Chapter 6: Q7DQ (page 304)
Which of the following assets—inventory, building, accounts receivable, or cash—is most liquid? Which is least liquid?
Answer
Cash is generally the most liquid, and the least liquid is a building.
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For each of these five separate cases, identify the principle(s) of internal control that is violated. Recommend what the business should do to ensure adherence to principles of internal control.
2. At Tico Company, Julia and Trevor alternate lunch hours. Julia is the petty cash custodian, but if someone needs petty cash when she is at lunch, Trevor fills in as custodian.
For each of these five separate cases, identify the principle(s) of internal control that is violated. Recommend what the business should do to ensure adherence to principles of internal control.
3. Nori Nozumi posts all patient charges and payments at the Hopeville Medical Clinic. Each night Nori backs up the computerized accounting system to a drive and stores it in a locked file at her desk.
A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.
a. A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly.
What internal control procedures would you recommend in each of the following situations?
1. A concession company has one employee who sells towels, coolers, and sunglasses at the beach. Each day, the employee is given enough towels, coolers, and sunglasses to last through the day and enough cash to make change. The money is kept in a box at the stand.
Palmona Co. establishes a $200 petty cash fund on January 1. On January 8, the fund shows $38 in cash along with receipts for the following expenditures: postage, \(74; transportation-in, \)29; delivery expenses, \(16; and miscellaneous expenses, \)43. Palmona uses the perpetual system in accounting for merchandise inventory. Prepare journal entries to
(1) establish the fund on January 1(2) reimburse it on January 8 (3) both reimburse the fund and increase it to $450 on January 8, assuming no entry in part 2. (Hint: Make two separate entries for part 3.)
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