Problem: Marais Company recently changed its system of internal control over cash disbursements. The system includes the following features.
1. Instead of being unnumbered and manually prepared, all checks must now be prenumbered and written by using the new checkwriter purchased by the company.
2. Before a check can be issued, each invoice must have the approval of Jane Bell, the purchasing agent, and Vorn Lor, the receiving department supervisor.
3. Checks must be signed by either Derek Madsen, the treasurer, or Sara Goss, the assistant treasurer. Before signing a check, the signer is expected to compare the amounts of the check with the amounts on the invoice.
4. After signing a check, the signer stamps the invoice “paid” and inserts within the stamp, the date, check number, and amount of the check. The “paid” invoice is then sent to the accounting department for recording.
5. Blank checks are stored in a safe in the treasurer’s office. The combination to the safe is known by only the treasurer and assistant treasurer.
6. Each month the bank statement is reconciled with the bank balance per books by the assistant chief accountant.
Instructions:
Identify the internal control principles and their application to cash disbursements of Marais Company.