PART B: CASH RECEIPTS SYSTEM

The cash receipts process of Shade Ltd begins in the mailroom which is staffed by a mailroom clerk who has the responsibility of receiving and opening mails containing customers' payments and other routine mails.

Every morning, the mailroom clerk opens the envelope and separates the check and remittance advice. After reviewing both documents for completeness, the clerk prepares two copies of a remittance list. One copy of the remittance list together with the checks are sent to the cash receipts department. Another copy of the remittance list together with the remittance advice are sent to the billing department.

When the cash receipts clerk receives the remittance list and the checks, he reconciles them and endorses each check "For Deposit Only". He records the receipts from his terminal in the cash receipts journal. The clerk then fills out a deposit slip and deposits the checks in the bank. Finally, the clerk prints a hard-copy cash receipts journal voucher and forwards it to the general ledger department.

The billing department clerk receives the remittance list and remittance advice and records the amounts in the account receivable (AR) subsidiary ledger. The clerk files the remittance advices and the remittance list in the department. Lastly, the clerk prints a hard-copy AR summary and sends it to the general ledger department.

The general ledger department verifies the AR summary received from the billing department against the journal voucher received from cash receipts department and updated the control accounts in the general ledger. Finally, the clerk files the AR summary and the journal voucher in the department.

REQUIRED:

a.Identify five (5) internal control weaknesses of Shade Ltd cash receipts system.

(10 marks)

b.Recommend corrective actions to improve the above weaknesses.

(10 marks)