III. Inrernal Control: Transaction Cycles - Revenues/Receipts - Cash Flashcards
Sound internal control dictates that immediately upon receiving checks from customers by mail, a responsible employee should
Prepare a duplicate listing of checks received.
Why?
The requirement is to identify the proper procedure to be performed immediately upon receipt of checks by mail. Sound internal control requires the use of adequate documentation to ensure that all transactions are properly recorded. This helps the company attain the financial statement assertion of completeness. Answer (c) is correct because the preparation of a duplicate listing of checks received provides the company with a source document of all the checks received that day. One list is then forwarded to the employee responsible for depositing the checks at the end of the day and the other list is sent to the accounting department so that they can post the amount to the cash receipts journal.
Which of the following controls most likely would reduce the risk of diversion of customer receipts by an entity’s employees?
A bank lockbox system.
Why?
A bank lockbox system eliminates employee contact with cash receipts, and thereby greatly reduces the risk of diversion by employees
During the consideration of a small business client’s internal control, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls would be most effective in offsetting this weakness?
The owner reviews credit memos after they are recorded.
Note:
Note that such a weakness may lead to a fraud in which the accounts receivable clerk receives and keeps cash payments while issuing a fraudulent credit memo as the basis for a credit to the customer’s account. The owner’s review of credit memos could help establish that fraudulent memos had not been issued for receivables which had in actuality been collected by the clerk; for example, when reviewing credit memos the owner would expect to see a receiving report for sales returns for which credit memos have been generated.
When a customer fails to include a remittance advice with a payment, it is a common practice for the person opening the mail to prepare one. Consequently, mail should be opened by which of the following four company employees?
Receptionist
Why?
remittances should be opened by an individual such as a receptionist who is independent of the sales function. That individual will prepare any needed remittance advice.
What are some basic rule for achieving strong internal control over cash?
Separate the cash handling and recordkeeping functions.
Deposit each day’s cash receipts by the end of the day.
Have bank reconciliations performed by employees independent with respect to handling cash.
Note:
Decentralize the receiving of cash as much as possible is not one
- decentralization of cash receipts generally would not increase internal control; in fact, the additional points of cash receipt may well be more difficult to control.
What are some of the responsibility of a treasurer?
Handling of cash.
Custody of securities.
Establishing credit policies.
Note:
Data processing is not, why becuse it is a recordkeeping function, treasurer are to take custody of assets.
What exact;y does a bank lockbox system do?
bank lockbox system will result in collection of receivables by a bank, thereby eliminating employee contact with the cash.
How would an auditor most likely perform to test controls relating to management completeness of cash receipts for cash sales?
A remittance advice with a payment, it is common practice for the person opening the mail to prepare one. Consequently, mail should be opened by which of the following four company employees?
Receptionist
What do fidelity bond help do?
Deter dishonesty by making employees aware that insurance companies may investigate and prosecute dishonest acts.
