2 some of the checks in the numbered sequence may

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(2) Some of the checks in the numbered sequence may remain outstanding. If so, they will be returned with the bank statement in a later period when they clear the bank. (3) The issuer of the checks may have voided one or more of the checks in the numbered sequence, perhaps because of making an error in writing the checks. (4) Occasionally, a check will reach the bank but the bank will incorrectly charge the check to the wrong account. When the bank detects the error, it will return the check separately with a note of explanation to the depositor. 8-23
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Chapter 08 - Cash and Internal Controls PROBLEM SET B Problem 8-1B (20 minutes) 1. Violates both applying technological control and effective segregation of duties . It is safe to assume that Latoya Tally has knowledge of employee passwords since she implemented the system of password protection companywide. It is a potentially insecure situation that Latoya processes payroll and can now probably change employee pay rates at will, or add a fictitious employee to the file. The company should hire an outside consultant to rework the password protection system so Latoya will not have the knowledge that she currently possesses. 2. Violates applying technological controls . The theater’s system needs to be backed up at least daily, not weekly. The theater needs to change the backup policy and make sure the backup copies are stored off premises. 3. Violates segregation of duties . The company needs to have three employees handle these functions instead of two. One employee should place purchase orders, one should receive merchandise, and the third should pay vendors. 4. Violates applying technological controls . The use of the check protector is a good internal control. However the company needs to keep the checks and check protector in a locked environment to prevent unauthorized use. 5. Violates segregation of duties . It is good internal control to separate duties for cash receipts and cash disbursements. Moreover, an employee independent of these two functions should be given the responsibility for reconciling the bank account monthly. If no employees are available, this is an acceptable duty for the owner as it allows for owner oversight, which is good internal control. 8-24
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Chapter 08 - Cash and Internal Controls Problem 8-2B (20 minutes) Part 1 Jan. 3 Petty Cash .............................................................. 150.00 Cash .................................................................. 150.00 To establish the petty cash fund. Jan. 14 Office Supplies Expense ....................................... 16.29 Merchandise Inventory* ......................................... 17.60 Repairs Expense—Computer ................................ 36.57 Miscellaneous Expenses ....................................... 14.82 Cash Over and Short .............................................. 2.44 Cash .................................................................. 87.72 To reimburse the petty cash fund. * Transportation-in costs are included in the Merchandise Inventory account under a perpetual system. Jan. 15 Petty Cash .............................................................. 25.00 Cash .................................................................. 25.00 To increase the petty cash fund. Jan. 31 Advertising Expense .............................................. 40.00 Postage Expenses ................................................. 38.19 Delivery Expense ................................................... 58.00 Cash Over and Short .............................................. 21.46 Cash .................................................................. 157.65 To reimburse the petty cash fund.
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