(Objective 14-3) The following are a list of possible errors or fraud (1 through 5) involving cash receipts and controls (a. through g.) that may prevent or detect the errors or fraud:
Possible Errors or Fraud
1. Customer checks are properly credited to customer accounts and are properly deposited, but errors are made in recording receipts in the cash receipts journal.
2. Customer checks are misappropriated before being forwarded to the cashier for deposit.
3. Customer checks are received for less than the customers’ full account balances, but the customers’ full account balances are credited.
4. Customer checks are credited to incorrect customer accounts.
5. Different customer accounts are each credited for the same cash receipt.
Internal Controls
a. Customer orders are compared with an approved customer list.
b. Prenumbered credit memos are used for granting credit for returned goods.
c. Remittance advices are separated from the checks in the mailroom and forwarded to the accounting department.
d. The cashier examines each check for proper endorsement.
e. Total amounts posted to the accounts receivable subsidiary records from remittance advices are compared with the validated bank deposit slip.
f. Monthly statements are mailed to customers with outstanding balances.
g. An employee, other than the bookkeeper, periodically prepares a bank reconciliation.
For each error or fraud, select one internal control that if properly designed and implemented, most likely would be effective in preventing or detecting the errors and fraud. Each response in the list of controls may be used once, more than once, or not at all.*
Objective 14-3
Understand internal control, and design and perform tests of controls and substantive tests of transactions for sales.
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