Question

Jane Smith handles cash receipts from customers. She also has responsibility for issuing credit memos and writing off uncollectible accounts. Additionally, she is responsible for maintaining the A/R records. When customers make payments, Jane occasionally issues a credit memo and steals the cash. This fraud can be discovered if an employee other than Jane:

Select one:

A. Reconciles the bank statement to the accounting records.

B. Reconciles the A/R subsidiary ledger to the A/R controlling account.

C. Investigates weekly all accounts written off as uncollectible.

D. Reconciles credit memos for sales returns to returned merchandise accepted by the receiving department.

Answer 1

Correct answer is : D. Reconciles credit memos for sales returns to returned merchandise accepted by the receiving depatment

For sensitive areas it is adviced to segregate the duties to reduce the chances of fraud. As in the given case all the important functions related to sales are performed by the Jane Smith and she take the advantage of her power and misappropriates the cash and issues credit note instead when no sales return were there. To ignore such kind of fraud and errors there should be segregation of duties. From the given options it is more appropriate if an employee reconciles credit memos for sales returns to returned merchandise accepted by the receiving depatment.