B_Series_SolutionsChap7

B_Series_SolutionsChap7 - SOLUTIONS TO EXERCISES SERIES B...

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SOLUTIONS TO EXERCISES - SERIES B - CHAPTER 7 EXERCISE 7-1B a. The two categories of internal controls are accounting controls and  administrative controls. Accounting controls:  Procedures designed to safeguard the assets  and ensure that the accounting records contain reliable information. Administrative controls:  Procedures that concern the evaluation of  performance and the assessment of the degree of compliance with  company policies and public law. b. The purpose of internal controls is to prescribe policies and  procedures to be used to provide reasonable assurance that the  objectives of an enterprise will be accomplished.  They are designed  to safeguard the assets of a business. 7 - 32
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EXERCISE 7-2B Internal Controls related to Equipment include: 1. Quality of Employees 2. Bonded Employees 3. Authority and Responsibility 4. Physical Controls 5. Performance Evaluations 7 - 33
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EXERCISE 7-3B Receipts should be promptly written for all cash received and the funds  deposited timely in a bank or other financial institution.   All cash disbursements should be made by check and all check  numbers accounted for.   All checks should require dual signatures and proper supporting  documents.   The bank account should be reconciled on a monthly basis.  Cash on  hand should be kept to a minimum.   Cash handling and cash record-keeping duties should be separated as  well as authorization for cash disbursements. 7 - 34
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EXERCISE 7-4B Some of the internal control features that should be included in the  memo to Dick Haney: Have as much separation of duties as possible.  The manager should  prepare the deposit of cash receipts collected by the sales  personnel.  Dick should periodically check these amounts.  If the  manager is in charge of writing the checks, then Dick should sign  each check and verify the documentation.  One of the sales  personnel should check in inventory and the manager should check  the receiving reports and verify the billing. Be sure that assets are adequately insured. Be sure that quality employees are hired. Require that all employees take vacations. Use prenumbered documents. EXERCISE 7-5B a.  The discrepancy was most likely caused by theft by Rhonda Cox, the  parts department manager.  It is unlikely that sloppy recordkeeping  could account for this much of a difference.  The manager could have  been involved in several types of dishonest behavior.  She could have  presented phony invoices for payment to a fictitious company, or sold  some of the parts and not recorded the sale.  Any of these activities  would cause this type of discrepancy.
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