Question

In a well-designed internal control structure, two tasks that should be performed by different persons are?

A. Preparation of POs and authorization of monthly payroll
B. Preparation of bank reconciliations and recording of cash disbursements
C. Distribution of payroll checks and approval of credit sales
D. Posting of amounts from both the cash receipts journal and cash disbursements journal to the general ledger
E. Posting of amounts from the cash receipts journal to the general edger and distribution of payroll checks

Answer 1

In an effective internal control structure, the preparation of bank reconciliations and recording of cash disbursements should be performed by different persons to maintain segregation of duties and minimize the risk of errors and fraud. The correct option is B.

Step-by-step explanation:

In a well-designed internal control structure, tasks are separated to ensure that no single individual has control over all aspects of any significant transaction. This concept is known as segregation of duties and is crucial to prevent errors and fraud. Looking at the options provided, B. Preparation of bank reconciliations and recording of cash disbursements should be performed by different persons.

This is because the person who records cash disbursements could conceal a fraudulent transaction or error if they were also responsible for the bank reconciliation. The bank reconciliation process is a detective control that can identify discrepancies between the company’s cash records and the bank statements. Therefore, segregating these tasks reduces the risk of undetected errors or fraud.