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Chapter 7: Q5RQ (page 411)

What is separation of duties?

Short Answer

Expert verified

To divide duties according to the activities.

Step by step solution

01

Definition of duties

Duties mean assigning a job to a specified person. The person is only responsible for his duty.

02

Separation of duties

Separation of duties means assigning different duties to different people. Different activities related to a job are assigned to different people based on their jobs.

Different types of separation are the basis of their functions:

  • Separation of duties of cash:

In the separation of the duties of cash, all the duties related to cash payments and cash receipts are assigned to a person. This person has all the responsibilities related the cash transactions. If there is a mistake in the cash transactions, this person is responsible for the mistake.

  • Separation of duties of inventory:

According to this separation, the duties related to inventory are assigned to a person. This person must manage and control the inventory. This person is responsible for inventory-related activities.

  • Separation of duties of accounts receivables:

In this separation of duties, all the duties related to the accounts receivables are assigned to a person. This person manages all the accounts receivable records. He also collects all the accounts receivables.

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Most popular questions from this chapter

Question: What is the difference between an internal auditor and an external auditor?

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.

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?

Conduct an Internet search for information on internal control and the Sarbanes-Oxley Act. Write a report of your findings. In your account, discuss some of the advantages and disadvantages of the Sarbanes-Oxley Act. Present it to your class (if required by your instructor).

Preparing a bank reconciliation and journal entries

The December cash records of Davidson Insurance follow:


Davidson’s 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’s

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.
See all solutions

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