Internal control procedures Dave’s Scooters is a small manufacturer of specialty scooters. The company employs 14 production workers and four administrative persons. The following procedures are used to process the company’s weekly payroll: a. Whenever an employee receives a pay raise, the supervisor must fill out a wage adjustment form, which is signed by the company president. This form is used to change the employee’s wage rate in the payroll system. b. All employees are required to record their hours worked by clocking in and out on a time clock. Employees must clock out for lunch break. Due to congestion around the time clock area at lunch time, management has not objected to having one employee clock in and out for an entire department. c. Whenever a salaried employee is terminated, Personnel authorizes Payroll to remove the employee from the payroll system. However, this procedure is not required when an hourly worker is fired. Hourly employees only receive a paycheck if their timecards show hours worked. The computer automatically drops an employee from the payroll system when that employee has six consecutive weeks with no hours worked. d. Paychecks are signed using a check-signing machine. This machine is located in the main office so that it can be easily accessed by anyone needing a check signed. e. Dave’s Scooters maintains a separate checking account for payroll checks. Each week the total net pay for all employees is transferred from the company’s regular bank account to the payroll account. State whether each of the procedures is appropriate or inappropriate, after considering the principles of internal control. If a procedure is inappropriate, describe the appropriate procedure.

BuyFind

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
BuyFind

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

Solutions

Chapter 11, Problem 16E
Textbook Problem

Internal control procedures

Dave’s Scooters is a small manufacturer of specialty scooters. The company employs 14 production workers and four administrative persons. The following procedures are used to process the company’s weekly payroll:

  1. a. Whenever an employee receives a pay raise, the supervisor must fill out a wage adjustment form, which is signed by the company president. This form is used to change the employee’s wage rate in the payroll system.
  2. b. All employees are required to record their hours worked by clocking in and out on a time clock. Employees must clock out for lunch break. Due to congestion around the time clock area at lunch time, management has not objected to having one employee clock in and out for an entire department.
  3. c. Whenever a salaried employee is terminated, Personnel authorizes Payroll to remove the employee from the payroll system. However, this procedure is not required when an hourly worker is fired. Hourly employees only receive a paycheck if their timecards show hours worked. The computer automatically drops an employee from the payroll system when that employee has six consecutive weeks with no hours worked.
  4. d. Paychecks are signed using a check-signing machine. This machine is located in the main office so that it can be easily accessed by anyone needing a check signed.
  5. e. Dave’s Scooters maintains a separate checking account for payroll checks. Each week the total net pay for all employees is transferred from the company’s regular bank account to the payroll account.

Chapter 11, Problem 16E, Internal control procedures Daves Scooters is a small manufacturer of specialty scooters. The State whether each of the procedures is appropriate or inappropriate, after considering the principles of internal control. If a procedure is inappropriate, describe the appropriate procedure.

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Chapter 11 Solutions

Financial Accounting
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