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Chapter 7: Q15E (page 415)

Evaluating internal control over cash payments Gary’s Great Cars purchases high-performance auto parts from a Nebraska vendor. Dave Simon, the accountant for Gary’s, verifies receipt of merchandise and then prepares, signs, and mails the check to the vendor.

Requirements

1. Identify the internal control weakness over cash payments.

2. What could the business do to correct the weakness?

Short Answer

Expert verified

There is a weakness in the assignment of responsibilities.

Step by step solution

01

Step-by-Step Solution Step 1: Definition of internal control over cash payments

Internal control over cash payments means controlling the activities of cash payments.

02

Internal control weakness

The weakness of internal control is that one person is performing all responsibilities. Hence, the main weakness is the assignment of responsibilities.

03

Way to correct the weakness

This weakness is correct by assigning different responsibilities to different persons.

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Most popular questions from this chapter

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

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

Fill in the missing information.

a. The vendor ships the inventory and sends a(n) __________ back to the purchaser.

b. After approving all documents, the purchaser sends a(n) __________ to the vendor.

c. When ordering merchandise inventory, the purchaser sends a(n) __________ to the vendor.

d. The purchaser receives the inventory and prepares a(n) __________.

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

Phoenix Restaurants accepts credit and debit cards as forms of payment. Assume Phoenix had $12,000 of credit and debit card

sales on June 30, 2017.

9. Suppose Phoenix’s processor charges a 2% fee and deposits sales net of the fee. Journalize the sale transaction for the

restaurant.

10. Suppose Phoenix’s processor charges a 2% fee and deposits sales using the gross method. Journalize the sale transaction for

the restaurant.
See all solutions

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