Question

Match each of the following cash payment activities to the internal control principle to which it best relates. Select the appropriate internal control principle from the options below.

1) Segregation of duties
2) Authorization
3) Documentation
4) Physical controls
5) Independent internal verification

Answer 1

The internal control principles related to cash payment activities are segregation of duties, authorization, documentation, physical controls, and independent internal verification.

Step-by-step explanation:

The internal control principle that relates to each cash payment activity is as follows:

1. Segregation of duties: This principle states that different individuals should be responsible for each step of a cash payment process to prevent fraud. For example, one person should be in charge of preparing checks, while another person should be responsible for signing them.
2. Authorization: This principle states that there should be a clear system of approving and controlling cash payments. For instance, only authorized personnel should have the authority to approve cash disbursements.
3. Documentation: This principle emphasizes the importance of maintaining proper records and documentation for cash payments. It involves accurate and complete recording of transactions, such as invoices, receipts, and check stubs.
4. Physical controls: This principle refers to the physical safeguards put in place to protect cash payments. Examples include locked cash registers, safes, and secure storage for cash and checks.
5. Independent internal verification: This principle calls for periodic review and confirmation of cash payment activities by someone independent of the process. This helps detect errors or irregularities that might have been missed. For instance, reviewing bank statements and reconciling them with internal records.