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Identifying internal control weakness in cash receipts Seawind Productions makes all sales on credit. Cash receipts arrive by mail. Justin Broadway, the mailroom clerk, opens envelopes and separates the checks from the accompanying remittance advices. Broadway forwards the checks to another employee, who makes the daily bank deposit but has no access to the accounting records. Broadway sends the remittance advices, which show cash received, to the accounting department for entry in the accounts. Broadway’s only other duty is to grant sales allowances to customers. (A sales allowance decreases the customer’s account receivable.) When Broadway receives a customer check for $600 less a $30 allowance, he records the sales allowance and forwards the document to the accounting department. Requirements Identify the internal control weakness in this situation. Who should record sales allowances? What is the amount that should be shown in the ledger for cash receipts?

Identifying internal control weakness in cash receipts Seawind Productions makes all sales on credit. Cash receipts arrive by mail. Justin Broadway, the mailroom clerk, opens envelopes and separates the checks from the accompanying remittance advices. Broadway forwards the checks to another employee, who makes the daily bank deposit but has no access to the accounting records. Broadway sends the remittance advices, which show cash received, to the accounting department for entry in the accounts. Broadway’s only other duty is to grant sales allowances to customers. (A sales allowance decreases the customer’s account receivable.) When Broadway receives a customer check for $600 less a $30 allowance, he records the sales allowance and forwards the document to the accounting department. Requirements Identify the internal control weakness in this situation. Who should record sales allowances? What is the amount that should be shown in the ledger for cash receipts?

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter4: Internal Control And Cash
Section: Chapter Questions
Problem 57APSA
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Identifying internal control weakness in cash receipts

Seawind Productions makes all sales on credit. Cash receipts arrive by mail. Justin Broadway, the mailroom clerk, opens envelopes and separates the checks from the accompanying remittance advices. Broadway forwards the checks to another employee, who makes the daily bank deposit but has no access to the accounting records. Broadway sends the remittance advices, which show cash received, to the accounting department for entry in the accounts. Broadway’s only other duty is to grant sales allowances to customers. (A sales allowance decreases the customer’s account receivable.) When Broadway receives a customer check for $600 less a $30 allowance, he records the sales allowance and forwards the document to the accounting department.

Requirements

  1. Identify the internal control weakness in this situation.
  2. Who should record sales allowances?
  3. What is the amount that should be shown in the ledger for cash receipts?

 

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