In: Accounting
QUESTION 21
Listed below are seven errors or problems that might occur in the processing of cash transactions. Evaluate each possible error and cite an internal control principle that would reduce the probability of the error occurring. If no internal control principle would correct the problem, write ‘none’. If you think more than one internal control principle is appropriate, list all principles that apply.
Possible Errors or Problems:
Solution:-
Sr. No. | Possible Errors or Problems | Internal Control Principles |
1. | An employee steals the cash collected from a customer for an account receivable and conceals this theft by issuing a credit memorandum indicating that the customer returned the merchandise. | Segregation of duties |
2. | small fire destroys three days’ worth of cash receipts | Physical control devices |
3. | The official designated to sign cheques is able to steal blank cheques and issue them without fear of detection. | Physical control devices |
4. | A sales person, when serving customers, often rings up a sale for less than the actual amount and then keeps the additional cash collected from the customer. | Physical control devices |
5. | Three cashiers use one cash register drawer and the cash in the drawer is often short of the balance kept on hand. |
Establishment of responsibility and Independent internal verification |
6. | Each cashier counts their own register drawer each day and verbally reports the results to the supervisor. |
Segregation of duties and Documentation procedures and Independent internal verification |
7. | Cashiers with over five years’ experience are not required to take holidays. | Human resource controls |