Howard Street Jewelry Accounting Case Study on Internal Controls

1002 Words Apr 26th, 2008 5 Pages
Howard Street Jewelry Accounting Case Study on Internal Controls 1. The main internal control concept the Levis ignored was segregation of duties. No one person should be responsible for all transactions from the beginning to the end. Betty had too many responsibilities that were interwoven and should have been performed by more than one person. She handled the cash that came in, maintained the cash receipts and the sales records. Another concept that this relates to is that no one individual should perform more than one of the following; recording transactions, authorizing transactions and maintaining custody over the assets. Betty was able to do all three; selling jewelry, putting items in layaway, recording sales, …show more content…
Even though this is a very small family owned business, an organizational structure is still necessary. This will provide a basis for planning, directing, and controlling operations of the jewelry store. This organizational structure will need to separate some responsibilities such as authorization of transactions, record keeping for transactions and custody of assets. The organizational structure, if successfully implemented, should lead to segregation of duties.

Physical controls include controls that provide physical security over both records and other assets. In the case of a small jewelry store, an example would be numbered invoice sheets
(sales receipts) so any skip in numbers would indicate that an employee may have pocketed the cash from the sale. The number on the receipt can trace it back to who the salesperson was and it would be very difficult to steal cash transactions. Physical security would be a safe for the layaway items, or locks on the cabinets with only selected employees having access to the keys.

The accounting information system would provide inventory controls, records of transactions and the database for the financial / accounting data. The AIS can provide daily cycle counts so an entire storewide inventory is not needed as often. If the cycle counts are above a certain percentage, then the physical inventory can be delayed.

The assignment of

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