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Financial & Managerial Accounting
Found in: Page 307
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Some of Crown Company’s cash receipts from customers are received by the company with the regular mail. The company’s recordkeeper opens these letters and deposits the cash received each day.

  1. Identify any internal control problem(s) in this arrangement


A major internal control issue is that the record keeper (who has command over accounting records) has actual control over cash receipts. Likewise, the record keeper could take cash and claim that a payment was never received and lost via the mail.

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Step by Step Solution

Step-by-Step SolutionStep 1: Introduction to topic

Internal control: Internal control is applicable and important for everybody in the working environment. It addresses our ethical responsibility to understand and conform to university healthy policies and regulations and consider accountability to others and ourselves.

Step 2: Internal control problems in the arrangement are-

Nothing in the framework prevents the record keeper from taking cash from the mail and utilizing it personally.

The record keeper could likewise delay recording a cash receipt from a client until more money comes in sometime in the future from a second client. Then, at that point, the new cash receipt would be kept and recorded as a payment made by the main client. No entry is made in the second client's record until cash is received from a third client, etc. (This kind of fraud is designated "lapping.")

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