Appliances Repair and Service Company bills all customers rather than collecting in cash when services are provided.

LOADING...

(Click the icon to view the additional information.)

Imagine the owner's surprise when he discovers that Gyders has committed a major theft of the company's cash receipts. He did so by not recording sales, recording improper credits to recorded accounts receivable, and overstating receivables.

Read the requirements

LOADING...

.

Requirement a. What weaknesses in the company's processes might have permitted the fraud?

The

bills being sent to customers after services rendered

lack of separation of duties

owner not taking an interest in the company

was the major weakness that permitted the fraud for Appliances Repair and Service Company. Gyders has reponsibility to

change account passwords to the accounting software to disallow others access to the accounts receivable accounts.

handle all bills and cash payments that are sent to the company, and allow customers to pay late without penalty.

open mail, prelist cash, update accounts receivable, and authorize sales allowances and write-offs for uncollectible accounts.

It is

easy

not easy

for Gyders to take the cash before it is prelisted and to charge off an accounts receivable as a sales allowance or as a bad debt.

Requirement b. What suggestions do you have for changing the process to reduce the future potential for fraud?

The benefit of prelisting cash is to

be able to keep the sales account updated and accurate at any point in time.

immediately document cash receipts at the time that they are received by the company.

If all cash is included on the prelisting, it is then

easier for other employees to steal the company's cash receipts by omitting cash.

easy to authorize sales allowances and write-offs for uncollectible accounts by omitting cash received.

easy for someone to trace from the prelisting to the cash receipts journal and deposits.

If a dispute arises with a customer, it is

easy

not easy

to trace to the prelisting and determine when the cash was actually received. The prelisting should be prepared by a competent person who

has

has no

significant responsibilities for accounting functions. The person

should

should not

be in a position to withhold the recording of sales, adjust accounts receivable or sales for credits, or adjust accounts receivable for sales returns and allowances or bad debts.Subsequent to the prelisting of cash, it is

desirable for a company accounting employee

desirable for an independent person

mandatory for an employee

required for a manager

to trace from the prelisting to the

bank statement

general subsidiary ledger

to verify that all amounts were deposited. This can be done by

any company employee

any company manager

any employee in the accounting department

anyone independent

of whoever does the prelisting, or prepares or makes the deposit.A general rule that should be followed for depositing cash is that it should be deposited

as quickly as possible

the day

the week

after it is received, and handled by

an independent person.

as few people as possible.

anyone in the company's accounting department.

one person only.

the manager of the accounting department.

It is, ideally, the person

not receiving

receiving

the cash that should prepare the prelisting and

instruct another employee to prepare

prepare

review

the deposit immediately afterward. That person

should

should not

deposit the cash in the bank.