Question

Exercise 8-02 The following control procedures are used at Torres Company for over-the-counter cash receipts. (a) For each procedure, explain the weakness in internal control, and identify the control principle that is violated. (b) For each weakness, suggest a change in procedure that will result in good internal control.

Answer 1

The control procedures at Torres Company for over-the-counter cash receipts have weaknesses that violate certain control principles. These weaknesses can be addressed by implementing suggested changes in procedure to improve internal control.

Step-by-step explanation:

The control procedures used at Torres Company for over-the-counter cash receipts have weaknesses that violate certain control principles.

1. Procedure: Cashiers are allowed to handle cash and make entries in the cash receipts journal.
2. Weakness: This can lead to potential errors or dishonesty. Cashiers may be tempted to manipulate the entries or misappropriate funds for personal gain.
3. Control principle violated:
4. - Separation of duties:
5. Cashiers should not have the ability to handle cash and maintain related records.
6. Suggested change in procedure: Implement a system where a separate employee is responsible for handling cash and making entries in the cash receipts journal.
7. Procedure: The cash register is not regularly reconciled to the cash receipts record.
8. Weakness: This lack of reconciliation can result in discrepancies that go undetected and may lead to theft or errors in recording.
9. Control principle violated:
10. - Reconciliation:
11. The cash register and cash receipts record should be regularly compared to identify any discrepancies.
12. Suggested change in procedure: Implement a regular process of reconciling the cash register to the cash receipts record, such as daily or weekly.
13. Procedure: Cashiers sometimes accept checks in payment for merchandise but do not always list them on the cash register tape.
14. Weakness: Not listing checks on the cash register tape can result in inaccurate record keeping, making it difficult to track and reconcile payments.
15. Control principle violated:
16. - Documentation:
17. All payment methods, including checks, should be documented and recorded in the cash register tape.
18. Suggested change in procedure: Ensure that cashiers list all accepted checks on the cash register tape to maintain accurate records of payments received.