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l2-25. An auditor's Working papers Include the narra- tive description below of the cash receipts and billing portions of the internal control structure of Rural Build- lng SUDplles. Inc. Rural Is a single-store retailer that 53"5 a variety of tools. garden supplies. lumber. small app"- ances. and eIECtl'icai xtures to the public. although about half of Rural's sales are to construction contrac- tors on account. Rural employs 12 salaried sales asso- ciates. a credit manager. three full-time clerical workers. and several parttime cash register clerks and assistant bookkeeper; The full-time clerical workers perform such tasks as cash receipts. billing. and accounting and are adequately bonded. They are referred to In the narrative as \"accounts receivable supervisor." "cashier," and "bookkeeper.\" Norm rive 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 man- ager's familiarity with the contractor's reputation. After credit is approved. the sales associate files a prenum- bereci charge form with the accounts receivable [AIR] su pervlsor to set up the receivable. The HR supervisor independently veries the pricing and other details on the charge form by reference to a managementauthorized price list. corrects any errors. prepares the invoice. and supervises a part-time em ployee who mails the invoice to the contractor. The NR supervisor electronically posts the details of the invoice in the NR subsidiary ledger; simultaneously. the trans- action's details are transmitted to the bookkeeper. The HR supervisor also prepares a monthly computer. generated AIR subsidiary ledger without a reconciliation with the NR control account and a monthly report of overdue accounts. The cash receipts functions are performed by the cashier who also supervises the cash register clerks. The cashier opens the mail. compares each check with the enclosed remittance advice. stamps each check "For Deposit Only." and lists checks for deposit. The cashier then gives the remittance advices to the bookkeeper for recording. The cashier deposits the checks daily separate from the daily deposit of cash register receipts. The cashier retains the veried deposit slips to .5313: In recoriciling the monthly bank statements. but forwards to the bookkeeper a copy of the daily cash register sum- mary, The cashier does not have access to the ioumals or ledge-rs. ' The bookkeeper receives the details of transactions from the NR supervisor and the cashier for ioumaiizing and posting to the general ledger. After recording the remittance advices received from the cashier. the book keeper electronically transmits the remittance Informa tion to the AIR supervisor for subsidiary ledger updating. The bookkeeper sends monthly statements to contra? tors with unpaid balances upon receipt of the rnontili1y report of overdue balances from the AIR supennsorT e bookkeeper authorizes the AIR supemsor to write 0 ac: counts as uncollectible when six months have passe e the initial overdue notice was sent. At this time, inc fire credit manager is notied by the bookkeeper not to grant additional credit to that contractor. Required Based only on the information in the narrative. describe the internal control weaknesses in Rural's integral-Sir; ' h receipts an i re concerning the cas . $11,013:? 1JOrganize the weaknesses by employee 10b [1 . f" ct red ' d - . ' ana er. NR supennsor. Cashier. an n k225i); I): :bt discribe how to correct the weak- Boo - "85595\" [CPA adapted)
