Horngren's Financial & Managerial Accounting, The Financial Chapters (6th Edition)
6th Edition
ISBN: 9780134486840
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 7.12E
a.
To determine
To Define: The internal control.
b.
To determine
To identify: The law or rule requires the testing of the internal control by the external auditors.
c.
To determine
To Identify: The strength or weakness of the internal control in the given situations with explanations.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Determine whether each cash receipts procedure is an internal control strength or weakness.
Cash receipts
1. If a sales clerk makes an error in recording a cash sale, they can access the register's electronic record to correct the transaction.
2. One of the two employees tasked with opening mail is also the recordkeeper for the business.
3. The supervisor has access to both cash and the accounting records.
4. Receipts are given to customers for only sales that are above $20.
5. Sales clerks are not required to enter the sale in the register after each transaction. Instead, the company gives employees flexibility to enter
sales at the end of the day or week.
6. The recordkeeper of cash transactions is also in charge of depositing cash receipts in the bank.
Strength or
Weakness
Below are descriptions of internal control problems. In the space to the left of each item, enter the code letter of th
best internal control principle that is related to the problem described.
Internal Control Principles
A. Establishment of responsibility
B. Segregation of duties
C. Physical control devices
D. Documentation procedures
E.
Independent internal verification
F.
Human resource controls
1.The same person opens incoming mail and records the cash receipts.
2. Three people handle cash sales from the same cash register drawer.
3. A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out o
the store without paying for the merchandise.
4. The person who is authorized to sign checks approves purchase orders for payment
5. Some cash payments are not recorded because checks are not pre-numbered.
6. Cash shortages are not discovered because there are no daily cash counts by supervisors.
7. The treasurer of the company has not…
Each situation below describes an internal control weakness in the cash payments process. Identifywhich of the five internal control principles is violated, explain the weakness, and then suggest achange that would improve internal control.a. The warehouse clerk is responsible for ordering inventory when levels become low and advising the accounting department to issue a payment to the supplier when ordered goods arereceived.b. For each purchase, the accountant compares the purchase order (prepared by the purchasing manager) to the receiving report (prepared by warehouse employees) and then attachesthese documents to the corresponding supplier invoice and files them by supplier name. Theaccountant then prepares a check, which the owner merrily signs and sends to the mail clerkfor mailing.c. The check-signing machine is stored with a supply of blank checks in the lunch room closet.d. Purchase orders can be approved by the purchasing manager, accountant, or warehouse supervisor,…
Chapter 7 Solutions
Horngren's Financial & Managerial Accounting, The Financial Chapters (6th Edition)
Ch. 7 - Prob. 1QCCh. 7 - Prob. 2QCCh. 7 - Prob. 3QCCh. 7 - Prob. 4QCCh. 7 - Prob. 5QCCh. 7 - Prob. 6QCCh. 7 - Prob. 7QCCh. 7 - Prob. 9QCCh. 7 - Prob. 10QCCh. 7 - Prob. 11QC
Ch. 7 - Prob. 1RQCh. 7 - Prob. 2RQCh. 7 - What are the five components of internal control?...Ch. 7 - Prob. 4RQCh. 7 - What is separation of duties?Ch. 7 - Prob. 6RQCh. 7 - Prob. 7RQCh. 7 - Prob. 8RQCh. 7 - How do businesses control cash receipts by mail?Ch. 7 - Prob. 10RQCh. 7 - Prob. 11RQCh. 7 - Prob. 12RQCh. 7 - Prob. 14RQCh. 7 - Prob. 15RQCh. 7 - Prob. 16RQCh. 7 - Prob. 17RQCh. 7 - Prob. 18RQCh. 7 - Defining internal control Internal controls are...Ch. 7 - Prob. 7.2SECh. 7 - Prob. 7.3SECh. 7 - Prob. 7.4SECh. 7 - Prob. 7.5SECh. 7 - Prob. 7.7SECh. 7 - Prob. 7.8SECh. 7 - Prob. 7.9SECh. 7 - Prob. 7.10SECh. 7 - Prob. 7.11SECh. 7 - Prob. 7.12ECh. 7 - Prob. 7.13ECh. 7 - Prob. 7.14ECh. 7 - Evaluating internal control over cash payments...Ch. 7 - Understanding internal control, components,...Ch. 7 - Prob. 7.17ECh. 7 - Prob. 7.18ECh. 7 - Prob. 7.20ECh. 7 - Prob. 7.21ECh. 7 - Prob. 7.23APCh. 7 - Prob. 7.24APCh. 7 - Prob. 7.25APCh. 7 - Prob. 7.26APCh. 7 - Prob. 7.27APCh. 7 - Prob. 7.28APCh. 7 - Prob. 7.29BPCh. 7 - Prob. 7.30BPCh. 7 - Prob. 7.31BPCh. 7 - Prob. 7.32BPCh. 7 - Prob. 7.33BPCh. 7 - Prob. 7.34BPCh. 7 - Prob. 7.2DCCh. 7 - Levon Helm was a kind of one-man mortgage broker....Ch. 7 - Prob. 7.1CA
Knowledge Booster
Similar questions
- There are several elements to internal controls. Which of the following would not address the issue of having cash transactions reported in the accounting records? A. One employee would have access to the cash register. B. The cash drawer should be closed out, and cash and the sales register should be reconciled on a prenumbered form. C. Ask customers to report to a manager if they do not receive a sales receipt or invoice. D. The person behind the cash register should also be responsible for making price adjustments.arrow_forwardA company is trying to set up proper internal controls for their accounts payable/inventory purchasing system. Currently the purchase order is generated by the same person who receives the inventory. Together the purchase order and the receiving ticket are sent to accounts payable for payment. What changes would you make to improve the internal control structure? A. No changes would be made since the person paying the bills is different from the person ordering the inventory. B. The person in accounts payable should generate the purchase order. C. The person in accounts payable should generate the receiving ticket once the invoice from the supplier is received. D. The responsibilities of generating the purchase order and receiving the inventory should be separated among two different people.arrow_forwardInternal control is said to be the backbone of all businesses. Which of the following is the best description of internal controls? A. Internal controls ensure that the financial statements published are correct. B. The only role of internal controls is to protect customer data. C. Internal controls and company policies are important to protect and safeguard assets and to protect all company data and are designed to protect the company from fraud. D. Internal controls are designed to keep employees from committing fraud against the company.arrow_forward
- Which of the following is false about accounting information systems? A. They provide reports that people analyze. B. They prevent errors and stop employees from stealing inventory. C. They are designed to gather data about the companys transactions. D. They consist of processes that involve input of data from source documents, processing, output, and storage.arrow_forwardAt Carlson Services, the cashier collects checks and cash from customers, and the junior accountant records the transactions in the journal. The controller approves the journal entries and bank reconciliations. The treasurer signs checks and approves contracts. Which internal control procedure is exemplified in the above situation? OA. separation of duties OB. assignment of responsibilities OC. documents OD. competent, reliable, and ethical personnelarrow_forwardDetermine whether each cash receipts procedure is an internal control strength or weakness. 1. If a salesclerk makes an error in recording a cash sale, she can access the register’s electronic record to correct the transaction. 2. All sales transactions, even those for less than $1, are recorded on a cash register. 3. Two employees are tasked with opening mail that contains cash receipts. 4. One of the two employees tasked with opening mail is also the recordkeeper for the business. 5. The supervisor has access to both cash and the accounting records. 6. Receipts are given to customers only for sales that are above $20.arrow_forward
- At Radiant, Inc., the sales department is also responsible for recording cash transactions as it does not have a separate accounting department. Which internal control procedure needs strengthening? A. separation of duties B. competent, reliable, and ethical personnel C. assignment of responsibilities D. documentsarrow_forwardA company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows: Employee Responsibility Clerk 1 Reviews vendor invoices for proper signature approval Clerk 2 Enters vendor invoices into the accounting system and verifies payment terms Clerk 3 Posts entered vendor invoices to the accounts payable ledger for payment and mails checks. Treasurer Reviews the vendor invoices and signs each check. Which of the following would indicate a weakness in the company’s internal control?a. Clerk 1 opens all of the incoming mail.b. Clerk 2 reconciles the accounts payable ledger with the general ledger monthly.c. Clerk 3 mails the checks and remittances after they have been signed.d. The treasurer uses a stamp for signing checks.arrow_forwardWhich of the following is an example of poor internal control in an organization?a. The company rotates employees through various jobs.b. The accounting department compares goods received with the related purchase order.c. The mailroom clerk records daily cash receipts in the journal.d. Employees must take vacations.arrow_forward
- Which of the following internal controls is the most effective in preventing employees from using company funds to purchase personal items? A. Adequate separation of duties between the cash receipts and the recording of cash receipts. B. Cash reconciliations are performed daily. C. The purchase requisition forms are required for all purchases and the warehouse staff check the deliveries against the approved purchase requisition forms to make sure the delivered items match the pre-approved orders. D. Cash payments need to be approved based on supporting documents, such as purchase orders and receiving reports. E. purchase requisition forms are pre-numbered, and their sequence is accounted for.arrow_forwardWhole Fruits Market took the following actions to improve internal controls. For each of the following actions, select the internal control principle the company followed. a. Personal ID cards are used to limit access to only authorized employees. b. The company divides responsibility for a transaction between multiple departments. c. Each cashier is designated a specific cash drawer and is solely responsible for cash in that drawer. d. Purchased an insurance (bonding) policy against losses from theft by a cashier. e. To ensure equipment theft does not go undetected, detailed accounting records are kept. f. The company's internal auditors frequently assess the performance of internal controls.arrow_forwardRosenquist Company has the following internal control procedures over cash receipts. Identify the internal control principle that is applicable to each procedure. a. All over-the-counter receipts are entered in cash registers. Human Resource Controls Segregation of Duties Establishment of Responsibility Independent Internal Verification b. All cashiers are bonded. Documentation Procedures Physical Controls C. Daily cash counts are made by cashier department supervisors. The duties of receiving cash, recording cash, and custody of cash are assigned to d. different individuals. e. Only cashiers may operate cash registers.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCentury 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Century 21 Accounting Multicolumn Journal
Accounting
ISBN:9781337679503
Author:Gilbertson
Publisher:Cengage
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,