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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

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 control weakness in cash receipts

Seawind Productions makes all sales on credit. Cash receipts arrive by mail. Justin

Broadway, the mailroom clerk, opens envelopes and separates the checks from

the accompanying remittance advices. Broadway forwards the checks to another

employee, who makes the daily bank deposit but has no access to the accounting

records. Broadway sends the remittance advices, which show cash received, to

the accounting department for entry in the accounts. Broadway’s only other duty

is to grant sales allowances to customers. (A sales allowancedecreases the customer’s

account receivable.) When Broadway receives a customer check for \(600 less a

\)30 allowance, he records the sales allowance and forwards the document to the

accounting department.

Requirements

1. Identify the internal control weakness in this situation.

2. Who should record sales allowances?

3. What is the amount that should be shown in the ledger for cash receipts?

Why is it necessary to record journal entries after the bank reconciliation has been prepared? Which side of the bank reconciliation requires journal entries?

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’s 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’s processor charges a 2% fee anddeposits sales using the gross method. Journalize these sales transactions for therestaurant.

Recording transactions from a bank reconciliation Review your results from preparing Guard Dog Security Systems’ bank reconciliation in Short Exercise S7-9. Journalize the company’s transactions that arise from the bank reconciliation. Include an explanation with each entry.
See all solutions

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