2 the employee should sign a receipt for the total

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2. The employee should sign a receipt for the total amount of cash he or she is given each weekend. Each time the employee makes a purchase, he or she should obtain a signed sales receipt for the payment. The sales receipt should list the items purchased and the prices paid. When the employee returns to the store, the total value of the signed sales receipts plus any remaining cash should equal the amount of cash originally given to the employee. Also, the merchandise brought back by the employee should be the same as the items listed on the signed sales receipts. Exercise 8-2 (10 minutes) Evaluation The company’s internal control system failed to require separation of asset custody from asset recordkeeping. Principles Ignored (1) The recordkeeper should not have been allowed to sign the company’s checks. (2) Since a loss was incurred, the company apparently had not bonded its employee. If it had, the bonding company would have insured the loss. If regular, independent reviews of the accounting records had been done, the payments of salary checks to a nonemployee may have been discovered earlier. 8-7
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Chapter 08 - Cash and Internal Controls Exercise 8-3 (15 minutes) (a) Internal Control Problems (1) A major internal control problem is that the recordkeeper (who has control over the accounting records) has physical control over the cash receipts. Nothing in the system prevents the recordkeeper from taking cash from the mail and using it personally. (2) The recordkeeper might also delay recording a cash receipt from a customer until more cash comes in at a later date from a second customer. Then, the new cash receipt would be deposited and recorded as a payment made by the first customer. No entry would be made in the second customer’s account until cash was received from a third customer, and so on. (This type of fraud is called "lapping.") (3) The recordkeeper also could pocket cash and claim that a payment was never received and apparently lost in the mail. (b) Internal Control Recommendations (1) If only one person is present when the mail is opened, that person may steal cash and claim it was never received. If possible, two people should be present. Otherwise, the honesty and integrity of the person chosen to open the mail is critical. One might also consider the use of a P.O. Box for cash receipts by mail as another control procedure. (2) It is important the recordkeeper not have physical control over cash. Exercise 8-4 (10 minutes) 1. A liquid asset refers to an asset that can be readily converted into another type of asset or be used to satisfy an obligation. A cash equivalent is a highly liquid short-term investment that can be readily converted to a known amount of cash and is sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes.
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