Question

Skylar Daniels was recently promoted to Senior Auditor in the accounting department. One of his primary responsibilities is to assist with the training of the accounting interns that only had minimal accounting education/experience at this point in their careers. As part of the training curriculum, the interns are required to go through the month’s transactions and manually book them, rather than using the computerized accounting software. This is intended to give them a better understanding of the mechanics behind the system.

During his review of one of the intern’s work, he discovered that an accountant was entering transactions without any supporting documentation.

Another intern was erroneously reversing all of the entries related to cash, by debiting it for decreases and crediting it for increases. When asked why he was doing this, he mentioned that his personal checking account register showed a debit for decreases/withdrawals and a credit for increases/deposits.

A third intern questioned the need to have two separate entries for every transaction, claiming that it duplicates the work for no apparent reason. “If we are paying a bill, why can’t we just show the cash decrease?”, he asked.

Discuss the following:

1. How would you respond to the first intern regarding the need for supporting documentation?
2. How would you respond to the second intern regarding the increases and decreases to cash? Is he correct?
3. How would you respond to the third intern regarding the need for multiple entries for each transaction?
4. Your answers to (a), (b), and (c) should be different from your classmates.

Answer 1

1. Supporting documentation for any transaction, helps in validating the transaction in future. Also such supporting documents would help in clearing the compliance audits conducted in companies. This is the reason why supporting documents for any transaction conducted, must be maintained.

2. The intern has got the concept wrong. When a person debits a cash account, it implies that the amount of cash in the company increases. When a person credits a cash account, it implies that the amount of cash in the company decreases.

3. The concept of multiple entry, basically denotes the principle of double-entry book keeping. The fundamental rule followed is that whenever a financial transaction is conducted, at least 2 different accounts experience an equal and opposite effect.