Define the purpose of internal controls and give one example relevant to cash receipts.

• A. To safeguard assets and ensure accurate financial reporting; example: separation of duties in handling cash and recording receipts
• B. To reduce taxes; example: accelerating expenses
• C. To maximize profits; example: increasing sales staff
• D. To improve customer service; example: offering discounts

Answer: (A)

Internal controls are the policies and procedures that protect assets and ensure accurate, reliable financial reporting and compliance. For cash receipts, the goal is to make sure every dollar received is recorded and deposited correctly, and to prevent or detect errors and fraud quickly. A classic example is separation of duties: different people handle receiving cash, recording the receipts, and depositing the funds. This division means no single person can both skim cash and cover it up, and it makes discrepancies between cash on hand and records easier to spot, improving both asset protection and the reliability of the financial statements. The other choices focus on taxes, profits, or customer service, which aren’t the aims of internal controls.