Multiple Choice
Which of the following cash receipts procedures represents an internal control strength according to the five components of internal controls?
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6. Internal Controls and Reporting Cash
Five Components of Internal Controls
Multiple Choice
All of the following are examples of controls of cash except:
A
Allowing one employee to both authorize and record cash transactions
B
Segregation of duties between cash handling and recordkeeping
C
Requiring daily deposits of cash receipts
D
Performing regular bank reconciliations
Verified step by step guidance1
Understand the concept of internal controls over cash: Internal controls are procedures and policies implemented by a company to safeguard its assets, ensure accurate financial reporting, and promote operational efficiency. In the context of cash, these controls are designed to prevent theft, fraud, and errors.
Review the examples provided in the question: Each option represents a potential control or lack thereof. Analyze each option to determine whether it aligns with the principles of effective internal controls.
Evaluate the principle of segregation of duties: Segregation of duties is a key internal control that ensures no single employee has control over all aspects of a financial transaction. This reduces the risk of fraud or errors. For example, separating cash handling from recordkeeping is a strong control measure.
Assess the requirement for daily deposits of cash receipts: Requiring daily deposits ensures that cash is promptly accounted for and reduces the risk of theft or misplacement. This is an example of a good internal control.
Identify the exception: Allowing one employee to both authorize and record cash transactions violates the principle of segregation of duties and increases the risk of fraud or errors. This is not an example of a control of cash, making it the correct answer to the question.
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