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Accounting Theories & Limitations of Internal Control

1. You have been hired as the CFO of a new company and are determining the company's accounting needs.
- Explain to your staff at least 2 ways in which accounting data are used to make business decisions.
- Explain at least three related accounting terms or theories.

2. You are an accountant at a local CPA firm that is auditing the accounting records of ABC Company. You have been asked to educate the accounting department about the limitations of the internal control system in preparation for an upcoming audit. During your audit, you have identified that because of a weak internal control system, an adjusting entry for prepaid insurance was not recorded for the first 3 months of the year at $500 per month.
- Identify the limitations of the internal control system. Provide at least 3 limitations.
- Provide at least 2 examples of internal control procedures, and explain how these procedures can be implemented.
- Identify symptoms of a lack of internal control.
- Explain the impact of the missing journal entry on the financial statements of the company.

Solution Preview

Hello Student,

1. In this case you have been asked, as CFO of a company, to explain to your staff at least two ways in which accounting data may be used to make business decisions. Before you begin to answer this section of the question though, the first thing you may want to do is note some general information about accounting data (which can also be explained to staff). Note the ...

Solution Summary

This solution provides you with information related to two of the ways in which accounting data are used to make business decisions; it explains three accounting terms; it then tells limitations of the internal control system, gives two examples of internal control procedures and how they can be implemented, and tells the symptoms of a lack of internal control system. Finally it also explains the impact of the missing journal entry (related to prepaid insurance) on the financial statements of the company.

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