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The following is an excerpt from a conversation between two salesclerks, Jean Moen and Sara Cheney. Jean and Sara are employed by Turpin Meadows Electronics, a locally owned and operated electronics retail store. Jean: Did you hear the news? Sara: What news? Jean: Neal and Linda were both arrested this morning. Sara: What? Arrested? You’re putting me on! Jean: No, really! The police arrested them first thing this morning. Put them in handcuffs, read them their rights—the whole works. It was unreal! Sara: What did they do? Jean: Well, apparently they were filling out merchandise refund forms for fictitious customers and then taking the cash. Sara: I guess I never thought of that. How did they catch them? Jean: The store manager noticed that returns were twice that of last year and seemed to be increasing. When he confronted Neal, he became flustered and admitted to taking the cash, apparently more than $9,000 in just three months. They’re going over the transactions of the last six months to try to determine how much Linda stole. She apparently started stealing first. Suggest appropriate control procedures that would have prevented or detected the theft of cash.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 8, Problem 6CP
Textbook Problem
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The following is an excerpt from a conversation between two salesclerks, Jean Moen and Sara Cheney. Jean and Sara are employed by Turpin Meadows Electronics, a locally owned and operated electronics retail store.

Jean: Did you hear the news?

Sara: What news?

Jean: Neal and Linda were both arrested this morning.

Sara: What? Arrested? You’re putting me on!

Jean: No, really! The police arrested them first thing this morning. Put them in handcuffs, read them their rights—the whole works. It was unreal!

Sara: What did they do?

Jean: Well, apparently they were filling out merchandise refund forms for fictitious customers and then taking the cash.

Sara: I guess I never thought of that. How did they catch them?

Jean: The store manager noticed that returns were twice that of last year and seemed to be increasing. When he confronted Neal, he became flustered and admitted to taking the cash, apparently more than $9,000 in just three months. They’re going over the transactions of the last six months to try to determine how much Linda stole. She apparently started stealing first.

Chapter 8, Problem 6CP, The following is an excerpt from a conversation between two salesclerks, Jean Moen and Sara Cheney. Suggest appropriate control procedures that would have prevented or detected the theft of cash.

To determine

Suggest appropriate control procedures for preventing / detecting the theft of cash. 

Explanation of Solution

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...

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Chapter 8 Solutions

Financial Accounting
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