Q15E - Horngren'S Financial And Managerial Accounting

Question

Evaluating internal control over cash payments Gary’s Great Cars purchases high-performance auto parts from a Nebraska vendor. Dave Simon, the accountant for Gary’s, verifies receipt of merchandise and then prepares, signs, and mails the check to the vendor.

Requirements

1. Identify the internal control weakness over cash payments.

2. What could the business do to correct the weakness?

Step-by-Step Solution

Answer

There is a weakness in the assignment of responsibilities.

Step-by-Step Solution Step 1: Definition of internal control over cash payments

Internal control over cash payments means controlling the activities of cash payments.

Step 2: Internal control weakness

The weakness of internal control is that one person is performing all responsibilities. Hence, the main weakness is the assignment of responsibilities.

Step 3: Way to correct the weakness

This weakness is correct by assigning different responsibilities to different persons.