1. Why should the responsibility for related transactions be divided among diffe
ID: 2428333 • Letter: 1
Question
1. Why should the responsibility for related transactions be divided among different departments or individuals?
2. What are the benefits of having a Petty Cash fund available within a business?
3. List the following assets in order of liquidity with the most liquid asset first:
Supplies
Merchandise Inventory
Cash
Building
Accounts Receivable
4. What is the purpose of reconciling the checkbook to the bank statement?
5. What are some of the common reasons why the checkbook balance at the end of the month disagrees with the bank statement balance for the same date?
(Identify at least five)
Explanation / Answer
1. This is known as the concept of internal controls. By dividing the related transactions among different departments or individuals, you are lowering the chance of unethical behavior by requiring the two or more departments/individuals involved in the transaction to collude in order to engage in property deviance. A classic example of this is ticket sales at a movie theatre. When you go buy a ticket at a movie theatre, you buy it from the ticket window, but then there is another employee that takes the ticket and allows you to enter the movie. Why don't the theaters just have the person who let's you into the movie sell you the ticket, so they only have to pay one employee? Because this way, the employee who lets you into the theatre cannot take your cash and let you into the theatre without printing out a ticket, and then pocket the money for himself. Similarly, the ticket seller cannot take the cash for himself and let you into the theatre because you need a ticket to get past the second employee. 2. This allows employees to have access to cash they need for day to day operations, but still restricts them to a small spending limit so they can't go and buy a car (or whatever) with the company's money. 3. Cash Accounts receivable Merchandise inventory supplies building 4. For accuracy. By which, I mean so that your checkbook balance is accurate on your books (note: this is assuming that the bank statement is accurate, which is usually the case). 5. 1. A cheque issued has not be deposited by the holder. 2. A banking transaction, such as a fee, has not yet been applied by the bank (but you have anticipated this fee). 3. The bank has made an error. 4. The bookkeeper has made an error. 5. A cheque deposited by the organization has not yet been applied to the organizations bank account.
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