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8. PHYSICAL CONTROLS
Accounting Records. Inventory records are updated based on the purchase
Accounting Records. The Accounts Payable Subsidiary ledger is updated
Accounting Records/Segregation of Functions. The receiving department
prepares the Receiving Report directly from the Packing Slip. A blind copy of the
Accounting Records/Independent Verification. The General Ledger
department should receive Journal vouchers or batch totals from Inventory
9. IT APPLICATION CONTROLS THAT APPLY.
a. Automated Purchase Approval. Computer logic, not a human
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being, decides when to purchase, what to purchase, and from which
b. Automated Three-Way Match and Payment Approval. When the
AP clerk receives the supplier’s invoice, the clerk accesses the
system and adds a record to the vendor invoice file. This act prompts
c. Automated Posting to Subsidiary and GL Accounts. All of the
record keeping functions are automated in the advanced technology
system. In the advanced technology system, a computer application,
which is not subject to human failings such as yielding to situational
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10. INTERNAL CONTROLS
Solution to Part a:
Solution to Part b:
Transaction Authorization
Supervision
Accounting Records
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Segregation of Duties
Access Control
11. ACCOUNTING DOCUMENTS
INTERNAL CONTROL CASES
1. Solution Smith’s Market
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d)
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2. SOLUTION TO TIGHT LINES FISHING AND CAMPING SUPPLIES
a), b), See diagrams on the following pages.
c) Internal Control Weaknesses and Risks
1) Purchasing clerk should not authorize purchases; this is an inventory
control function.
2) The receiving department clerk should receive a ‘blind copy’ of the
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3) Inventory clerk updates the inventory subsidiary ledger.
4) The AP Clerk should not update the general ledger AP Control account.
5) Cash Disbursement clerk should not update the AP subsidiary ledger or
the AP Control account in the GL.
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d.) Revised system
Student responses will vary for this part of the assignment. Since the case is
based on a centralized system, the redesigned system flowchart may not look