Question 55

Inventory department counts and inspects items and forwards the receiving report to accounts payable

This internal control ensures that the company only pays for the items it has actually received. By counting and inspecting items and providing a receiving report, discrepancies between ordered and received goods can be identified before payment is made.

A) Require two signatures on each check

This option primarily serves as a control to prevent unauthorized payments and fraud rather than ensuring accuracy in the quantity of items received. While it adds a layer of security, it does not directly address the issue of overpayment for items not received.

B) Inventory department counts and inspects items and forwards the receiving report to accounts payable

This option directly addresses the problem of overpayment by confirming that the quantity and quality of items received match what was ordered. This verification process is crucial for accurate accounting and prevents the company from paying for more items than were actually received.

C) Purchasing department authorizes all orders before they occur

While this control is important for managing procurement and ensuring that purchases align with company policies, it does not prevent the risk of paying for items that were not received. Authorization occurs before the transaction, which does not safeguard against subsequent errors in delivery.

D) Accounts payable uses pre-numbered checks

Using pre-numbered checks helps maintain an orderly and systematic accounting process, which can prevent duplicate payments. However, it does not directly ensure that payments correspond to items received, thus failing to address the concern of paying for unreceived goods.

Conclusion

The internal control that effectively prevents a company from mistakenly paying for more items than were received is the verification process conducted by the inventory department, as stated in option B. Other options, while beneficial for different aspects of financial control, do not directly tackle the issue of overpayment for undelivered goods. This makes option B the definitive correct answer.