Horngren's Financial & Managerial Accounting (6th Global Edition)
6th Edition
ISBN: 9780134486833
Author: Tracie L. Miller-Nobles, Brenda L. Mattison
Publisher: Pearson Global Edition
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Question
Chapter 7, Problem 7.13E
To determine
Internal Control: Internal control refers to the policies, and plans of the business organization along with other measures with a view to safeguard its assets, encourage the employees to adhere to the plans, to improve on the operational efficiency, and to ensure correct and reliable accounting information.
To Identify: The missing internal control procedure from the given characteristics.
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Identifying internal controls
Consider each situation separately. Identify the missing internal control procedure from these characteristics:
Assignment of responsibilities
Separation of duties
Audits
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Other controls (specify)
a. While reviewing the records of Quality Pharmacy, you find that the same employee orders merchandise and approves invoices for payment.
b. Business is slow at Amazing Amusement Park on Tuesday, Wednesday, and Thursday nights. To reduce expenses, the business decides not to use a ticket taker on those nights. The ticket seller (cashier) is told to keep the tickets as a record of the number sold.
c. The same trusted employee has served as a cashier for 12 years.
d. When business is brisk, Fast Mart deposits cash in the bank several times during the day. The manager at one store wants to reduce the time employees spend delivering cash to the bank, so he starts a new policy. Cash will build up over weekends, and the total will be deposited on…
Determine whether each procedure described below is an internal control strength or weakness; then identify the internal control principle violated or followed for each procedure. 1. The same employee requests, records, and makes payment for purchases of inventory. 2. The company saves money by having employees involved in operations perform the only review of internal controls. 3. Time is saved by not updating records for use of supplies. 4. The recordkeeper is not allowed to write checks or initiate EFTs. 5. Each salesclerk is in charge of her own cash drawer.
Which situation indicates a weak internal control structure?a. the AR clerk authorizes the write off of bad debtsb. the record-keeping clerk maintains both AR and AP subsidiary ledgersc. the inventory control clerk authorizes inventory purchasesd. the AR clerk prepares customer statements every month
Chapter 7 Solutions
Horngren's Financial & Managerial Accounting (6th Global 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
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Similar questions
- Assume that management is gathering evidence as part of its process for assessing the effectiveness of internal control over financial reporting. The company is a manufacturer of high-dollar specialized Control Tested machines used in the medical profession. The following table identifies important controls that management is testing regarding accounts related to revenue recognition, accounts receivable, and other sales related activities. The first column describes the control, and the second column describes the test results. Based on the test results, determine the conclusion that management should likely make about the deficiency. (Is it a control deficiency, a significant deficiency, or a material weakness?)arrow_forwardAuthorization of transactions is a key control in most organizations. Authorizations should not be made by individuals who have incompatible functions. For each transaction (listed as A through I), indicate the individual or function (e.g., the head of a particular department) that should have the ability to authorize that transaction. Briefly provide a rationale for your answer. a. Writing off old accounts receivable. B. Committing the organization to acquire another company that is half the size of the existing company. C. Paying an employee for overtime. D. Shipping goods on account to a new customer. E. Purchasing goods from a new vendor. F. Temporarily investing funds in common stock investments instead of money market funds. G. Purchasing a new line of manufacturing equipment to remodel a production line at one of the company’s major divisions (the purchase represents a major new investment for the organization). H. Replacing an older machine at one of the company’s major divisions. I. Rewriting the company’s major computer program for processing purchase orders and accounts payable (the cost of rewriting the program will represent one quarter of the organization’s computer development budget for the year).arrow_forwardWhich, if any,of the followingsituations represent improper segregationof functions? Explain your answer. a. The billing deparment prepares the customers' invoices and records the sale in the sales journal. b. Mail room clerk opens cash receipts envelopes from customers and also prepares the remittance list. c. Accounting clerk receives journal vouchers from various departments and also posts to the GL accounts. d. The sales department approves sales credit memos as the result of product returns and forwards these to the AR department, which adjusts the customer accounts to reflect the return.arrow_forward
- Determine whether each procedure described below is an internal control strength or weakness; then identify the internal control violated or followed for each procedure. The company does not use electronic time clocks because it fears it will hurt employee morale. The same employee requests, records, and makes payment for purchases of inventory. Several salesclerks share the same cash drawer. Employees that handle easily transferable assets such as cash are bonded. The company devotes resources towards keeping accurate accounting records for machineryarrow_forwardFollowing are five separate cases involving internal control issues. a. Tywin Company keeps very poor records of its equipment. Instead, the company asserts its employees are honest and would never steal from the company. b. Marker Theater has a computerized order-taking system for its tickets. The system is backed up once a year. c. Sutton Company has two employees handling acquisitions of inventory. One employee places purchase orders and pays vendors. The second employee receives the merchandise. d. The owner of Super Pharmacy uses a check software/printer to prepare checks, making it difficult for anyone to alter the amount of a check. The check software/printer, which is not password protected, is on the owner’s desk in an office that contains company checks and is normally unlocked. e. To ensure the company retreat would not be cut, the manager of Lavina Company decided to save money by canceling the external audit of internal controls. Required 1. For each case, identify the…arrow_forwardInternal control is designed, implemented, and maintained to address identified business risks that threaten the achievement of any of an entity’s objectives. Listed below are selected control activities of ABE Kitchen Co. Identify the primary internal control objective to which each activity relates.1. performance of monthly bank reconciliation2. food preparation and handling policies and procedures that conform with local health laws and regulations3. inventory tracking and management system to monitor inventory levels and avoid stock-outsarrow_forward
- What internal control or procedure(s) would provide protection against the following threats? A purchasing agent orders materials from a supplier that he partially owns Receiving-department steal inventory and then claim the inventory was sent to the warehouse. An unordered supply of laser printer paper delivered to the office is accepted and paid for because the “price is right.” After all of the laser printers are jammed, however, it becomes obvious that the “bargain” paper is of inferior quality. The company fails to take advantage of a 1% discount for promptly paying a vendor invoice Inventory records show that an adequate supply of copy paper should be in stock, but none is available on the supply shelfarrow_forwardItems 1 through 10 present various internal controlstrengths or internal control deficiencies.1. Credit is granted by a credit department.2. Once shipment occurs and is recorded in the sales journal, all shipping documentsare marked “recorded” by the accounting staff.3. Sales returns are presented to a sales department clerk who prepares a written,prenumbered receiving report.4. Cash receipts received in the mail are received by a secretary with no recordkeepingresponsibility.5. Cash receipts received in the mail are forwarded unopened with remittance advicesto accounting.6. The cash receipts journal is prepared by the treasurer’s department.7. Cash is deposited weekly.8. Statements are sent monthly to customers.9. Write-offs of accounts receivable are approved by the controller.10. The bank reconciliation is prepared by individuals independent of cash receiptsrecordkeeping.a. For each of the preceding 1–10 items, indicate whether the item represents an:A. Internal control strength for…arrow_forwardThe internal control procedures in Dayton Company result in the following provisions.Identify the principles of internal control that are being followed in each case. (a) Employees who have physical custody of assets do not have access to the accounting records. Select the principle of internal control (b) Each month, the assets on hand are compared to the accounting records by an internal auditor. Select the principle of internal control (c) A prenumbered shipping document is prepared for each shipment of goods to customers.arrow_forward
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