The following is the description of sales and cash receipts for the Michaella Nicole's

Fashion Fair, a retail store dealing in expensive women's clothing. Sales are for cash

or credit, using the store's own billing rather than credit cards.

Each salesclerk has her own sales book with prenumbered, three-copy,

multicolored sales slips attached, but perforated. Only a central cash register is used.

It is operated by the store supervisor, who has been employed for 10 years by Ms.

Kristhell, the store owner. The cash register is at the store entrance to control theft

of clothes.

Salesclerks prepare the sales invoices in triplicate. The original and the second

copy are given to the cashier, Michael Angelo. The third copy is retained by the

salesclerk in the sales book. When the sale is for cash, the customer pays the

salesclerk, who marks all three copies "paid" and presents the money to the cashier

with the invoice copies.

All clothing is put into boxes or packages by the supervisor, Yssa Clarin after

comparing the clothing to the description on the invoice and the price on the sales

tag. She also rechecks the clerk's calculations. Any corrections are approved by the

salesclerk. The clerk changes her sales book at that time.

A credit sale is approved by the supervisor from an approved credit list after

the salesclerk prepares the three-part invoice. Next, the supervisor enters the sale

in her cash register as a credit or cash sale. The second copy of the invoice, which

has been validated by the cash register, is given to the customer.

At the end of the day, the supervisor recaps the sales and cash and compares

the totals to the cash register tape. The supervisor deposits the cash at the end of

each day in the bank's deposit box. The cashier's copies of the invoices are sent to

the accounts receivable clerk along with a summary of the day's receipts. The bank

mails the deposit slip directly to the accounts receivable clerk.

Each clerk summarizes her sales each day on a daily summary form, which is

used in part to calculate employees' sales commissions. Norvic Dale, the accountant,

who is prohibited from handling cash, receives the supervisor's summary and the

clerk's daily summary form. Daily, she puts all sales invoice information into the fifirm's

computer, which provides a complete printout of all input and summaries. The

accounting summary includes sales by salesclerk, cash sales, credit sales, and total

sales. Norvic Dale compares this output with the supervisor's and salesclerks'

summaries and reconciles all differences.The computer updates accounts receivable, inventory, and general ledger

master fifiles. After the update procedure has been run on the computer, Norvic Dale's

assistant, Mcvenz, fifiles all sales invoices by customer number. A list of the invoice

numbers in numerical sequence is included in the sales printout.

The mail is opened each morning by the secretary, Gift Joy, in the owner's

offifice. All correspondence and complaints are given to the owner. The secretary

prepares a prelist of cash receipts. He totals the list, prepares a deposit slip, and

deposits the cash daily. A copy of the prelist, the deposit slip, and all remittances

returned with the cash receipts are given to Norvic Dale. She uses this list and the

remittances to record cash receipts and update accounts receivable, again by

computer. She reconciles the total receipts on the prelist to the deposit slip and to

her printout. At the same time, she compares the deposit slip received from the bank

for cash sales to the cash receipts journal.

A weekly aged trial balance of accounts receivable is automatically generated

by the computer. A separate listing of all unpaid bills over 60 days is also

automatically prepared. These are given to Ms. Kristhell, who acts as her own credit

collector. She also approves all write-offs of uncollectible items and forwards the list

to Norvic Dale, who writes them off.

Each month Norvic Dale mails statements generated by the computer to

customers. Complaints and disagreements from customers are directed to Ms.

Kristhell, who resolves them and informs Norvic Dale in writing of any write-downs

or misstatements that require correction.

The computer system also automatically totals the journals and posts the totals

to the general ledger. A general ledger trial balance is printed out, from which Norvic

Dale prepares fifinancial statements. Norvic Dale also prepares a monthly bank

reconciliation and reconciles the general ledger to the aged accounts receivable trial

balance.

Because of the importance of inventory control, Norvic Dale prints out the

inventory perpetual totals monthly, on the last day of each month. Salesclerks count

all inventory after store hours on the last day of each month for comparison with the

perpetuals. An inventory shortages report is provided to Ms. Kristhell. The perpetuals

are adjusted by Norvic Dale after Ms. Kristhell has approved the adjustments.

*** End of Story ***REQUIREMENT

a. For each sales transaction-related audit objective, identify one or more existing

controls.

b. For each cash receipts transaction-related audit objective, identify one or more

existing controls.

c. Identify defificiencies in internal control for sales and cash receipts.