Internal control over cash
Internal control over cash is an important function as cash being liquid is most vulnerable item to be pilferage and hence need to be safeguarded by a strong
To Identify: The functions that a person who handles cash can also do with a good internal control.
Explanation of Solution
a. Account for cash payment: If the person who handles cash, controls accounts for cash payment, he can make manipulate accounts and will embezzle the cash. Hence, this function should not be done by the person who handles cash.
b. Account for cash receipt from customer: If the person who handles cash accounts is allowed to receive cash from customer, he can pocket the cash, and show the customer’s account as uncollectible. Hence, this function should not be done by the person who handles cash.
c. Issue credit to customer: If the person who handles cash will be in charge of issuing credit to the customers for sales return he may grant credit to differentcustomers, and can pocket cash from the debtor in association with him. Hence, this function should not be done by the person who handles cash.
d. None of the above: If the above three powers will be vested in the hands of the person who handles cash, then there is the possibility of manipulation of cash, because that person can misuse the cash for his personal gain.
For good internal control in the organization, the person who handles cash should not have the access to the above functions to safeguard the assets of the business.
Want to see more full solutions like this?
Chapter 8 Solutions
HORNGREN'S FIN.+MGRL..:MANAG.CHP.-MYLAB
- Which of the following assets require the strongest of internal controls? A. inventory B. credit cards C. computer equipment D. casharrow_forwardSuppose we collected cash from a charge customer and the debit was to Cash and the credit to Sales. How and when would this error be discovered?arrow_forwardWith good internal controls, the person who handles cash can also Account for cash payments. Account for cash receipts from customers. Issue credits to customers for sales returns. None of the abovearrow_forward
- As part of a strong internal control system, which of the following accounting duties needsto be separated from cash handling?a. Record keepingb. Filingc. Transaction approvald. Both a and c need to be separated from cash handling.arrow_forwardWhich of the following is a good internal control for cash payments? A.Payments to suppliers should be made as quickly as possible B.An experienced accountant should have total responsibility for all cash payment functions. C.Payments should be authorised before they are made D.Supporting documentation should be destroyed immediately after payment to avoid incorrectly twice.arrow_forwardWhich of the following generally would not be considered good internal control of cash receipts? a. Allowing customers to pay with a debit card. b. Requiring the employee receiving the cash from the customer to also deposit the cash into the company’s bank account. c. Recording cash receipts as soon as they are received. d. Allowing customers to pay with a credit card.arrow_forward
- Which of the following generally would be considered good internal control of cash disbursements? a. Make all cash disbursements using cash rather than debit cards or credit cards. b. Set maximum purchase limits on debit cards and credit cards. c. The employee responsible for making cash disbursements should be in charge of cash receipts. d. The employee who authorizes payments should also prepare the check.arrow_forwardWhich of the following is an effective internal control for cash payments? A.Payments should be authorised before they are made B.Payments to suppliers should be made as quickly as possible C.An experienced accountant should have total responsibility for all cash payment functions D.Supporting documentation should be destroyed immediately afterpayment to avoid incorrectly paying twicearrow_forward
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College PubAuditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningAuditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College PubAccounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,