Multiple Choice
Which of the following statements about the five components of internal control is INCORRECT?
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6. Internal Controls and Reporting Cash
Five Components of Internal Controls
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Which of the following is an internal control procedure designed to protect cash receipts?
A
Allowing employees to deposit cash at their discretion
B
Segregation of duties so that the person receiving cash is different from the person recording the transaction
C
Permitting a single employee to handle all aspects of cash management
D
Recording cash receipts only at the end of the month
Verified step by step guidance1
Understand the concept of internal control procedures: Internal controls are processes and policies implemented by an organization to safeguard assets, ensure accurate financial reporting, and promote operational efficiency. In this case, the focus is on protecting cash receipts.
Identify the key principle of segregation of duties: Segregation of duties is a fundamental internal control procedure that ensures no single individual has control over all aspects of a financial transaction. This reduces the risk of errors or fraud.
Analyze the options provided: Evaluate each option to determine whether it aligns with the principle of segregation of duties or other internal control procedures. For example, allowing employees to deposit cash at their discretion or permitting a single employee to handle all aspects of cash management increases the risk of fraud or errors.
Focus on the correct procedure: Segregation of duties ensures that the person receiving cash is different from the person recording the transaction. This separation creates a system of checks and balances, reducing the likelihood of misappropriation or inaccurate recording.
Conclude why the correct answer is appropriate: Recording cash receipts only at the end of the month is not an effective control procedure because it delays accountability and increases the risk of errors. Segregation of duties is the most effective internal control procedure for protecting cash receipts.
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