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Internal control of cash payments Abbe Co. is a small merchandising company with a manual accounting system. An investigation revealed that in spite of a sufficient bank balance, a significant amount of available cash discounts had been lost because of failure to make timely payments. In addition, it was discovered that the invoices for several purchases had been paid twice. Outline procedures for the payment of vendors’ invoices so that the possibilities of losing available cash discounts and of paying an invoice a second time will be minimized

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 8, Problem 8.14EX
Textbook Problem

Internal control of cash payments

Abbe Co. is a small merchandising company with a manual accounting system. An investigation revealed that in spite of a sufficient bank balance, a significant amount of available cash discounts had been lost because of failure to make timely payments. In addition, it was discovered that the invoices for several purchases had been paid twice.

Outline procedures for the payment of vendors’ invoices so that the possibilities of losing available cash discounts and of paying an invoice a second time will be minimized

Expert Solution
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.

Five elements of internal control are as below:

  • 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 ensure 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.

To describe: The procedures for the payment of the vendors’ invoices towards possibilities of losing available cash discounts and of paying an invoice a second time will be minimized.

Explanation of Solution

Solution:

The procedures for the payment of the vendors’ invoices:

Firstly, voucher system is appropriate and the essentials of the voucher system are outlined below:

  1. 1. Vouchers need to be approved for making payment for designated official and completion of the following verification:
    1. a. Price, Quantities, and Terms on the invoice towards provision for the purchase order.
    1. b. All the quantities have been billed and received in better condition and show receiving report.
    1. c.   Correctness of arithmetic details.
  2. 2. The unpaid vouchers are composed of 31 compartments for each day of the month. The vouchers are filed in the compartment and represent the last day towards discount period or the due date when the invoice is not subject to cash discount...

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Chapter 8 Solutions

Accounting
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Ch. 8 - Internal control elements Identify each of the...Ch. 8 - Internal control elements Identify each of the...Ch. 8 - Items on companys bank statement The following...Ch. 8 - Items on companys bank statement The following...Ch. 8 - Bank reconciliation The following data were...Ch. 8 - Bank reconciliation The following data were...Ch. 8 - Petty cash fund Prepare journal entries for each...Ch. 8 - Petty cash fund Prepare journal entries for each...Ch. 8 - Ratio of cash to monthly cash expenses Financial...Ch. 8 - Ratio of cash to monthly cash expenses Financial...Ch. 8 - Sarbanes-Oxley internal control report Using...Ch. 8 - Internal controls Jimmy Pace has recently been...Ch. 8 - Internal controls Ramonas Clod1ing is a retail...Ch. 8 - Internal controls for bank lending Pacific Bank...Ch. 8 - Internal controls One of the largest losses in...Ch. 8 - Internal controls An employee of JHT Holdings,...Ch. 8 - Internal controls All-Around Sound Co. discovered...Ch. 8 - Financial statement fraud A former chairman, CFO,...Ch. 8 - Internal control of cash receipts The procedures...Ch. 8 - Internal control of cash receipts Sergio Flores...Ch. 8 - Internal control of cash receipts The mailroom...Ch. 8 - Entry for cash sales; cash short The actual cash...Ch. 8 - Entry for cash sales; cash over The actual cash...Ch. 8 - Internal control of cash payments Abbe Co. is a...Ch. 8 - Internal control of cash payments Paragon Tech...Ch. 8 - Bank reconciliation Identify each of the following...Ch. 8 - Entries based on bank reconciliation Which of the...Ch. 8 - Bank reconciliation The following data were...Ch. 8 - Entries for bank reconciliation Using the data...Ch. 8 - Entries for note collected by bank Accompanying a...Ch. 8 - Bank reconciliation An accounting clerk for...Ch. 8 - Bank reconciliation The following June 30 bank...Ch. 8 - Using bank reconciliation to determine cash...Ch. 8 - Petty cash fund entries Journalize the entries to...Ch. 8 - Variation in cash flows Mattel, Inc., designs,...Ch. 8 - Cash to monthly cash expenses ratio El Dorado Inc....Ch. 8 - Cash to monthly cash expenses ratio Capstone...Ch. 8 - Cash to monthly cash expenses ratio Amicus...Ch. 8 - Evaluating internal control of cash The following...Ch. 8 - Transactions for petty cash, cash short and over...Ch. 8 - Bank reconciliation and entries The cash account...Ch. 8 - Bank reconciliation and entries The cash account...Ch. 8 - Bank reconciliation and entries Beeler Furniture...Ch. 8 - Evaluating internal control of cash The following...Ch. 8 - Transactions for petty cash, cash short and over...Ch. 8 - Bank reconciliation and entries The cash account...Ch. 8 - Bank reconciliation and entries The cash account...Ch. 8 - Bank reconciliation and entries Sunshine Interiors...Ch. 8 - Ethics in Action Tehra Dactyl is an accountant for...Ch. 8 - Ethics in Action During the preparation of the...Ch. 8 - Communication Wholesome and Happy Foods is a...Ch. 8 - Internal controls The following is an excerpt from...Ch. 8 - Internal controls The following is an excerpt from...Ch. 8 - Bank reconciliation and internal control The...Ch. 8 - Cash to monthly cash expenses ratio TearLab Corp....

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