Question

Exercise 7-02 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 1. To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked briefcase in the stockroom until it is deposited in the bank. (a) Weakness: Principle: (b) Recommended Change: 2. All over-the-counter receipts are processed by three clerks who use a cash register with a single cash drawer, (a) Weakness: Principle: (b) Recommended Change: 3. The company accountant makes the bank deposit and then records the day's receipts.

Answer 1

1.	To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attached case in the stock room until it is deposited in the bank.
(a)	Weakness:	Cash is notadequately protected from theft.
	Principle:	Physical controls
(b)	Recommended Change:	Cash should be stored in a safe until it is deposited in bank.
2.	All over-the-counter receipts are processed by three clerks who use a cash register with a single cash drawer.
(a)	Weakness:	Inability toestablish responsibility for cash with a specific clerk.
	Principle:	Establishment of responsibility.
(b)	Recommended Change:	There should beseparate cash drawers and register codes for each clerk
3.	The company accountant makes the bank deposit and then records the day's receipts.
(a)	Weakness:	The accountant should not handle cash.
	Principle:	Segregation of duties
(b)	Recommended Change:	The cashier’s department should make the deposits.
4.	At the end of each day, the total receipts are counted by the cashier on duty and reconciled to the cash register total.
(a)	Weakness:	Cash is not independently counted.
	Principle:	Independent internal verification
(b)	Recommended Change:	A cashier office supervisor should count cash.
5.	Cashiers are experienced; they are not bonded.
(a)	Weakness:	Cashiers are not bonded.
	Principle:	Human resource controls
(b)	Recommended Change:	All cashiers should be bonded.