Question 1 - The following control procedures are used at Gonzales Company for over-the-counter cash receipts.
1. To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attaché case in the stock room until it is deposited in the bank.
2. All over-the-counter receipts are registered by three clerks who use a cash register with a single cash drawer.
3. The company accountant makes the bank deposit and then records the day's receipts.
4. At the end of each day, the total receipts are counted by the cashier on duty and reconciled to the cash register total.
5. Cashiers are experienced; they are not bonded.
Instructions -
(a) For each procedure, explain the weakness in internal control, and identify the control principle that is violated.
(b) For each weakness, suggest a change in procedure that will result in good internal control.
Question 2 - The following control procedures are used in Benton's Boutique Shoppe for cash disbursements.
1. The company accountant prepares the bank reconciliation and reports any discrepancies to the owner.
2. The store manager personally approves all payments before signing and issuing checks.
3. Each week, Benton leaves 100 company checks in an unmarked envelope on a shelf behind the cash register.
4. After payment, bills are filed in a paid invoice folder.
5. The company checks are unnumbered.
Instructions -
(a) For each procedure, explain the weakness in internal control, and identify the internal control principle that is violated.
(b) For each weakness, suggest a change in the procedure that will result in good internal control.
Question 3 - At Hutchingson Company, checks are not prenumbered because both the puchasing agent and the treasurer are authorized to issue checks. Each signer has access to unissued checks kept in an unlocked file cabinet. The purchasing agent pays all bills pertaining to goods pur-chased for resale. Prior to payment, the purchasing agent determines that the goods have been received and verifies the mathematical accuracy of the vendor's invoice. After payment, the in-voice is filed by the vendor, and the purchasing agent records the payment in the cash disburse¬ments journal. The treasurer pays all other bills following approval by authorized employees. After payment, the treasurer stamps all bills PAID, files them by payment date, and records the checks in the cash disbursements journal. Hutchingson Company maintains one checking account that is reconciled by the treasurer.
Instructions -
(a) List the weaknesses in internal control over cash disbursements.
(b) •MMM* Write a memo to the company treasurer indicating your recommendations for improvement.