Chapter%2010 - CHAPTER 10 THE REVENUE CYCLE: SALES AND CASH...

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CHAPTER 10 THE REVENUE CYCLE: SALES AND CASH COLLECTIONS 10.8 (CMA Examination, adapted) a. O'Brien Corporation: Internal control weaknesses and recommended improvements: Weaknesses and Potential Problem(s) Recommendation(s) to Correct Weaknesses 1. Orders received over the telephone are not confirmed by customers in writing. This could result in errors or in filling bogus orders. Require a written customer purchase order as confirmation of telephone orders. 2. Customer credit histories are not checked before approving orders. This is resulting in excessive late collections and uncollectible accounts. Customers’ credit should be checked and no sales should be made to those that do not meet credit standards. 3. Sales orders are filed by date in the Marketing Department. This leads to difficulty in handling customer questions and complaints. Establish customer files and file sales orders by customers. 4. Only two copies of sales orders are prepared. This is not enough to insure a proper matching in the Billing Department. Prepare, at a minimum, a three-part sales order, sending one to Shipping and one to Billing. Billing should match its copy with a signed copy from Shipping before preparing a sales invoice. 5. Items that are out of stock are merely noted. Inaction in these cases could cause lost sales. Establish procedures to schedule production for back orders and to ship and bill the product once it is available. 6. There is no reconciliation of inventory amounts shipped with billings. This could Billing and shipping records should be integrated on the computer system to 10-1
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Ch. 10: The Revenue Cycle: Sales and Cash Collections result in undetected underbilling. provide for reconciliation of inventory amounts shipped and billed. 10-2
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Accounting Information Systems 7. The Receiving Department and the Shipping Department share a computer terminal. In addition, the personnel in both departments have access to the physical inventory and can update the perpetual inventory records through the terminal. This could result in theft of inventory with no means of tracing the theft. Each department should have its own terminal and the terminals should be for inquiry purposes only. The physical custody and recordkeeping of inventory should be separated (perpetual records should be updated on the computer by Purchasing/Accounts Payable and Billing). Access to the physical inventory should be limited to Receiving; it would add incoming goods to the physical inventory and select the goods from the warehouse for shipping. 8. The Receiving Department does not compare incoming deliveries to purchase orders. This may lead to the acceptance of unordered goods. Copies of purchase orders without quantity information should be sent to Receiving. Receiving should match the shipment to
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This note was uploaded on 10/02/2010 for the course ACCT 5457 taught by Professor Polm during the Fall '10 term at Rensselaer Polytechnic Institute.

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Chapter%2010 - CHAPTER 10 THE REVENUE CYCLE: SALES AND CASH...

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