There are several elements to internal controls. Which of...

There are several elements to internal controls. Which of the following would not address the issue of having cash transactions reported in the accounting records? (A) One employee would have access to the cash register. B The cash drawer should be closed out, and cash and the sales register should be reconciled on a prenumbered form. C Ask customers to report to a manager if they do not receive a sales receipt or invoice. D The person behind the cash register should also be responsible for making price adjustments.

Transcript

00:01 Determine whether each procedure described below is an internal control strength or weakness and then identify the internal control violated or followed for each procedure.

00:12 A, the same employee requests, records, and makes payment for purchase of inventory.

00:21 This is a weakness and it is violating the dividing responsibility for related transactions.

00:46 This is about checks and balances.

00:48 If the same employee is requesting, recording, and making the payment for purchase, of inventory, if they make a mistake in the first or second part, it's going to carry over and not be caught because it's their mistake.

01:00 They're just going to keep going with it.

01:02 But if there's more than one person involved, one person requests it, then another person records it and another person makes the payment.

01:10 A mistake is going to be caught along the way.

01:13 So this is also a weakness because there's a chance of fraud occurring.

01:16 They could be making that mistake on purpose rather than an honest mistake.

01:19 So there's a chance of fraud occurring.

01:21 The employee has all of that responsibility, and it is best to divide responsibilities for related transactions.

01:31 B, the company saves money by having employees involved in operations, perform the only review of internal controls.

01:39 This is also a weakness, and the internal control being violated is perform regular and independent reviews.

02:02 So this is also a weakness because independent reviews are important for an objective opinion.

02:07 So if the people are doing their own reviews, it's not an objective opinion.

02:12 You want somebody from the outside doing that to get that objective opinion.

02:15 So these reviews should be regular as well...

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