What exemplifies segregation of duties in accounting?

What exemplifies segregation of duties in accounting?

• A. The cashier records sales and also handles cash
• B. The person handling cash is also in charge of bank reconciliations
• C. The individual recording receipts should not handle actual cash
• D. The accountant files taxes while managing payroll

Answer: (C)

Segregation of duties in accounting is a key internal control mechanism designed to prevent errors and fraud by ensuring that no single individual has control over all aspects of a financial transaction. This principle is illustrated by the idea that the individual who records receipts, indicating the money received, should not also handle cash.

When one person is responsible for both recording and managing cash, it creates an opportunity for that individual to misappropriate funds or manipulate records without detection. By separating these duties, the organization can reduce the risk of fraud, as any discrepancies can be easily checked and verified by another party. In this context, ensuring that the person who records transactions is distinct from those who manage and handle the cash reinforces the integrity of the financial reporting process.