Question

which of the following statements regarding a lock - box system is incorrect?
a. internal control is tight because company personnel never touch incoming cash
b. customers send their checks directly to a post office box that belongs to the company
c. cash is put into the companys bank account quickly
d. a bank employee empties the box daily and records the deposits into the companys bank account

Explanation:

• Option A: In a lock - box system, since company personnel do not handle incoming cash (customers send checks to a post - office box), internal control is enhanced as there is less opportunity for misappropriation. This statement is correct.
• Option B: In a lock - box system, customers send their payments (checks) directly to a post - office box rented by the company. This statement is correct.
• Option C: Because the bank is involved in quickly processing the checks (from the lock - box), cash is deposited into the company's bank account more rapidly compared to a non - lock - box system. This statement is correct.
• Option D: In a lock - box system, the bank empties the box (collects the checks) and processes them (for deposit), but the company is responsible for recording the deposits in its accounting records. The bank's role is mainly related to the physical handling and initial processing of the checks for deposit, not recording the deposits in the company's books. This statement is incorrect.

Answer:

D. A bank employee empties the box daily and records the deposits into the company’s bank account