Question

The following are a list of possible errors or fraud (1 to 5) involving cash receipt and controls (a to g) that may prevent or detect the errors of fraud:

Possible errors or fraud

1. Customer cheques are properly credited to customer accounts and are properly deposited, but errors are made in recording receipts in the cash receipt journal.
2. Customer cheques are misappropriated before being forward to the cashier for deposit.
3. Customer cheques are received for less than the customers’ full account balances, but the customers’ full account balances are credited.
4. Customer cheques are credited to incorrect customer accounts.
5. Different customer accounts are each credited for the same cash receipt.

Internal controls

1. Customer orders are compared with an approved customer list.
2. Pre-numbered credit memos are used for granting credit for returned goods.
3. Remittance advices are separated from the cheques in the mailroom and forwarded to the accounting department.
4. The cashier examines each cheques for proper endorsement.
5. Total amount posted to the account receivables subsidiary records from remittance advices are compared with the validated bank deposit slip.
6. Monthly statements are mailed to customers with outstanding balances
7. An employee, other than the bookkeeper, periodically prepared bank reconciliation.

Required:

For each of error or fraud, select one (1) internal control that if properly designed and implemented, most likely would be effective in preventing or detecting the errors and fraud. (Each response in the list of controls may be used once, more than once or not at all)

[Total: 5 Marks]

Answer 1

Answer :-

1) Customer checks are properly credited to customer accounts and are properly deposited, but errors are made in recording receipts in the cash receipts journal.

> An employee other than the bookkeeper periodically prepares a bank reconciliation

2) Customer checks are misappropriated before being forwarded to the cashier for deposit.

>Total amounts posted to the accounts receivable subsidiary records from remittance advices are compared with the validated bank deposit slip.

3) Customer checks are received for less than the customers’ full account balances, but the customers’ full account balances are credited.

>Total amounts posted to the accounts receivable subsidiary records from remittance advices are compared with the validated bank deposit slip.

4) Customer checks are credited to incorrect customer accounts.

>Monthly statements are mailed to customers with outstanding balances.

5) Different customer accounts are each credited for the same cash receipt.

>Total amounts posted to the accounts receivable subsidiary records from remittance advices are compared with the validated bank deposit slip.