Textbook Problem

Which of the following is not an example of an internal control system?

1. Maintain separate duties between cash handling and cash recording.
2. Make weekly deposits.
3. Keep petty cash locked up and under one person’s control.
4. Prenumber checks.
5. Endorse checks immediate upon receipt.

To determine

Identify the correct option that does not indicate an example of internal control system.

Answer to Problem 1QY

The correct answer is option (b).

Explanation of Solution

Internal control: Internal control is a process which ensures continuous reliability of accomplishment, of a company’s objectives, related to operations, financial reporting, and in conformity with laws and regulations.

Justification for correct answer: Cash deposits would be counted and hence, should be deposited daily, not weekly. Hence, depositing cash weekly is not an example of internal control system. Hence, option (b) is correct.

Justification for incorrect answers:

• Option (a) is incorrect because segregation of duties is an example of internal control system.
• Option (c) is incorrect because authorizing the control of petty cash fund to a single employee is an example of internal control system.
• Option (d) is incorrect because pre numbered checks is example of internal control system.
• Option (e) is incorrect because endorsement of check before depositing is an example of internal control system.

Conclusion

Therefore, option (b) is correct answer.