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Assignments from the Readings Week 2
CHAPTER 7: EXERCISE E7-2 (PAGE 349)
Culotti’s Pizza operates strictly on a carryout basis. Customers pick up their orders at a counter where a clerk exchanges the pizza for cash. While at the counter, the customers can see other employees making the pizzas and the large ovens in which the pizzas are baked.
Instructions: Identify the six principles of internal control and give and example of each principle that you might observe when picking up your pizza. (Note: It may not be possible to observe all principles.)
The six principles of internal control are establishment of responsibility, Physical, mechanical, and electronic controls, segregation of duties, independent internal verification, documentation procedures, and other controls.
1. Establishment of responsibility: Establishment of responsibility depends on if one or more employees are receiving money from the customer. If this is the case it could cause an issue with the cash register coming up short. The manager would then have difficulty determining which individual is responsible for the shortage.
2. Physical, mechanical, and electronic controls: Physical controls pertain to safeguarding of assets, and records that help protect the company’s assets. Mechanical and Electronic controls safeguard assets and help intensify the accuracy of and responsibility of the records in accounting. Physical, Mechanical, and Electronic controls are imperative which include examples such as Safes, and safety deposit boxes, storage cabinets that are used for inventory and records, pass key access in companies, alarms, television monitors, and time clocks for recording of time.
3. Segregation of duties: Segregation of duties embodies the ideas that responsibility related activities should be delegated to different individuals and that record keeping for an asset should be kept separate from the physical custody of that same asset. When a customer walks into Culotti’s Pizza they
CHAPTER 7: EXERCISE E7-2 (PAGE 349)
Culotti’s Pizza operates strictly on a carryout basis. Customers pick up their orders at a counter where a clerk exchanges the pizza for cash. While at the counter, the customers can see other employees making the pizzas and the large ovens in which the pizzas are baked.
Instructions: Identify the six principles of internal control and give and example of each principle that you might observe when picking up your pizza. (Note: It may not be possible to observe all principles.)
The six principles of internal control are establishment of responsibility, Physical, mechanical, and electronic controls, segregation of duties, independent internal verification, documentation procedures, and other controls.
1. Establishment of responsibility: Establishment of responsibility depends on if one or more employees are receiving money from the customer. If this is the case it could cause an issue with the cash register coming up short. The manager would then have difficulty determining which individual is responsible for the shortage.
2. Physical, mechanical, and electronic controls: Physical controls pertain to safeguarding of assets, and records that help protect the company’s assets. Mechanical and Electronic controls safeguard assets and help intensify the accuracy of and responsibility of the records in accounting. Physical, Mechanical, and Electronic controls are imperative which include examples such as Safes, and safety deposit boxes, storage cabinets that are used for inventory and records, pass key access in companies, alarms, television monitors, and time clocks for recording of time.
3. Segregation of duties: Segregation of duties embodies the ideas that responsibility related activities should be delegated to different individuals and that record keeping for an asset should be kept separate from the physical custody of that same asset. When a customer walks into Culotti’s Pizza they
References: Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2007). Financial accounting: Tools for business decision making (4th ed.). Hoboken, NJ: John Wiley & Sons. Vietz, Osmond. Weaknesses in an Internal Audit Control System. (2012).http://www.smallbusiness.chron.com/weaknesses-internal-audit-control-system-3810.html Williams, J. R., Haka, S. F., & Bettner, M. S. (2005). Financial & managerial accounting: The basis for business decisions (13th ed.). New York, NY: McGraw-Hill Companies.