Question

Mr.X handles cash receipts and has the authority to write-off accounts receivable. This is a violation of which principle of internal
control?
Select one:
a. Performing internal and external audit
b. Insuring assets
C. Applying technological controls X
d. Separate record-keeping from custody of assets​

Answer 1

Answer:

Cash and Internal Control

Since cash is the most liquid of all assets, a business cannot survive and prosper if it does not have adequate control over its cash. Cash is the asset that has the greatest chance of “going missing” and this is why we must ensure that we have strong internal controls build around the cash process. Since many business transactions involve cash, it is a vital factor in the operation of a business. Of all the company’s assets, cash is the most easily mishandled either through theft or carelessness. To control and manage its cash, a company should:

:. Account for all cash transactions accurately so that correct information is available regarding cash flows and balances.

:. Make certain that enough cash is available to pay bills as they come due.

:. Avoid holding too much idle cash because excess cash could be invested to generate income, such as interest.

:. Prevent loss of cash due to theft or fraud.

The need to control cash is clearly evident and has many aspects. Without the proper timing of cash flows and the protection of idle cash, a business cannot survive.

Companies protect their assets by (1) segregating employee duties, (2) assigning specific duties to each employee, (3) rotating employee job assignments, and (4) using mechanical devices. This video highlights the problems and controls needed when dealing with cash:

When a merchandising company sells its merchandise inventory, it may receive cash immediately or several days or weeks later. A clerk receives the cash immediately over the counter, records it, and places it in a cash register. The presence of the customer as the sale is rung up usually ensures that the cashier enters the correct amount of the sale in the cash register. At the end of each day, stores reconcile the cash in each cash register with the cash register tape or computer printout for that register.

Explanation:

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