Question

P7-1A. Internal Control Xiley Company encountered the following situations:

a. The person who opens the mail for Xiley, Bill Stevens, stole a check from a customer and cashed it. To cover up the theft, he debited sales returns and allowances and credited accounts receivable in the general ledger. He also posted the amount to the customer's account in the accounts receivable subsidiary ledger.

b. The purchasing agent, Susan Martin, used a company purchase order to order building materials from Lumber Mart. Later, she telephoned Lumber Mart and changed the delivery address to her home address. She told Lumber Mart to charge the material to the company. At the month-end, she approved the invoice from Lumbar Mart for payment.

c. Nash supply company sent two invoices for the same order: the first on June 10 and the second on July 20. The accountant authorized payment of both invoices and both were paid.

d. On January 1, Jack Monty, a junior accountant for Xiley, was given the responsibility of recording all general journal entries. At the end of the year, the auditors discovered that Monty had made 150 serious errors in recording transactions. The chief accountant was unaware that Monty had been making mistakes.

Required

For each situation, describe any violations of good internal control procedures and identify the steps that you would take to prevent each situation

Answer 1