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Chapter 7: Q7RQ (page 411)

What are some limitations of internal controls?

Short Answer

Expert verified

There are four limitations of the internal controls.

Step by step solution

01

Definition of internal controls

Internal controls are the control that helps in the proper management of the company.

02

Limitations if internal controls

1. Not Provide Assurance:

The first limitation of the internal controls is that it does not provide you assurance. Internal controls only provide effective controls. Hence, internal control is not the assurance that the problem is solved.

2. Human Error:

Internal controls are directly affected by human errors. If humans make some errors, then the complete process goes in vain.

3. Collision of Employees:

As you know, internal controls include the separation of duties that can cause conflict between employees.


4. Increase cost:

The following limitation of internal control increases the cost of the company.

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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

Accounting for petty cash transactions

Suppose that on September 1, Cool Gyrations, a disc jockey service, create a petty

cash fund with an imprest balance of \(350. During September, Ruth Mangan, fund

custodian, signs the following petty cash tickets:

Petty Cash

Ticket Number Item Amount

1 Postage for package received \) 25

2 Office party 10

3 Two boxes of stationery 20

4 Printer cartridges 15

5 Business dinner 65

On September 30, prior to replenishment, the fund contains these tickets plus cash of

\(210. The accounts affected by petty cash payments are Office Supplies, Entertainment

Expense, and Postage Expense.

Requirements

1. On September 30, how much cash should this petty cash fund hold before it is

replenished?

2. Journalize all required entries to (a) create the fund and (b) replenish it. Include

explanations.

3. Make the entry on October 1 to increase the fund balance to \)425. Include an

Explanation

Preparing a bank reconciliation

Hardy Photography’s checkbook lists the following:

Date Check No. Item Check Deposit Balance

Nov. 1 \( 500

4 622 Quick Mailing \) 45 455

9 Service Revenue \( 135 590

13 623 Photo Supplies 85 505

14 624 Utilities 45 460

18 625 Cash 50 410

26 626 Office Supplies 110 300

28 627 Upstate Realty Co. 290 10

30 Service Revenue 1,235 1,245

Hardy’s November bank statement shows the following:

Learning Objective 6

1. Adjusted Balance \)1,137

Balance

Deposits

Checks: No. Amount

622 \( 45

623 85

624 105*

625 50

Other charges:

Printed checks

Service charge

Balance

*This is the correct amount for check number 624.

\) 500

135

(285)

(48)

$ 302

23

25

Requirements

1. Prepare Hardy Photography’s bank reconciliation at November 30, 2018.

2. How much cash does Hardy actually have on November 30, 2018?

3. Journalize any transactions required from the bank reconciliation.

What is separation of duties?

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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