Financial & Managerial Accounting
13th Edition
ISBN: 9781285866307
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Chapter 7, Problem 7.4CP
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. 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.
Five elements of internal control:
- Control Environment: Control Environment refers to the attitude of top brass of the company or the corporate culture. The top brass of the company must set the tone to improve the morale for rest of the employees of the business.
- Risk assessment: The business must be able identify the risk associated with it, and accordingly use the internal control to safeguard its assets and ensures fairness in presentation in accounting information.
- Control procedures: The objective of setting the control procedure is to ensure that the business achieves its objectives.
- Monitoring controls: The internal control used in the business is being monitored by the internal auditors who are hired by the business, to ensure that the employees are adhering to the policies of the business and running the operations efficiently. The external auditors on the other hand ensures that the business accounting records are being maintained in accordance with the Generally Accepted Accounting Principles (GAAP).
- Information and communication: Information and communication system is important for a business and hence only authorized persons should be allowed the access to the confidential accounting information. Approvals are also should be made mandatory for the transactions by the
control system.
Given: Conversation between two cash register clerks.
To discuss: The case from the viewpoint of proper controls and professional behavior.
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Ryan Egan and Jack Moody are both cash register clerks for Organic Markets. Lee Sorrell is the store manager for Organic Markets. The following is an excerpt of a conversation between Ryan and Jack:
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Scenario
Jane is the accounts payable clerk for ABC Corporation. One of her job duties is to process the travel expenses of the chief financial officer and pay the associated business credit card bill. Jane has noticed lately that the CEO’s expense reports are steadily increasing in amount and frequency. From receipts and other documentation that Jane processes, she suspects the CEO is running personal expenses through the company; however, she is not 100% sure.
Questions
1. What responsibility or role does the accountant have in this process?
2. Should information provided by management and other non-accounting personnel be assumed accurate or is it the accountant’s responsibility to investigate each item submitted for legitimacy?
3. In the situation that follows, does Jane have any responsibility to find out the legitimacy of the expenses she is processing or is her job to just pay the bill?
Richard has been a highly regarded employee of the Brier Corporation for almost 20 years. Her loyalty to the company is reflected in her dedication to her job as a general accounting clerk, from which she has not taken a vacation in almost 12 years. Because of her dedication and long tenure, she has acquired many related responsibilities, which have allowed Brier Corporation to reduce its workforce through attrition, control salary expenses and become more efficient and competitive. The following describes Richard's responsibilities.
Richard receives copies of credit sales orders from the sales department. She accesses the AR subsidiary ledger from her office computer and records the AR from these documents. She then records the sale in the sales journal and posts the transactions to the general ledger accounts. Cash receipts in payment of customer AR come directly to her office. She records the cash receipts in the GL cash and AR accounts and updates the AR subsidiary ledger. She…
Chapter 7 Solutions
Financial & Managerial Accounting
Ch. 7 - Prob. 1DQCh. 7 - Prob. 2DQCh. 7 - Prob. 3DQCh. 7 - Prob. 4DQCh. 7 - Prob. 5DQCh. 7 - Prob. 6DQCh. 7 - Prob. 7DQCh. 7 - Prob. 8DQCh. 7 - Prob. 9DQCh. 7 - Prob. 10DQ
Ch. 7 - Prob. 7.1APECh. 7 - Internal control elements Identify each of the...Ch. 7 - Prob. 7.2APECh. 7 - Prob. 7.2BPECh. 7 - Prob. 7.3APECh. 7 - Prob. 7.3BPECh. 7 - Prob. 7.4APECh. 7 - Prob. 7.4BPECh. 7 - Prob. 7.5APECh. 7 - Prob. 7.5BPECh. 7 - Sarbanes-Oxley internal control report Using...Ch. 7 - Prob. 7.2EXCh. 7 - Prob. 7.3EXCh. 7 - Prob. 7.4EXCh. 7 - Prob. 7.5EXCh. 7 - Prob. 7.6EXCh. 7 - Prob. 7.7EXCh. 7 - Prob. 7.8EXCh. 7 - Prob. 7.9EXCh. 7 - Prob. 7.10EXCh. 7 - Prob. 7.11EXCh. 7 - Prob. 7.12EXCh. 7 - Prob. 7.13EXCh. 7 - Prob. 7.14EXCh. 7 - Prob. 7.15EXCh. 7 - Prob. 7.16EXCh. 7 - Prob. 7.17EXCh. 7 - Prob. 7.18EXCh. 7 - Prob. 7.19EXCh. 7 - Prob. 7.20EXCh. 7 - Prob. 7.21EXCh. 7 - Prob. 7.22EXCh. 7 - Prob. 7.23EXCh. 7 - Prob. 7.24EXCh. 7 - Variation in cash flows Mattel, Inc., designs,...Ch. 7 - Prob. 7.26EXCh. 7 - Prob. 7.27EXCh. 7 - Prob. 7.28EXCh. 7 - Prob. 7.1APRCh. 7 - Prob. 7.2APRCh. 7 - Prob. 7.3APRCh. 7 - Prob. 7.4APRCh. 7 - Prob. 7.5APRCh. 7 - Prob. 7.1BPRCh. 7 - Prob. 7.2BPRCh. 7 - Prob. 7.3BPRCh. 7 - Prob. 7.4BPRCh. 7 - Prob. 7.5BPRCh. 7 - Ethics and professional conduct in business During...Ch. 7 - Prob. 7.2CPCh. 7 - Prob. 7.3CPCh. 7 - Prob. 7.4CPCh. 7 - Prob. 7.5CPCh. 7 - Prob. 7.7CP
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