Assignment
SALES
Raider Company is a small wholesaler of plumbing supplies and sells its products to retail stores and construction contractors. Raider does not accept orders on-line. All customer orders are received through the mail.
Three individuals within the company are involved with billing customers and processing cash receipts: Quinn Smith, a front-office administrative assistant; Emerson Jones, an accounts receivable clerk; and Chris Matthews, the treasurer. The duties completed by these employees are listed below. This a complete list of the duties performed related to billing and cash receipts:
Quinn Smith is responsible for opening any incoming mail. Any purchase orders received in the mail from customers are sent by Smith to Emerson Jones. Usually, the company receives about 16-18 purchase orders each day.
When Emerson Jones receives the purchases orders from Smith, Jones immediately prepares a sale invoice form (a paper document) that has five copies that the company labels as copies A, B, C, D & E. Jones distributes the copies of the invoice as follows:
Copy A is the copy that will be sent to the customer (to bill the customer) after the goods are shipped. Jones waits until the notice of shipment has been received from the shipping department before sending copy A to the customer.
Copy B is the copy used by the accounts receivable clerk, Jones, to update the accounting records. This copy stays in the accounts receivable department.
Copies C and D are both sent to the shipping department
Copy E is sent to the warehouse as authority to retrieve items from the shelves and send them to the shipping department.
The warehouse personnel retrieve the items ordered from the warehouse shelves using copy E of the sales invoice and take them to the shipping department. If merchandise is not available, no ‘backorder' is processed. Instead, Raider Company expects the customer to place another order when they realize that not all merchandise ordered was included in the shipment.
A three-part bill of lading (BOL) is prepared by the shipping department. One copy is retained by the shipping department; one copy is given to the truck driver picking up the goods; and one copy is sent to the customer. The shipping department prepares the BOL based upon the items received from the warehouse.
The shipping department packages the items in appropriate boxes or containers. Copy D of the sales invoice is included with the shipment (in the box) and serves as the packing slip for the shipment.
The goods are picked up by the trucking company. The truck driver is given one copy of the BOL. The company's copy of the BOL is filed numerically in the shipping department.
After shipment has occurred, the shipping department sends the customer's copy of the BOL and Copy C of the sales invoice to Emerson Jones in the Accounts Receivable Department.
When Jones receives the customer copy of the BOL and Copy C of the sales invoice from the shipping department, Jones completes copies A and B of the sales invoice. Jones numbers the invoice, inserts the quantities shipped, unit prices and discounts, and calculates the extensions and the total invoice amount. Jones staples copies B and C of the sales invoice together.
Copy B of the sales invoice is used by Jones to enter the sales transaction in to the computer system. Jones enters the quantities, prices, discounts and general ledger accounts. The computer computers the extensions and total amount. Jones compares the extensions and invoice total to Copy A of the invoice.
Emerson Jones mails the customer's copy of the BOL and Copy A of the sales invoice to the customer.
Jones staples copies B and C of the invoice together, and files these in numerical order in the sales invoice file.
CASH RECEIPTS
Quinn Smith is responsible for opening the mail each day. (Cash is not received in the mail; only checks.) Smith separates the checks received from customers, along with any remittance advices and customer correspondence, from the other mail. The checks and related documentation are given to Emerson Jones in accounts receivable.
Jones examines each check and related documentation received from the customer to determine if enough information is available to record the transaction in the computerized accounting system.
Jones restrictively endorses the checks ("For Deposit only to the account of Raider Company" is stamped on the back of each check.) The checks are given to Chris Matthews, the treasurer. Matthews prepares the bank deposit and takes the deposit to the bank on a daily basis.
Using the customer's remittance advices and other correspondence, Jones enters the cash receipts transactions into the computerized accounting system.
If a customer took deductions when making payment (e.g. advertising allowances, freight, etc), Emerson Jones must follow-up with the customer to determine if the deductions were legitimate. If deductions taken by the customer were viewed by Jones to be legitimate, Jones prepares the appropriate credit memo and records it in the computer system. Any deductions which Jones does not believe were legitimate (and therefore, not settled by the use of a credit memo) are turned over to the sales manager to follow-up on and settle.
At the end of each month, Jones prints an aged accounts receivable trial balance. Jones reconciles the total of the trial balance to the accounts receivable control account in the general ledger.
CASE STUDY REQUIREMENTS
-Identify the internal control deficiencies ( about 16) in Raider Company's procedures related to the sales and cash receipts functions as presented below. You should assume that a procedure is not performed if it is not in the description of the sales and cash receipts functions presented below.
-Type your solution (double-spaced).
-Number the deficiencies ( about 16 deficiencies) identified sequentially (1, 2, 3, etc.).
-Leave an extra space between deficiencies
-Be sure to use proper grammar and appropriate business language.
-Use the Assertions
-Wherever you consider it appropriate, provide a narrative explaining the identified deficiency. (For example, a response that there is no segregation of duties would not be acceptable. As an example unrelated to the case study below, you should say that there is a lack of segregation of duties in that the payroll clerk should not record payroll transactions in the accounting records and also hand out payroll checks to the employees.)