ASSESSING INTERNAL CONTROL
The following describes the cash disbursement procedures for a wholesale building supply company.
When the accounts payable clerk receives the supplier’s invoice she records the purchase in the purchases journal, records the liability in the AP subsidiary ledger, and sets a due date based on the terms specified on the invoice. The clerk then updates the inventory control and accounts payable control accounts in the general ledger. The invoice is then filed in the department.
Each day, the clerk visually searches the AP subsidiary ledger from her terminal for invoices that are due to be paid. From her computer terminal, the clerk prepares the check and records it in the check register. The negotiable portion of the check is mailed to the vendor and a check copy is filed. The clerk then closes the liability in the AP subsidiary ledger and updates the accounts payable control and cash accounts in the general ledger.
Required
a. Identify the internal control weaknesses in the cash receipts process.
b. For each weakness, describe the associated risks.
c. For each weakness provide a possible control activity.
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