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Which internal control ensures a company does not mistakenly pay for more items than were received?

Rationale

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

This internal control directly verifies that the quantity of items received matches the quantities billed, thereby preventing overpayments for goods. By ensuring proper documentation and confirmation of received items, it significantly reduces the risk of erroneous payments.

A (Require two signatures on each check) YOUR ANSWER

This control primarily addresses the issue of unauthorized payments or fraud by ensuring that at least two individuals must approve a transaction before payment is made. While it enhances security, it does not specifically prevent overpaying for items that were not received.

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

This is the correct choice as it establishes a systematic process where the inventory department verifies the quantity and quality of received goods before any payment is processed. This control ensures that accounts payable only processes payments for items that have been confirmed as received, thus eliminating the risk of paying for unreceived or excess items.

C (Purchasing department authorizes all orders before they occur) YOUR ANSWER

This control ensures that purchases are necessary and comply with company policies, but it does not directly verify the receipt of items. It helps in managing what gets ordered but does not prevent the payment for items that are not delivered or are in incorrect quantities.

D (Accounts payable uses pre-numbered checks) YOUR ANSWER

Using pre-numbered checks is a control mechanism that helps prevent unauthorized payments and maintains proper records of disbursements. However, it does not address the verification of received items, thus failing to prevent the possibility of overpayments for items not received.

Conclusion

Effective internal controls are essential in preventing financial discrepancies within a company. The control involving the inventory department's inspection of received items and subsequent reporting to accounts payable is crucial for ensuring accurate payments. By confirming that billed items match what was actually received, this method effectively safeguards against the risk of overpayment, while the other options primarily address different aspects of financial controls.

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