(L. OBJ. 7) Identifying internal control weakness in cash receipts [10—15 min]
Pendley Productions makes all sales on credit. Cash receipts arrive by mail. Larry Padgitt in the mailroom opens envelopes and separates the checks from the accompanying remittance advices. Padgitt forwards the checks to another employee, who makes the daily bank deposit but has fo access to the accounting records. Padgitt sends the remittance advices, which show cash received, to the accounting department for entry in the accounts. Padgitt’s only other duty is to grant sales allowances to customers. (A sales allowance decreases the amount receivable.) When Padgitt receives a customer check for $350 less a $20 allowance, he records the sales allowance and forwards the document to the accounting department.
Requirements
1. Identify the internal control weakness in this situation.
2. Who should record sales allowances?
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