Internal Control: Internal control refers to the policies, and plans of the business organization along with other measures with a view to safeguard its assets, encourage the employees to adhere to the plans, to improve on the operational efficiency, and to ensure correct and reliable accounting information. Five elements of internal control are as below: Control Environment: Control Environment refers to the attitude of top brass of the company or the corporate culture. The top brass of the company must set the tone to improve the morale for rest of the employees of the business. Risk assessment: The business must be able identify the risk associated with it, and accordingly use the internal control to safeguard its assets and ensures fairness in presentation in accounting information. Control procedures: The objective of setting the control procedure is to ensure that the business achieves its objectives. Monitoring controls: The internal control used in the business is being monitored by the internal auditors who are hired by the business, to ensure that the employees are adhering to the policies of the business and running the operations efficiently. The external auditors on the other hand ensures that the business accounting records are being maintained in accordance with the Generally Accepted Accounting Principles (GAAP). Information and communication: Information and communication system is important for a business and hence only authorized persons should be allowed the access to the confidential accounting information. Approvals are also should be made mandatory for the transactions by the control system. To identify: The internal control weakness which exists in B and B and ways that will prevent the theft.

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Chapter 7, Problem 7.10EX

To determine

Internal Control: Internal control refers to the policies, and plans of the business organization along with other measures with a view to safeguard its assets, encourage the employees to adhere to the plans, to improve on the operational efficiency, and to ensure correct and reliable accounting information.

Five elements of internal control are as below:

Control Environment: Control Environment refers to the attitude of top brass of the company or the corporate culture. The top brass of the company must set the tone to improve the morale for rest of the employees of the business.

Risk assessment: The business must be able identify the risk associated with it, and accordingly use the internal control to safeguard its assets and ensures fairness in presentation in accounting information.

Control procedures: The objective of setting the control procedure is to ensure that the business achieves its objectives.

Monitoring controls: The internal control used in the business is being monitored by the internal auditors who are hired by the business, to ensure that the employees are adhering to the policies of the business and running the operations efficiently. The external auditors on the other hand ensures that the business accounting records are being maintained in accordance with the Generally Accepted Accounting Principles (GAAP).

Information and communication: Information and communication system is important for a business and hence only authorized persons should be allowed the access to the confidential accounting information. Approvals are also should be made mandatory for the transactions by the control system.

To identify: The internal control weakness which exists in B and B and ways that will prevent the theft.

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Identifying internal control weakness in cash receipts Pendley Productions makes all sales on credit. Cash receipts arrive by mail. Larry Chipcllo, the mailroom clerk, opens envelopes and separates the checks from the accompanying remittance advice. Chipello forwards the checks to another employee, who makes the daily bank deposit but has no access to the accounting records. Chipello sends the remittance advice, which shows cash received, to the accounting department for entry in the accounts. Chipello’s only other duty is to grant sales allowances to customers. (A sales allowance decreases the customer’s account receivable.) When Chipello receives a customer check for $575 less than a $45 allowance, he records the sales allowance and forwards the document to the accounting department. Requirements Identify the internal control weakness in this situation. Who should record sales allowances? What is the amount that should be shown in the ledger for cash receipts?

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