Warr22e_IM_TM_Ch09 - Transparency Master 9-1 INTERNAL...

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Unformatted text preview: Transparency Master 9-1 INTERNAL CONTROLSRECEIVABLES Separation of Duties The following tasks should be separated (performed by two different people): Task Reason 1. Accounting for 1. The accountant could steal receivables cash collected from custo- and collecting mers and hide the theft by receivables. modifying the accounting records. 2. Accounting for 2. The accountant might refrain receivables and from writing off uncollectible granting credit. accounts because that might point to poor judgment in granting credit. 3. Granting credit 3. A salesperson might over- and sales. look poor credit risks in an eagerness to get a sale (and commission). 4. Accounting for the 4. Employees would be unable accounts receivable to check for errors by com- subsidiary ledger and paring the total of the cus- the general ledger. tomer accounts in the subsi- diary ledger to the balance of accounts receivable in the general ledger. In summary, the operations of selling, credit approval, collec- tion of accounts receivable, and accounting for accounts re- ceivable should be performed by different people. Transparency Master 9-2 WRITING EXERCISE Hartwick's of New England is a small custom clothier, specializing in men's and women's ca- reer apparel. A customer may apply for an ac- count at Hartwick's by filling out a brief credit application and leaving it with a sales clerk. The store's owner, Jason Hartwick, reviews these ap- plications and approves all new accounts. Shirley Singleton is responsible for receiving and processing accounts receivable. She opens the mail, records all receipts in the appropriate customer's account, and prepares the deposit slip for the checks received. Mr. Hartwick actu- ally makes the bank deposit in order to keep close tabs on the cash coming into the business. Whenever a customer has a question about his or her account, the customer is referred to Mrs. Singleton, because she is most familiar with the customer accounts. Are there any internal control weaknesses in the assignment of responsibilities related to ac- counts receivable? If so, please describe them. Transparency Master 9-3 JOURNAL ENTRIES FOR UNCOLLECTIBLE ACCOUNTS ALLOWANCE METHOD Blocker Company estimates its uncollectible accounts based on an analysis of receivables. On December 31, a junior accountant pre- pared the following aging schedule for the company's $88,000 in out- standing receivables. Estimated Uncollectible Accounts Age Interval Amount % Amount Not due............................................. $58,650 2% $1,173 130 days past due......................... 13,220 4% 529 3160 days past due....................... 8,930 20% 1,786 6190 days past due....................... 4,000 30% 1,200 Over 90 days past due.................... 3,200 50% 1,600 $88,000 $6,288 The Allowance for Doubtful Accounts currently has a $210 debit bal- ance....
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Warr22e_IM_TM_Ch09 - Transparency Master 9-1 INTERNAL...

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