Question

11-5. Criticize the following statement: "Because the sudes department maintains relationships with customers, personnel from that department should granu credit and decide when accounts should be written off as uncollectible."

Answer 1

Sales department maintains relationships with customers but if allowing that department staff to grant credits and decide when accounts should be written off as uncollectible, it may leads to collusion among sales personnel and customers results granting credits to inelegible customers, inappropriately writing off good debts as bad and uncollectible debts, and may leads to cash loss and loss of customers in some instances. Moreover sales department does not know about importance of working capital, houw to manage receivables, liquidity of the company. That's why, company should implement internal controls and internal check system. Make sure that all decision making power should not concentrate on one person or few persons. Put involvement of more than one department.