posted by Anonymous .
Guard Dog Company recently changed its system of internal control over cash
disbursements. The system includes the following features.
Instead of being unnumbered and manually prepared, all checks must now be
prenumbered and written by using the new checkwriter purchased by the company. Before
a check can be issued, each invoice must have the approval of Jane Bell, the purchasing
agent, and Dennis Kurt, the receiving department supervisor. Checks must be
signed by either Tom Kimball, the treasurer, or Karen Thews, the assistant treasurer. Before
signing a check, the signer is expected to compare the amounts of the check with
the amounts on the invoice.
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.
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. Each month the bank statement
is reconciled with the bank balance per books by the assistant chief accountant.
Identify the internal control principles and their application to cash disbursements of
Guard Dog Company.