Accounting l Problem

docx

School

Fort Valley State University *

*We aren’t endorsed by this school

Course

2101

Subject

Accounting

Date

Apr 3, 2024

Type

docx

Pages

Uploaded by ruckertiffini

Tiffini R March 10, 2024 Ramona's Clothing is a retail store specializing in women's clothing. The store has established a liberal return policy for the holiday season in order to encourage gift purchases. Any item purchased during November and December may be returned through January 31, with a receipt, for cash or exchange. If the customer does not have a receipt, cash will still be refunded for any item under $75. If the item is more than $75, a check is mailed to the customer. Whenever an item is returned, a store clerk completes a return slip, which the customer signs. The return slip is placed in a special box. The store manager visits the return counter approximately once every two hours to authorize the return slips. Clerks are instructed to place the returned merchandise on the proper rack on the selling floor as soon as possible. This year, returns at Ramona's Clothing have reached an all-time high. There are a large number of returns under $75 without receipts. 1. How can salesclerks employed at Ramona's Clothing use the store's return policy to steal money from the cash register? 2. What internal control weaknesses do you see in the return policy that make cash thefts easier? 3. Would issuing a store credit in place of a cash refund for all merchandise returned without a receipt reduce the possibility of theft? List some advantages and disadvantages of issuing a store credit in place of a cash refund. 4. Assume that Ramona's Clothing is committed to the current policy of issuing cash refunds without a receipt. What changes could be made in the store's procedures regarding customer refunds to improve internal control? 1. Sales clerks at Ramona's Clothing could potentially exploit the store's return policy to steal money from the cash register in the following ways:  By not writing up a refund for a customer and pocketing the cash: A clerk could pretend to process a return, take the customer's returned item, and pocket the cash without ever recording the transaction.  By writing phony refunds and pocketing the cash: A clerk could create false return slips for items that were never sold or returned and then take the cash meant for the refund. 2. A lack of competent personnel, rotating duties, and mandatory vacations. Both inadequate separation of responsibilities, and proofs and security measures.Not

separating operations, custody of assets, and accounting. Not separating responsibilities for related operations. 3. Yes, by issuing a store credit instead of cash would reduce the immediate availability of cash to steal and could deter fraudulent activities by clerks. Advantage: A clerk could only issue a phony store credit rather than taking money from the cash register, which is less liquid and therefore less attractive for theft.  Advantage: The store would lose less revenue if customers had to choose other store merchandise instead of getting a cash refund, as it keeps the funds within the store.  Disadvantage: Issuing only a store credit for returns without a receipt is a stricter return policy that may affect gift-givers' purchase decisions, potentially reducing sales.  Disadvantage: Sales clerks will need to be trained to apply the new policy and write up a store credit. They will also need to be trained to handle the redemption of the store credit on future merchandise purchases, which could incur additional costs and time. 4. Yes, these could involve management intervention and electronic monitoring: Changes could include implementing a more robust electronic tracking system for returns, requiring managerial approval for all cash refunds, and conducting regular audits of return transactions to ensure compliance with policies and to detect any irregularities.

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