Which of the following cash receipts procedures represents an internal control strength according to the five components of internal controls?

• A. Allowing the same employee to both receive and record cash receipts.
• B. Failing to reconcile cash receipts with bank deposits regularly.
• C. Segregating duties so that the employee who receives cash is not the same person who records the transaction.
• D. Storing cash receipts in an unlocked drawer until the end of the week.

Answer: (C)

Verified step by step guidance

1. Understand the concept of internal controls: Internal controls are processes and procedures implemented by an organization to ensure the accuracy and reliability of financial reporting, safeguard assets, and comply with laws and regulations. The five components of internal controls include control environment, risk assessment, control activities, information and communication, and monitoring.
2. Identify the principle of segregation of duties: Segregation of duties is a key internal control activity that ensures no single employee has control over all aspects of a financial transaction. This reduces the risk of errors and fraud by dividing responsibilities among different individuals.
3. Evaluate the options provided: Analyze each option to determine whether it aligns with the principle of segregation of duties and other internal control strengths. For example, allowing the same employee to receive and record cash receipts violates segregation of duties, while storing cash in an unlocked drawer compromises asset safeguarding.
4. Recognize the correct procedure: Segregating duties so that the employee who receives cash is not the same person who records the transaction is an internal control strength. This ensures accountability and reduces the risk of misappropriation or errors.
5. Apply the concept to real-world scenarios: Consider how segregation of duties can be implemented in practice, such as assigning different employees to handle cash receipts, record transactions, and reconcile bank deposits. This strengthens the organization's internal control system.