Listed below are

(a) four potential errors or problems that could occur in the processing of cash transactions and

(b) internal control principles. For each error or problem, identify an internal control principle that could reduce the chance of the error or problem occurring. You may also cite more than one principle if more than one applies, or write none if none of the principles will correct the error or problem.

1. Three cashiers use one cash register and the cash in the drawer is often short of the recorded balance.

2. The same employee is responsible for opening the mail, listing any checks received, preparing the deposit receipt, and recording to the accounts receivable journal. Several customers have complained that their balances are incorrect.

3. In an effort to save printing costs, generic receipts without numbers are used for customer sales.

4. Because things have been hectic, no budgets were prepared this year. One department seems to be doing less volume in revenue, but cost of goods sold appear to be high relative to sales.

Internal control principles:

a. Establish clear lines of authority and responsibility.

b. Segregation of duties.

c. Hire competent personnel.

d. Use control numbers on all business documents.

e. Develop plans and budgets.

f. Maintain adequate accounting records.

g. Provide physical and electronic controls.

h. Conduct internal audits.