In: Accounting
How does lapping, involving misappropriation of checks by cashing them, impact accounts receivable accuracy and customer bill notices?
Lapping involves a cash receipts clerk stealing customer payments that are in the form of checks, by cashing the check him/ herself. Many employees view this as borrowing, since they plan to repay it someday. Lapping of accounts receivable works as follows:
Period 1: Cashier receives $1000 from ABC Company and keeps it.
Period 2: Cashier receives $1000 from XYZ Company and credits ABC Company’s accounts receivable account.
Period 3: Cashier receives $1000 from JKL Company and credits XYZ Company’s accounts receivable account.
At any given time, accounts receivable is overstated by $1000, as well as cash. The employee keeps “lapping” the accounts, so a customer will not receive a delinquent bill notice.
Lapping: Clerk steals checks, masks with subsequent payments, falsely inflating accounts, delaying delinquency notices, causing financial misstatements.