Question

Evaluating Internal Control of Cash

The following procedures were recently installed by The China Shop:

1. All sales are rung up on the cash register, and a receipt is given to the customer. All sales are recorded on a record locked inside the cash register.
2. Each cashier is assigned a separate cash register drawer to which no other cashier has access.
3. At the end of a shift, each cashier counts the cash in his or her cash register, unlocks the cash register record, and compares the amount of cash with the amount on the record to determine cash shortages and overages.
4. Checks received through the mail are given daily to the accounts receivable clerk for recording collections on account and for depositing in the bank.
5. Vouchers and all supporting documents are perforated with a PAID designation after being paid by the treasurer.
6. Disbursements are made from the petty cash fund only after a petty cash receipt has been completed and signed by the payee.
7. The bank reconciliation is prepared by the cashier.

Required:

Indicate whether each of the procedures of internal control over cash represents (1) a strength or (2) a weakness.

Item	Strength/Weakness
a.
b.
c.
d.
e.
f.
g.

Answer 1

Answer.

Strengths:

a.         All sales are rung up on the cash register, and a receipt is given to the customer. All sales are recorded on a record locked inside the cash register.

b.         Each cashier is assigned a separate cash register drawer to which no other cashier has access.

e.         Vouchers and all supporting documents are perforated with a PAID designation after being paid by the treasurer.

f.          Disbursements are made from the petty cash fund only after a petty cash receipt has been completed and signed by the payee.

Weaknesses:

c.         An independent person (for example, a supervisor) should count the cash in each cashier's cash register, unlock the record, and compare the amount of cash with the amount on the record to determine cash shortages or overages.

d.         Cash receipts should not be handled by the accounts receivable clerk. This violates the segregation of duties between the handling of cash receipts and the recording of cash receipts.

g.         The bank reconciliation should be prepared by someone not involved with the handling or recording of cash.