Question

Which of the following sets of duties would ordinarily be considered basically incompatible in terms of good internal control?

1) Preparation of monthly statements to customers and maintenance of the accounts payable subsidiary ledger.
2) Posting to the general ledger and approval of additions and terminations relating to the payroll.
3) Custody of unmailed signed checks and maintenance of expense subsidiary ledger.
4) Collection of receipts on account and maintaining accounts receivable records.

Answer 1

The duties that would be considered basically incompatible in terms of good internal control are: 1) Preparation of monthly statements to customers and maintenance of the accounts payable subsidiary ledger. 2) Posting to the general ledger and approval of additions and terminations relating to the payroll. 3) Custody of unmailed signed checks and maintenance of expense subsidiary ledger.

Step-by-step explanation:

The duties that would ordinarily be considered basically incompatible in terms of good internal control are:

1. Preparation of monthly statements to customers and maintenance of the accounts payable subsidiary ledger. These two duties should be separated to ensure that the monthly statements to customers are accurate and not influenced by the maintenance of accounts payable subsidiary ledger.
2. Posting to the general ledger and approval of additions and terminations relating to the payroll. These duties should be separated to prevent any potential fraud or unauthorized changes to the payroll.
3. Custody of unmailed signed checks and maintenance of the expense subsidiary ledger. It is important to separate the custody of checks from the maintenance of expense subsidiary ledger to prevent potential misuse of checks or fraudulent transactions being recorded in the ledger.

By separating these duties, organizations can establish a strong internal control environment and reduce the risk of errors, fraud, and inconsistencies.