P7-29A Identifying internal control weakness in cash receipts [10–15 min]
Two Brother Productions makes all sales on credit. Cash receipts arrive by mail. Justin
Broaddus in the mailroom opens envelopes and separates the checks from the accompanying
remittance advices. Broaddus forwards the checks to another employee, who
makes the daily bank deposit but has no access to the accounting records. Broaddus
sends the remittance advices, which show cash received, to the accounting department
for entry in the accounts. Broaddus’s only other duty is to grant sales allowances to
customers. (A sales allowance decreases the amount receivable.) When Broaddus
receives a customer check for $375 less a $60 allowance, he records the sales allowance
and forwards the document to the accounting department.
Requirements
1. Identify the internal control weakness in this situation.
2. Who should record sales allowances?
3. What is the amount that should be shown in the ledger for cash receipts?
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