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Internal controls—merchandise returns The following is an excerpt from a conversation between two sales clerks, Jean Moen and Sara Cheney. Jean and Sara are employed by Turpin Meadows Electronics, a locally owned and operated electronics retail store. Jean : Did you hear the news? Sara : What news? Jean : Neal and Linda were both arrested this morning. Sara : What? Arrested? You’re putting me on! Jean : No, really! The police arrested them first thing this morning. Put them in handcuffs, read them their rights—the whole works. It was unreal! Sara : What did they do? Jean : Well, apparently they were filling out merchandise refund forms for fictitious customers and then taking the cash. Sara : I guess I never thought of that. How did they catch them? Jean : The store manager noticed that returns were twice that of last year and seemed to be increasing. When he confronted Neal, he became flustered and admitted to taking the cash, apparently more than $9,000 in just three months. They’re going over the transactions of the last six months to try to determine how much Linda stole. She apparently started stealing first. Suggest appropriate control procedures that would have prevented or detected the theft of cash.

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 7, Problem 5TIF
Textbook Problem
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Internal controls—merchandise returns

The following is an excerpt from a conversation between two sales clerks, Jean Moen and Sara Cheney. Jean and Sara are employed by Turpin Meadows Electronics, a locally owned and operated electronics retail store.

Jean: Did you hear the news?

Sara: What news?

Jean: Neal and Linda were both arrested this morning.

Sara: What? Arrested? You’re putting me on!

Jean: No, really! The police arrested them first thing this morning. Put them in handcuffs, read them their rights—the whole works. It was unreal!

Sara: What did they do?

Jean: Well, apparently they were filling out merchandise refund forms for fictitious customers and then taking the cash.

Sara: I guess I never thought of that. How did they catch them?

Jean: The store manager noticed that returns were twice that of last year and seemed to be increasing. When he confronted Neal, he became flustered and admitted to taking the cash, apparently more than $9,000 in just three months. They’re going over the transactions of the last six months to try to determine how much Linda stole. She apparently started stealing first.

Suggest appropriate control procedures that would have prevented or detected the theft of cash.

To determine

Suggest appropriate control procedures to prevent theft of cash.

Explanation of Solution

The following are the control procedures implemented to prevent /detect the theft of cash from fictitious returns:

  • “No cash refunds” can be established and the sold goods can be exchanged for other products. However, this policy is not very popular with the customers. There is a possibility of losing sales from the customers to shop at the other stores with a more liberal return policy.
  • There is another procedure where returns can be made only through centralized locations. Customer service desk are one form of centralized location...

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Chapter 7 Solutions

Financial And Managerial Accounting
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