Question

14-33 (Objectives 14-3, 14-5) Items 1 through 10 present various internal control strengths or internal control deficiencies.
1. Credit is granted by a credit department

2.Once shipment occurs and is recorded in the sales journal, all shipping documents are electronically marked “recorded” by the accounting staff.
3.Sales returns are presented to a sales department clerk, who prepares a prenumbered receiving report.

4.Cash receipts received in the mail are received by a secretary with no record-keeping responsibility.
5.Cash receipts received in the mail are forwarded unopened with remittance advices to accounting.
6.The cash receipts journal is prepared by the treasurer’s department.

7.Cash is deposited weekly.

8.Statements are sent monthly to customers.
9.Write-offs of accounts receivable are approved by the controller.

10.The bank reconciliation is prepared by individuals independent of cash receipts record keeping.

Required For each of the preceding 10 items,

A. indicate whether the item represents an internal control strength for the sales and collection cycle. internal control deficiency for the sales and collection cycle.
B. For each item that you answered (A), indicate the transaction-related audit objective(s) to which the control relates.
C. For each item that you answered (B), indicate the nature of the deficiency.

* *Based on AICPA question paper, American Institute of Certified Public Accountants.

Answer 1