Question

A new audit client of your processes its sales and cash receipts and cash receipts documents in the following manner: Cash Receipts The mail is opened each morning by a mail clerk in the sales department. The mail clerk prepares a remittance advice (showing customer and amount paid) if one is not received. The cheque and remittance advices are then forwarded to the sales department supervisor, who reviews each cheque and forwards the cheque and remittance advices to the accounting department supervisor. The accounting department supervisor, who also functions as the credit manager, review all cheques for payments of past due accounts and then forwards the cheque and remittance advices to account receivable clerk, who arranges the advices in alphabetical order. The remittance advices are posted directly to account receivable ledger. The cheques are endorsed by stamp and totaled. The total is posted to the cash receipts journal. The remittance advices are filed chronologically. Sales Salesclerks prepare the sale invoices in triplicate. The original and the second copy are presented to the cashier. The third copy is retained by the salesclerk in the sale book. When the sale is for cash, the customer pays the salesclerk, who presents the money to the cashier with invoice copies. A credit sale is approved by the cashier from am approved credit list after the salesclerk prepares the three-part invoice. After receiving the cash or approved invoice, the cashier validates the original copy of the sales invoice and gives it to the customer. At the end of each day, the cashier recaps the sales and cash received and forwards the cash the second copy of all sales invoices to the account receivable clerk. The account receivable clerk balances the cash received with cash sale invoices and prepare a daily sales summary. The credit sales invoices are posted to the account receivable ledger, and then all invoices are sent to the inventory control clerk in the sales department for posting to the inventory control ledger. After posting, the inventory control clerk files all invoices numerically, the accounts receivable clerk posts the daily sales summary to the cash receipts journal and sales journal and files the sales summaries by date. The cash from cash sales is combined with the cash received on account, and this constitutes the daily bank deposit. Bank Deposit The bank validates the deposit slip and returns the second copy to the accounting department, where it is filed by date by the accounts receivable clerk. Monthly bank statements are reconciled promptly by the accounting department supervisor and filed by date. Required:

i. Prepare a flowchart for the sales and cash receipts application of your client above.

ii. Explain FIVE (5) potential internal control weaknesses and corrective actions should be taken in the client procedures above.

iii. What is remittance advice? Explain the functions of remittance advice in a cash receipts business process above.

Answer 1

Flow Chart of Cash receipt to Sales

Potential internal control weaknesses and corrective actions

Weekness

• There is possibility of collusion between sales clerk & Cashier towards misappropriation of cash.

• May cause risk of loss and Misappropriation of Cash.

• Invoice made without enclosing proper supporting

• Unauthorized access to pass JV for recording of revenue

• Inadequate custody may lead to insecurity of cash.

Corrective Actions

• One extra check needs to be added so that all cash sales beyond the specific amount should be approved from manager level person.
• Monthly surprise check should be there to avoid.
• The billing is fully supported with folio information, banquet/catering checks, Audio Visual charge
  documentation, etc
• Sales are recorded by the AR Team - F&A upon receipts of the funds and to ensure the correctness of the same, they are reviewed by Finance Manager - F&A.
• Balance of hard cash is always kept by cashier on the basis of Cash Contract.

Meaning of Remittence Advise

Remittance advice is a proof of payment document sent by a customer to a business. Generally, it’s used when a customer wants to let a business know when an invoice has been paid. In a sense, remittance slips are equivalent to cash register receipts. They’re particularly helpful when it comes to matching up invoices with payments.