Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

6. Internal Controls and Reporting Cash

Five Components of Internal Controls

Financial Accounting

6. Internal Controls and Reporting Cash

Five Components of Internal Controls

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Multiple Choice

Which of the following is a principle of internal control as defined by the five components of internal controls?

Maximizing net income

Consolidating financial statements

Recording transactions only at year-end

Establishing responsibility

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Verified step by step guidance

Understand the concept of internal control: Internal control refers to the processes and procedures implemented by an organization to ensure the reliability of financial reporting, compliance with laws and regulations, and the effectiveness and efficiency of operations.

Learn the five components of internal control: These include (1) Control Environment, (2) Risk Assessment, (3) Control Activities, (4) Information and Communication, and (5) Monitoring Activities.

Focus on the principle of 'Establishing Responsibility': This principle involves assigning specific tasks and responsibilities to individuals to ensure accountability and prevent errors or fraud. For example, designating one person to handle cash receipts ensures clear accountability.

Compare the options provided: Evaluate each option against the principles of internal control. 'Maximizing net income,' 'Consolidating financial statements,' and 'Recording transactions only at year-end' are not principles of internal control. 'Establishing responsibility' aligns directly with the principles of internal control.

Conclude that 'Establishing Responsibility' is the correct answer because it is a fundamental principle of internal control that ensures accountability and proper management of tasks within an organization.