Question

principles P7.1A (LO 1,2) Bolz Office Supply Company recently changed its system of internal control over cash disbursements. The system includes the following features. Instead of being unnumbered and manually prepared, all checks must now be prenumbered and prepared by using the new accounts payable software purchased by the company. Before a check can be issued, each invoice must have the approval of Kathy Moon, the purchasing agent, and Robin Self

Answer 1

Internal control - Cash disbursement

1. Document Procedures

The prenumbering of checks is prescribed under the internal control principle "document procedures". At Bloz office Supply company the following activities are performed under this principle:-

• Prenumbering of checks helps to have control on the number of checks used in a sequential manner. Missed or unwarranted checks are identified.
• Each invoice should have the sign of Purchasing manager and Receiving manager before processing for the payment.
• After signing the check, the signer stamps the invoice with "PAID" inserts the date and the check number and the amount of check within the stamp.The paid invoice is being sent to accounting department for accounting.
• Blank check are stored in a safe in the treasure's office. The combination of the safe is know only to the treasurer and assistant treasurer.

2. Establishment of Responsibilities

The essential characteristics of internal control is to assign different responsibility to different individuals. At Bolz office Supply company the establishment of responsibilities principle is inducted as follows:-

• Kathy Moon the purchasing agent needs to approve the invoices before being paid in order to authenticate the correctness of the invoice that is being processed for payment.
• Robin Self the receiving department supervisor need to approve the invoices which confirms the receipt of material before the invoice is processed for payment.
• Checks are either signed by Jennifer Edwards the treasurer or Rich Woodruff the assistant treasure
• Bank reconciliation statement need to be prepared by the Assistant Chief Accountant

3. Independent internal verification

The internal verification is being done in order to verify the correctness of each and every transactions. At Bolz office Supply company the following activities are performed under this principle:-

• Before signing the check, the signer is expected to compare the amount of the check and the amount on the invoice.
• Each month bank statement is verified at the end of the month by the assistant chief accountant

4. Human Resources

All employees who handle or account for cash are bounded.