The information that follows is grouped into two categories: 1) Internal Control and 2) Substantive Audit Procedures. This information is to be used to complete the exercises for this assignment.
Relevant Information
Internal Control
Peach Blossom Cologne Company’s general disbursement checking account (account number 101) is with the Big City National Bank, Main at Michigan Avenue, Chicago, Illinois. It is used for all cash receipts and disbursements transactions.
The following internal control questionnaire pertaining to cash receipts, cash disbursements, and cash balances was completed by Jasper Parsons on December 15, 2009. Review this questionnaire carefully along with the Permanent File material describing the control environment, as well as the accounting and control procedures related to the various cash subsystems. Your firm has found that personnel involved in this area are generally competent.
As you read this material and analyze the internal control questionnaire, keep in mind the six control procedure categories: (1) segregation of duties, (2) access, (3) authorization, (4) input controls, (5) processing controls, and (6) output controls. Then consider possible errors or irregularities that could occur in the accounting system related to cash transactions and balances.
Typical errors or irregularities involving cash receipts, disbursements, and balances include:
Cash Receipts
1. Cash receipts may have been deposited in the bank but not recorded in the cash receipts journal.
2. Cash receipts may have been recorded but not deposited in the bank.
3. The offsetting credit for the cash receipt may have been placed in the wrong account.
4. The amount of cash receipts may have been incorrectly recorded.
5. Cash receipts may have been recorded in the wrong accounting period.
