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Chapter 7: Q1SE (page 412)

Defining internal control

Internal controls are designed to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate accounting records.

Requirements

1. Which objective do you think is most important?

2. Which objective do you think the internal controls must accomplish for the business to survive? Give your reason.

Short Answer

Expert verified
  1. Objective of safeguard
  2. The objective is to ensure accurate, reliable accounting records

Step by step solution

01

Definition of internal controls

Internal controls are the control that controls the internal activities of the company.

02

Most important objective of internal controls

The most important objective of internal controls is to safeguard the company's assets. With the help of safeguards, the company reduces its risks and protects its assets. Because without the safeguard of the assets, the company's risk cannot be reduced.

03

Internal control that accomplishes business to survive

Ensuring accurate and reliable accounting records is the objective that the business must accomplish to survive. Because without it, the sale of the company can not be effectively established, and the company's expenses increase day by day. This might cause a heavy loss to the company and lead to the company's winding up.

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Most popular questions from this chapter

What is internal control?

What does the cash ratio help determine, and how is it calculated?

Preparing a bank reconciliation and journal entries

The December cash records of Davidson Insurance follow:


Davidson鈥檚 Cash account shows a balance of \(17,450 at December 31. On December

31, Davidson Insurance received the following bank statement:

Additional data for the bank reconciliation follow:

a. The EFT credit was a receipt of rent. The EFT debit was an insurance payment.

b. The NSF check was received from a customer.

c. The \)1,400 bank collection was for a note receivable.

d. The correct amount of check no. 1419, for rent expense, is \(1,930. Davidson鈥檚

controller mistakenly recorded the check for \)1,390.

Requirements

1. Prepare the bank reconciliation of Davidson Insurance at December 31, 2018.

2. Journalize any required entries from the bank reconciliation.

Recording credit card and debit card sales

Restaurants do a large volume of business with credit and debit cards. Suppose Summer,

Sand, and Castles Resort restaurant had these transactions on January 28, 2018:

National Express credit card sales $ 10,800

ValueCard debit card sales 10,000

Requirements

1. Suppose Summer, Sand, and Castles Resort鈥檚 processor charges a 2% fee anddeposits sales net of the fee. Journalize these sales transactions for the restaurant.

2. Suppose Summer, Sand, and Castles Resort鈥檚 processor charges a 2% fee anddeposits sales using the gross method. Journalize these sales transactions for therestaurant.

Identifying internal controls. Consider each situation separately. Identify the missing internal control procedure from these characteristics:

鈥� Assignment of responsibilities

鈥� Separation of duties

鈥� Audits

鈥� Electronic devices

鈥� Other controls (specify)

a. While reviewing the records of Quality Pharmacy, you find that the same Team member orders merchandise and approves invoices for payment.

b. Business is slow at Amazing Amusement Park on Tuesday, Wednesday, and Thursday nights. To reduce expenses, the business decides not to use a ticket taker on those nights. The ticket seller (cashier) is told to keep the tickets as a record of the number sold.

c. The same trusted team member has served as a cashier for 12 years.

d. When business is brisk, Fast Mart deposits cash in the bank several times during the day. The manager at one store wants to reduce the time employees spend delivering cash to the bank, so he starts a new policy. Cash will build up over weekends, and the total will be deposited on Monday.

e. Grocery stores such as Convenience Market and Natural Foods purchase most merchandise from a few suppliers. At another grocery store, the manager decides to reduce paperwork. He eliminates the requirement that the receiving department prepare a receiving report listing the goods actually received from

the supplier.
See all solutions

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