Internal Control Over Cash Transactions

question 36

Essay

Internal control over cash transactions
Listed below are seven errors or problems that might occur in the processing of cash transactions.Also shown is a separate list of internal control procedures.Indicate the internal control procedure that should prevent the error or problem from occurring.If none of the control procedures would effectively prevent the error,place an X in the space provided.
Possible Error or Problem
________ 1.A purchase invoice was paid even though the merchandise was never received.
________ 2.An employee issued a credit memorandum for a nonexistent sales return in order to conceal his theft of the amount received in payment of an account receivable.
________ 3.Management is unaware that blank checks are being issued for unauthorized expenditures by the official designated to sign checks.
________ 4.A salesclerk collects the full selling price from a customer but rings up the sale at less than actual price and pockets the difference
________ 5.Several days' cash receipts are lost in a fire.
________ 6.A new employee often gives customers an incorrect amount of change.
________ 7.No one has discovered that amounts deposited in the company's bank account by the cashier over the last few years are frequently smaller than amounts forwarded to him from the mailroom or sales department.
Internal Control Procedures
(a. )Periodic reconciliation of bank statements to accounting records.
(b. )Use of a Cash Over and Short account.
(c. )Adequate separation of duties.
(d. )Use of pre-numbered sales tickets.
(e. )Depositing each day's cash receipts intact in the bank.
(f. )Use of electronic cash registers equipped with optical scanners to read magnetically coded labels on merchandise.
(g. )Immediate preparation of a control listing when cash is received and the comparison of this listing with bank deposits.
(h. )Cancellation of paid vouchers.
(i).Requirement that a voucher be prepared as advance authorization of every cash disbursement.

---

Definitions:

Bank Statement

A document or record provided by a bank detailing the transactions in a customer’s account over a specific period, including deposits, withdrawals, and balances.

Checking Account Balance

The amount of money currently available in one's checking account.

Internal Control

Processes and procedures implemented by a company to safeguard assets, ensure accuracy of financial records, and promote operational efficiency.

Accounting Records

Documentation and books that systematically record all financial transactions of an entity, allowing for financial statement preparation and auditing.