Final answer:
The option that represents a preventive control out of the ones provided is conducting a credit check before approving a sale on account, as it prevents potential financial risks before transactions occur. Option 1 is correct answer.
Step-by-step explanation:
The question is asking to identify which option is a preventive control. Preventive controls are actions or mechanisms that are put in place to prevent errors or fraud before they occur, rather than detecting them after they have happened. Now, let's consider each of the options:
- A credit check before approving a sale on account is indeed a preventive control. By checking a customer's credit history, a company can assess the risk of nonpayment and prevent potential bad debt losses.
- A bank reconciliation is a detective control because it is performed after transactions have occurred to ensure that the record of transactions on the company's books matches the bank's records.
- A physical inventory count is also a detective control, as it is carried out to confirm that the inventory records match the actual inventory on hand.
- Comparing the accounts receivable subsidiary ledger to the control account is another form of detective control, used to check that individual customer balances agree with the total balance in the control account.
Based on the above information, the correct option that represents a preventive control is a credit check before approving a sale on account. It is a measure taken to avoid potential financial risks and thereby prevent problems before they arise.