Chapter 8 - 8 CONTROL OF CASH ANSWERS TO QUESTIONS 1 The purposes of an internal control structure are to a Protect the assets from theft and waste b

Chapter 8 - 8 CONTROL OF CASH ANSWERS TO QUESTIONS 1 The...

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248 Financial Accounting: A Business Perspective 10e 8 CONTROL OF CASH ANSWERS TO QUESTIONS 1. The purposes of an internal control structure are to: a. Protect the assets from theft and waste. b. Ensure compliance with company policies. c. Evaluate the performance of personnel. d. Ensure accurate and reliable operating data and accounting reports. 2. Mechanical devices are helpful in protecting a company's assets. Check protectors, cash registers, and time clocks make it extremely difficult for employees to alter certain company documents and records. 3. Some of these features are: a. Segregation of duties with respect to, custody of, and accounting for, assets. b. Division of responsibility for related transactions. c. Maintenance of complete accounting records. d. Subdivision of responsibilities such that only one person is responsible for a given function. e. Rotation of individuals between jobs where feasible. f. Insistence on mandatory vacations. g. Use of mechanical devices such as check protectors, cash registers, and time clocks. h. Existence of internal audit staff. i. Hiring and training of honest, competent employees. j. Purchase of casualty insurance and fidelity bonds. 4. Control documents used in merchandise transactions include purchase requisitions, purchase orders, invoices, and receiving reports. 5. The four objectives sought in effective cash management are to: (1) account for all cash transactions accurately so that correct information will be available regarding cash flows and balances, (2) make certain that enough cash is available to pay bills as they come due, (3) avoid holding too much idle cash because excess cash can be invested to earn interest, and (4) prevent loss of cash due to fraud or theft. 6. Four essential features in internal control over cash receipts are: a. Record of cash receipts should be prepared as soon as cash is received. b. All cash receipts should be deposited as soon as feasible, preferably on the day received. c. No access to accounting records should be allowed to those receiving cash. d. Cash receiving function should be separated from cash disbursing function.
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Solutions Manual, Chapter 8 249 7. The embezzlement could not have been perpetrated without collusion if the cash receipts were handled by a person other than the person having access to the accounting records. 8. Six essential features of internal control over cash disbursements could come from the following list: a. All disbursements, except from petty cash funds, should be made by check. b. Serially numbered checks should be used, accounted for, and controlled. c. Two signatures should be required on checks drawn. d. The person authorizing payment of funds should not be a signer of checks. e. Each check should be adequately supported by approved invoices or vouchers.
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