Everyday Supplies Pty Ltd is a single-store retailer that
sells a variety of tools, garden supplies, timber, small
appliances, and electrical fixtures to the public, although about
half of Everyday Supplies’ sales are to construction contractors on
account.
Retail customers pay for merchandise by cash or credit card at
cash registers when merchandise is purchased. A contractor may
purchase merchandise on account, if approved by the credit manager
based only on the manager’s familiarity with the contractor’s
reputation. After credit is approved, the sales associate files a
prenumbered charge form with the accounts receivable supervisor to
set up the receivable.
The accounts receivable supervisor independently verifies the
pricing and other details on the charge form by reference to a
management - authorised price list, corrects any errors, prepares
the invoice, and supervises a part-time employee who mails the
invoice to the contractor. The accounts receivable supervisor
electronically posts the details of the invoice in the accounts
receivable subsidiary ledger; simultaneously, the transaction’s
details are transmitted to the bookkeeper. The accounts receivable
supervisor also prepares a monthly computer-generated accounts
receivable subsidiary ledger without a reconciliation with the
accounts receivable control account and a monthly report of overdue
accounts.
3
The cash receipts functions are performed by the cashier, who
also supervises the cash register clerks. The cashier opens the
mail, compares each cheque with the enclosed remittance advice,
stamps each cheque “for deposit only”, and lists cheques for
deposit. The cashier then gives the remittance advices to the
bookkeeper for recording. The cashier deposits the cheques daily,
separate from the daily deposit of cash register receipts. The
cashier retains the verified deposit slips to assist in reconciling
the monthly bank statements, but forwards to the bookkeeper a copy
of the daily cash register summary. The cashier does not have
access to the journals or ledgers.
The bookkeeper receives the details of transactions from the
accounts receivable supervisor and the cashier for journalising and
positing to the general ledger. After recording the remittance
advices received from the cashier, the bookkeeper electronically
transmits the remittance information to the accounts receivable
supervisor for subsidiary ledger updating. The bookkeeper sends
monthly statements to contractors with unpaid balances upon receipt
of the monthly report of overdue balances from the accounts
receivable supervisor. The bookkeeper authorises the accounts
receivable supervisor to write off accounts as uncollectible when
six months have passed since the initial overdue notice was sent.
At this time, the credit manager is notified by the bookkeeper not
to grant additional credit to that contractor.
Required:
Describe five (5) internal control weaknesses in Everyday
Supplies’ internal control for the cash receipts and billing
functions and explain why they are weaknesses for two (2)
that you have identified.
(Word Limit: Minimum of 550 words. Maximum of 600 words)
Question 4