Task 1: For each of these five separate cases, identify the principle of internal control that is violated. Recommend what the business should do to ensure adherence to principles of internal control.
1. Heather Flan records all incoming customer cash receipts for her employer and posts the customer payments to their respective accounts.
2. At Netco Company, Jeff and Jose alternate lunch hours. Jeff is the petty cash custodian, but if someone needs petty cash when he is at lunch, Jose fills in as custodian.
3. Nadine Cox posts all patient charges and payments at the P-Town Medical Clinic. Each night Nadine backs up the computerized accounting system to a tape and stores the tape in a locked file at her desk.
4. Barto Sayles prides himself on hiring quality workers who require little supervision. As office manager. Barto gives his employees MI discretion over their tasks and for years has seen no reason to perform independent reviews of their work.
5. Desi West's manager has told her to reduce costs. Desi decides to raise the deductible on the plant's property insurance from $5,000 to $10,000. This cuts the property insurance premium in half. In a related move. she decides that bonding the plant's employees is a waste of money since the company has not experienced any losses due to employee theft. Desi saves the entire amount of the bonding insurance premium by dropping the bonding insurance.
Task 2: Inoke Gallery had the following petty cash transactions in February of the current year:
Feb. 2 Wrote a $300 check, cashed it. and gave the proceeds and the petty cashbox to Bo Brown, the petty cashier.
5 Purchased bond paper for the copier for $10.13 that is immediately used.
9 Paid $2250 COD shipping charges on merchandise purchased for resale, terms FOB shipping point. Metro uses the perpetual system to account for merchandise inventory.
12 Paid $9.95 postage to express mail a contract to a client.
14 Reimbursed Alli Buck. the manager. $58 for business mileage on her car.
20 Purchased stationery for $77.76 that is immediately used.
23 Paid a courier $18 to deliver merchandise sold to a customer, terms FOB destination.
25 Paid $15.10 COD shipping charges on merchandise purchased for resale, terms FOB shipping point.
27 Paid $64 for postage expenses.
28 The fund had $21.23 remaining in the petty cash box. Sorted the petty cash receipts by ac¬counts affected and exchanged them for a check to reimburse the fund for expenditure& The fund amount is also increased to $400.
Required:
1. Prepare the journal entry to establish the petty cash fund.
2. Prepare a petty cash payments report for February with these categories: delivery expense, mileage expense. postage expense. merchandise inventory (for transportation-in), and office supplies expense. Sort the payments into the appropriate categories and total the expenditures in each category.
3. Prepare the journal entries for part 2 to both (a) reimburse and (b) increase the fund amount.