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Evaluating internal control of cash The following procedures were recently installed by Raspberry Creek Company: A. After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher and supporting documentation to the accounts payable clerk for filing. B. The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting documentation is forwarded to the treasurer’s office for approval. C. Along with petty cash expense receipts for postage, office supplies, etc., several postdated employee checks are in the petty cash fund. D. At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages in their registers. E. At the end of each day, all cash receipts are placed in the bank’s night depository. F. At the end of each day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the deposit receipt obtained from the bank. G. All mail is opened by the mail clerk, who forwards all cash remittances to the cashier. The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts. H. The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer. Instructions Indicate whether each of the procedures of internal control over cash represents (1) a strength or (2) a weakness. For each weakness, indicate why it exists.

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 7, Problem 1PA
Textbook Problem
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Evaluating internal control of cash

The following procedures were recently installed by Raspberry Creek Company:

  1. A. After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher and supporting documentation to the accounts payable clerk for filing.
  2. B. The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting documentation is forwarded to the treasurer’s office for approval.
  3. C. Along with petty cash expense receipts for postage, office supplies, etc., several postdated employee checks are in the petty cash fund.
  4. D. At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages in their registers.
  5. E. At the end of each day, all cash receipts are placed in the bank’s night depository.
  6. F.  At the end of each day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the deposit receipt obtained from the bank.
  7. G. All mail is opened by the mail clerk, who forwards all cash remittances to the cashier. The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts.
  8. H. The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer.

Instructions

Indicate whether each of the procedures of internal control over cash represents (1) a strength or (2) a weakness. For each weakness, indicate why it exists.

To determine

Indicate whether the procedures of internal control over cash represent strength or weakness.

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.

The following are the internal control principles:

  • ■ Authorizing the responsibility
  • ■ Segregation of duties
  • ■ Documenting and recording transactions
  • ■ Physical controls
  • ■ Periodic independent verification
  • ■ Human resource controls

(1) The internal control procedures a, b, e, and f are the strengths over the cash.

(2) The following are the weakness in the internal control procedures over the cash:

(c)  Employees must be strictly not allowed to use the petty cash fund for personal expenses. Also, post-dated checks should not be accepted.

(d) When the clerks require using their own funds to make the cash shortages in their register, then they attempt to short-change the customers. This is done to avoid any shortages at the end of day...

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Chapter 7 Solutions

Financial And Managerial Accounting
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