Question

13. Which of the following controls is most likely to be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?

            A)   Employees responsible for authorizing sales and bad debt write-offs are denied access to cash.

            B) Shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts.

            C)   Employees involved in the credit-granting function are separated from the sales function.

            D) Subsidiary accounts receivable records are reconciled to the control account

                  by an employee independent of the authorization of credit.

WHY?

Answer 1

As per my expreience Option C seems to be most appropriate for this.

Reason- When fuctions are seperated it leads to creation of responsibilty centres in organisation. It makes sales personnel and credit manager accountable for their work. Everybody knows what is expected of him. The responsibility can easily be identified and satisfactory and unsatisfactory performances of them are known. Nobody can shift responsibility to anybody else if something goes wrong. So, under this system responsibility is assigned individually.