Q4SE - Horngren'S Financial And Managerial Accounting

Question

Applying internal control over cash payments by check

A purchasing agent for Franklin Office Supplies receives the goods that he purchases

and also approves payment for the goods.

Requirements

1. How could this purchasing agent cheat his company?

2. How could Franklin avoid this internal control weakness?

Step-by-Step Solution

Answer

The separation of duties avoids weaknesses.

Step 1: Definition of control overpayment by check

Control overpayment by check is the control that controls the payments made by check.

Step 2: The purchasing agent cheats the company

The purchasing agent can cheat the company by making more amount of payments than the number of goods purchased.

Step 3: Internal control weakness

This internal control weakness can be controlled by separating the duties.