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Below Are Descriptions of Internal Control Problems

Question 229

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Below are descriptions of internal control problems. Enter the code letter of the one best internal control principle that is related to the problem described.

Premises:

Responses:

The same person opens incoming mail and posts the accounts receivable subsidiary ledger.

Establishment of responsibility

Three people handle cash sales from the same cash register drawer.

Segregation of duties

A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise.

Physical controls

The person who is authorized to sign checks approves purchase orders for payment.

Documentation procedures

Some cash payments are not recorded because checks are not prenumbered.

Independent internal verification

Cash shortages are not discovered because there are no daily cash counts by supervisors.

Human resource controls

The treasurer of the company has not taken a vacation for over 20 years.

Premises:

The same person opens incoming mail and posts the accounts receivable subsidiary ledger.

Three people handle cash sales from the same cash register drawer.

A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise.

The person who is authorized to sign checks approves purchase orders for payment.

Some cash payments are not recorded because checks are not prenumbered.

Cash shortages are not discovered because there are no daily cash counts by supervisors.

The treasurer of the company has not taken a vacation for over 20 years.

Responses:

Establishment of responsibility

Segregation of duties

Physical controls

Documentation procedures

Independent internal verification

Human resource controls

Correct Answer:

Premises:

Responses:

The same person opens incoming mail and posts the accounts receivable subsidiary ledger.

Three people handle cash sales from the same cash register drawer.

A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise.

The person who is authorized to sign checks approves purchase orders for payment.

Some cash payments are not recorded because checks are not prenumbered.

Cash shortages are not discovered because there are no daily cash counts by supervisors.

The treasurer of the company has not taken a vacation for over 20 years.