At Shore Rentals, Inc. the cashier collects checks and cash from customers, and the junior accountant records the transactions in the journal. The controller approves the journal entries and bank reconciliations. The treasurer signs checks and approves contracts.

Which internal control procedure is exemplified in the above situation?

Question

At Shore Rentals, Inc. the cashier collects checks and cash from customers, and the junior accountant records the transactions in the journal. The controller approves the journal entries and bank reconciliations. The treasurer signs checks and approves contracts.

Which internal control procedure is exemplified in the above situation?

BlackTom AI · Accepted Answer

In examining the scenario at Shore Rentals, we look for how tasks are divided to reduce risk of error or fraud. 
Option 1: Segregation of duties. This is the core principle demonstrated here: different employees handle the cash/receipts, recording, authorization, and custodial functions. The cashier collects, the junior accountant records, the controller approves, and the treasurer signs and approves contracts. By separating these responsibilities, no single person has end-to-end control, which helps detect and prevent misstatements or misappropriation. 
Option 2: Documentation procedures. While documentation is important, the example focuses on who performs which tasks rather than how documents are created or stored. The emphasis is on distribution of duties, not on the documentation process itself. 
Option 3: Human resource controls. This involves policies related to hiring, training, performance appraisals, and disciplinary actions. The scenario does not discuss HR policies or employee management aspects, so this is not the best fit. 
Option 4: Assignment of responsibilities. Although this touches on who is responsible for each task, it’s a broader description and could be interpreted as a general concept rather than the specific internal control aimed at separating duties to prevent errors and fraud. The scenario best illustrates the classic segregation of duties control. 
Collectively, the setup described aligns with the principle of segregation of duties, reducing the risk that one individual could both perpetrate and conceal errors or theft.

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