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 EverydaySupplies’ sales are to construction contractors on account.Retail customers pay for merchandise by cash or credit card at cash registers when merchandise ispurchased. A contractor may purchase merchandise on account, if approved by the credit managerbased 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 setup the receivable.The accounts receivable supervisor independently verifies the pricing and other details on thecharge form by reference to a management - authorised price list, corrects any errors, preparesthe invoice, and supervises a part-time employee who mails the invoice to the contractor. Theaccounts receivable supervisor electronically posts the details of the invoice in the accountsreceivable subsidiary ledger; simultaneously, the transaction’s details are transmitted to thebookkeeper. The accounts receivable supervisor also prepares a monthly computer-generatedaccounts receivable subsidiary ledger without a reconciliation with the accounts receivable controlaccount and a monthly report of overdue accounts.4The cash receipts functions are performed by the cashier, who also supervises the cash registerclerks. 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 theremittance 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 depositslips to assist in reconciling the monthly bank statements, but forwards to the bookkeeper a copyof 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 andthe cashier for journalising and positing to the general ledger. After recording the remittanceadvices received from the cashier, the bookkeeper electronically transmits the remittanceinformation to the accounts receivable supervisor for subsidiary ledger updating. The bookkeepersends monthly statements to contractors with unpaid balances upon receipt of the monthly reportof overdue balances from the accounts receivable supervisor. The bookkeeper authorises theaccounts receivable supervisor to write off accounts as uncollectible when six months have passedsince the initial overdue notice was sent. At this time, the credit manager is notified by thebookkeeper not to grant additional credit to that contractor.Required:Describe five (5) internal control weaknesses in Everyday Supplies’ internal control for the cashreceipts and billing functions and explain why they are weaknesses for two (2) that youhave identified.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
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.
4
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.
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