Described below are some characteristics of the three elements of a company’s internal control structure.

Required:

Identify each description as relating to the control environment, accounting system, or control procedures. Give reasons why.

1. The internal auditors report directly to the audit committee.

2. Invoice amounts for credit sales are recorded in the sales journal and posted to the accounts receivable subsidiary ledger.

3. The company has a vice president for operations and several branch managers report to him.
4. All vendor invoices are approved for payment prior to issuance of checks to creditors.
5. The total of the accounts receivable subsidiary ledger is reconciled with the control account once a month.
6. Cash collected from customers is deposited in the bank each business day.
7. Management makes extensive use of budgets for all major expenses.
8. Physical inventory counts are compared with perpetual inventory records.