Major Controls - Transaction Cycle 2

Question 1

Inventory

Answer 1

1) Perpetual Inventory for large $ items
2) Prenumbered Receiving reports prepared when inventory received
3) Standard cost system to cost inventory
4) Physical Controls against theft
5) Written inventory requisitions used
6) Prenumbered purchase orders & proper Authorization of purchases

Question 2

Financing

Answer 2

1) Debt and Equity Transactions are approved by the board
2) An Independent Trustee handles bond transactions
3) Stock registrar/stock transfer agent handles capital stock transactions
4) Canceled stock certificates are defaced to prevent reissuance

Question 3

Investments

Purchases are recorded at cost and Reported at lower of cost or market SFAS 12

Answer 3

1) Segregation of duties ARC
2) Use of independent agent
3) Securities in a Safe deposit box under joint control (treasurer and one other)
4) Physical inspection by someone not in the ARC function

Question 4

Property Plant and Equipment

Answer 4

1) Major acquisitions approved by board
2) Records of property assets and Acc Dep
3) Retirements approved by management
4) Periodic Inspection by internal auditors
5) Physical control and Dep calculated