Question

Below are descriptions of internal control problems. Identify the one best internal control principle that is related to the problem described.

1.The same person opens incoming mail and posts the accounts receivable subsidiary ledger.
2.Three people handle cash sales from the same cash register drawer.
3.A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise.
4.The person who is authorized to sign checks approves purchase orders for payment.
5.Some cash payments are not recorded because checks are not prenumbered.
6.Cash shortages are not discovered because there are no daily cash counts by supervisors.
7.The treasurer of the company has not taken a vacation for over 20 years.

Answer 1

3.A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise.

Cash shortages are not discovered because there are no daily cash counts by supervisors

Step-by-step explanation:

Internal controls are the systems used by an organization to manage risk and diminish the occurrence of fraud. The internal control structure is made up of the control environment, the accounting system, and procedures called control activities. Several years ago, the Committee of Sponsoring Organizations (COSO), which is an independent, private-sector group whose five sponsoring organizations periodically identify and address specific accounting issues or projects, convened to address the issue of internal control deficiencies in the operations and accounting systems of organizations. They subsequently published a report that is known as COSO’s Internal Control-Integrated Framework

Here we address some of the practical aspects of internal control systems. The internal control system consists of the formal policies and procedures that do the following:

ensure assets are properly used

ensure that the accounting system is functioning properly

monitor operations of the organization to ensure maximum efficiency

ensure that assets are kept secure

ensure that employees are in compliance with corporate policies