/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q3RQ What are the five components of ... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 7: Q3RQ (page 411)

What are the five components of internal control? Briefly explain each component.

Short Answer

Expert verified

The five components of the internal control are:

  1. Control Procedure
  2. Risk Assessment
  3. Information System
  4. Monitoring of controls
  5. Environment

Step by step solution

01

Meaning of Internal Control

Internal control refers to an organization's rules or procedures to prevent fraud, safeguard assets, and promote operational efficiency.

02

Five components of internal control

1. Control Procedures:

Control procedures are framed to achieve the goals of the business entity.

2. Risk Assessment:

Every business organization must assess the risks in their business because they may affect the business position. If the business risks are higher, then the entity needs to control more to safeguard its assets and prevent fraud.

3. Information System:

As in a business, some people have the authority to use the accounting information system, so there should be more control to protect the business's assets to approve and cross-check all the transactions.

4. Monitoring of Controls:

There are two persons, internal and external auditors, to monitor the company's control. The internal auditor ensures that the company is following all the legal requirements or not. In contrast, an external auditor is an outside person to ensure that the company's financial statements are made according to GAAP.

5. Environment:

The environment of an organization is essential as it depends on the top-level management. If they work ethically and have good behavior with the employees, following all the rules, then it can also motivate the employess to follow all the rules and guidelines.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

When are the only times the Petty Cash account is used in a journal entry?

The following petty cash transactions of Green Golf Equipment occurred in May:

May 1 Established a petty cash fund with a \(200 balance.

31 The petty cash fund has \)18 in cash and \(180 in petty cash tickets that were issued to pay for Office Supplies(\)81), Delivery Expense (\(36), Postage Expense (\)54), and Miscellaneous Expense ($9).

The petty cash custodianreplenished the fund and recorded the expenses.

Prepare the journal entries.

Correcting internal control weaknesses

Each of the following situations has an internal control weakness.

a. Jade Applications has decided that one way to cut costs in the upcoming year is to

fire the external auditor. The business believes that the internal auditor should be

able to efficiently monitor the company鈥檚 internal controls.

b. In an effort to minimize the amount of paperwork, Ross Homes has decided that it

will not keep copies of customer invoices related to sales revenue. Ross believes that

this effort will minimize the amount of data storage the company will have to pay for.

c. Elle Bee, a trusted employee for many years, has never taken a vacation. The owner

believes that he鈥檚 lucky that she is so committed to her job.

d. The Medicine Chest Company keeps a small petty cash fund to handle small cash

transactions. Because no one wants to volunteer to be the custodian, the business

manager has decided that all employees should have access to the petty cash. She

figures that as long as each employee fills out a petty cash ticket, then there are

proper controls in place.

e. Due to the cost of maintaining the security cameras, Wings and More has decided

that it will remove the cameras that monitor the cash register.

f. Bryan Miller, manager of Hardware Emporium, prides himself on hiring

exceptionally skilled employees who need no training to do their jobs.

Requirements

1. Identify the missing internal control characteristics in each situation.

2. Identify the possible problem caused by each control weakness.

3. Propose a solution to each internal control problem.

Question: For each of the following items, determine whether the item would be:

a. added to the bank balance

b. subtracted from the bank balance

c. added to the book balance

d. subtracted from the book balance

11. Interest revenue earned

12. NSF check

13. Deposit in transit

14. Service charge

15. Outstanding check

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

Recommended explanations on Business Studies Textbooks

Operational Management

Read Explanation

Business Development

Read Explanation

Intermediate Accounting

Read Explanation

Strategic Analysis

Read Explanation

Project Planning & Management

Read Explanation

Organizational Behavior

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.