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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Internal controls

The following is an excerpt from a conversation between the store manager of Wholesome Grocery Stores, Kara Dahl, and Lynn Shutes, president of Wholesome Grocery Stores:

Lynn: Kara, I’m concerned about this new scanning system.

Kara: What’s the problem?

Lynn: Well, how do we know the clerks are ringing up all the merchandise?

Kara: That’s one of the strong points about the system. The scanner automatically rings up each item based on its bar code. We update the prices daily, so we’re sure the sale is rung up for the right price.

Lynn: That’s not my concern. What keeps a clerk from pretending to scan items and then simply not charging his friends? If his friends were buying 10-15 items, it would be easy for the clerk to pass several items through putting his finger over the bar code or just pass the merchandise through the scanner with the wrong side showing. It would look normal for anyone observing. In the old days, we at least could hear the cash register ringing up each sale.

Kara: I see your point.

Suggest ways that Wholesome Grocery Stores could prevent or detect the theft of merchandise as described.

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.

To suggest: Appropriate control procedures for preventing / detecting the theft of grocery items by failing to scan their prices:

Explanation

Scanning system are designed and needs to be set and the beep from the system needs to be audible when sale is scanned and recorded. This beep alerts the user whether scanning is properly made or not...

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