B_Series_SolutionsChap7

B_Series_SolutionsChap7 - SOLUTIONS TO EXERCISES - SERIES B...

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Unformatted text preview: 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 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 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 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.would cause this type of discrepancy....
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B_Series_SolutionsChap7 - SOLUTIONS TO EXERCISES - SERIES B...

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