5. When a store purchases merchandise, why are individ- 1. List the seven broad

Question

5. When a store purchases merchandise, why are individ- 1. List the seven broad principles of internal control. 2. Internal control procedures are important in every busi- ual departments not allowed to directly deal with suppliers? 6. What are the limitations of internal controls? 7. Which of the following assets-inventory, building, accounts ness, but at what stage in the development of a business do 3. Why should responsibility for related transactions be receivable, or cash-is most liquid? Which is least liquid? 4. 1Why should the person who keeps the records of an as. 9. Why should cash receipts be deposited on the day of receipt? they become especially critical? divided among different departments or individuals? set not be the person responsible for its custody? 8. What is a petty cash receipt? Who should sign it?

Explanation / Answer

1) The seven broad principles of Internal Control are :-

2) Internal control procedures become especially critical when the manager of a business can no longer control the business through personal supervision and direct participation.

3) Responsibility for related transactions should be divided among different departments or individuals to ensure that the work of one individual acts as a check on the other.

4) It is necessary that the person who keeps the record of an asset should not be the person responsible for its custody. It is called Segregation of duties which is a key internal control measure. It is required to minimize the occurrence of errors or fraud by ensuring that no employee has the ability to perpetrate and conceal errors or fraud in tne normal course of their duties.

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