Question

In: Accounting

How does lapping, involving misappropriation of checks by cashing them, impact accounts receivable accuracy and customer bill notices?

How does lapping, involving misappropriation of checks by cashing them, impact accounts receivable accuracy and customer bill notices?

Solutions

Expert Solution

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.

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