ACCTNG 503 MIDTERMS QUIZ 2
III. ABC Merchandising is the warehouse manager for
I. ASSESSING INTERNAL CONTROL a large office supply wholesaler. ABC receives to copies of
The following describes the cash receipts procedures for a the customer sales order from the sales department. He
medium-sized online and catalogue-based retailer. picks the goods from the shelves and sends them and one
Customer payments come directly to the general copy of the sales order to the shipping department. He then
mail room along with other mail items. The customer files the second copy in a temporary file. At the end of the
payments mail constitutes about 20% of the total mail day, ABC retrieves the sales orders from the temporary file
received each day. The mailroom clerks sort through the and updates the inventory ledger from a terminal in his
mail, open the customer payment envelopes, remove the office. At that time, he identifies item that have fallen to low
customer checks and remittance advices, and reconcile the levels, select a supplier, and prepares three copies of a
two documents. The mailroom supervisor then sends the purchase order. One copy is sent to the supplier, one is
reconciled checks and remittance advices to the accounts sent to the accounts payable clerk, and one is filed in the
Receivable clerk, who posts the amounts received to the warehouse. When the goods arrive from the supplier. ABC
customer AR subsidiary ledger and the cash receipts reviews the attached packing slip, counts and inspects the
journal from her computer terminal. The AR clerk then goods, places them on the shelves, and updates the
manually prepares a remittance list of all checks received, inventory ledger to reflect the receipt. He then prepares a
endorses the checks for deposits only and sends the receiving report and sends it to the accounts payable
checks and remittance list to the treasurer. Finally, the department.
clerk files the remittance advices in the AR department. REQUIRED:
Once the checks and remittance list arrive at the a. Prepare a system flowchart of the procedures
treasury department, the treasurer reconciles the described
documents, and manually prepares three hard copies of b. Identify any control problems in the system
the deposit slip. Next, he sends the checks and two copies c. What sorts of fraud are possible in this system?
of the deposit slip to the bank. Finally, he files the third
copy of the deposit slip and the remittance in the IV. A foreman of a construction company is
department. responsible for a construction crew comprised of many
REQUIRED: unskilled workers. Their tasks consist of mixing cement,
a. Identify the internal control weaknesses in the digging foundations, and loading onto trucks. The work is
cash receipt process. hard, and employee turnover rate is high and individuals
b. For each weakness, described the associated often leave without notice. Throughout the work week
risk employees record their attendance on a separate time
c. For each weakness, provide a possible control cards, which the foreman approves and submits to the
activity. payroll department at the end of the week. Based on the
timecards, the payroll department prepares the paychecks,
II. The following describes the cash disbursement sends them to the foreman who then distributes the checks
procedures for a wholesale building supply company. to his work crew.
When the accounts payable clerk receives the a. Prepare a system flowchart of the procedures
suppliers invoice she records the purchase in the purchase described
journal, records the liability in the AP subsidiary ledger, b. Identify any control problems in the system
and sets a due date based on the terms specified in the c. What sorts of fraud are possible in this system?
invoice. The clerk then updates the inventory control and
accounts payable control accounts in the general ledger.
The invoice is then filed in the department.
Each day, the clerk visually searches the AP
subsidiary ledger from her terminal for invoices that are
due to be paid. From her computer terminal, the clerk
prepares the check and records it at the check register. The
negotiable portion of the check is mailed to the vendor and
a check copy is then filed. The clerk then closes the liability
account in the AP subsidiary ledger and updates the
accounts payable control and cash accounts in the general
ledger.
a. Identify the internal control weaknesses
b. For each weakness, described the associated risks
c. For each weakness, provide a possible control
activity.
