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Explain why each of the following conbinations of tasks should or should not be separated to achieve adequate internal control. a. Approval of bad debt
Explain why each of the following conbinations of tasks should or should not be separated to achieve adequate internal control. | ||||||||||
a. Approval of bad debt write-offs and the reconciliation of the AR subsidiary ledger and the GL control account. | ||||||||||
b. Distribution of payroll checks to employees and approval of employee time cards. | ||||||||||
c. Posting of amounts from both the cash receipts and the cash disbursements journals to the general ledger. | ||||||||||
d. Writing checks to vendors and posting to the cash account. | ||||||||||
e. Recording cash receipts in the journal and preparing the bank reconciliation. | ||||||||||
Answer: | ||||||||||
a. These two tasks need to be spearated. Having the responsibility for writing off bad debts (asset-accounts receivable) and recording accounts receivable with the general ledger control account assets creates the potention for fraudulent behavior. | ||||||||||
b. These two need to be separated since the individual having authority to approve payments for time worked also have access to the payment/check, which creates the potential for fraudulent behavior. | ||||||||||
c. IN neither case does the employee have access to the assets, therefore, no danger exists. | ||||||||||
d. These two tasks do not need to be separated since the two taskes are independent of one another. | ||||||||||
e. These tasks do not need to be separated. The employee records the transactions and has access to assets. To allow the employee to verify the accuracy of the records would allow him or her to cover up any money embezzled by doctoring the bank reconciliation. | ||||||||||
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