls are operating effectively.
(iv) Why is cash control of vital important when the auditor is carrying out his audit on a client?
NB: Plase answer question i-iv
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