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When Legacy Co. receives telephone and fax orders, the billing department prepares an invoice. The invoice is mailed immediately. A copy of the invoice serves as a shipping notice. The shipping department removes inventory from the warehouse and prepares the shipment. When the order is complete, the goods are shipped. The clerk checks the customer’s credit before recording the sale in the general journal and the account receivable subsidiary ledger.
The receptionist opens the mail and lists all payments. The receptionist also handles all customer complaints and prepares sales return forms for defective merchandise. The cashier records all cash receipts in the general journal and makes the appropriate entry in the accounts receivable subsidiary ledger. The cashier prepares the daily bank deposit.
Describe at least four internal control weaknesses at Legacy Co.
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- As orders are received from customers, a personnel in the sales department prepares a sales order and sends a copy to the credit department for checking the viability of the customer's credit. A copy of the sales order is then sent to the shipping department for the preparation of the goods for delivery, the delivery receipt and the sales invoice which is then sent to the customer. A copy of the sales order, delivery receipt and the sales invoice is then sent to the accounting department for recording. What area in the transaction cycle is deemed a control weakness instead of a strength?a. The approval of the customer credit.b. The preparation of the delivery receipt.c. The preparation of the sales invoice.d. None can be deemed as a weakness.The following procedures are used by Complete Wholesale Incorporated.a. All sales are made on account, with each sale being indicated on a sequentially numberedsales invoice.b. Customer payments are received in the mail by the office receptionist, who sends the checksto a cashier for deposit and the remittance advices to the accounting department for recordingagainst the customer’s account balance.c. The office receptionist is assigned the job of handling all customer complaints.d. When a customer has a legitimate complaint about goods sold to the customer on account, thereceptionist will phone the accounting department to request that the customer’s account becredited for the sales allowance.e. The company’s inventory is stored in a locked warehouse that is monitored by surveillancecameras.f. Payments to the company’s suppliers are made only after the supplier’s invoice is received andcompared to the receiving report.Required:1. Indicate whether each procedure represents a strength or…Precision Industries, Inc., is a manufacturer of electronic components. When a purchase order is received from a customer, a sales clerk prepares a serially numbered sales order and sends copies to the shipping and accounting departments. When the merchandise is shipped to the customer, the shipping department prepares a serially numbered shipping advice and sends a copy to the accounting department. Upon receipt of the appropriate documents, the accounting department records the sale in the accounting records. All shipments are FOB shipping point. How can the auditors determine whether Precision Industries, Inc., has made a proper year-end cutoff of sales transactions?
- The sales department clerk receives customer orders from the customers and prepares a three-part sales order. The Three copies are sent to the credit department for approval, where the clerk reviews the Customer Credit Records. After Approval, the credit department clerk returns one copy of the sales order to the sales department, where it is reviewed and filed. The remaining two copies are sent to the warehouse. The warehouse clerk picks the goods from the shelves and sends them along with one copy of the sales order to the shipping department. The third copy of the sales order is filed in the warehouse. Upon receipt of the goods, the shipping clerk prepares a shipping notice and sends the goods and one copy of the sales order to the customer. The clerk then sends the shipping notice to the billing department. Upon receipt of the shipping notice, the billing clerk updates the customer's account receivable and files the shipping notice in the department.The sales department clerk receives hard-copy customer orders and manually prepares a six-part hardcopy sales order. Copies of the sales order are distributed to various departments as follows: Copies 1, 2, and 3 go to the shipping department, and Copies 4, 5, and 6 are sent to the billing department where they are temporarily filed by the billing clerk. Upon receipt of the sales order copies, the shipping clerk picks the goods from the warehouse shelves and ships them to the customer. The clerk sends Copy 1 of the sales order along with the goods to the customer. Copy 2 is sent to the billing department, and Copy 3 is filed in the shipping department. When the billing clerk receives Copy 2 from the warehouse, she pulls the other copies from the temporary file and completes the documents by adding prices, taxes, and freight charges. Then, using the department PC, the billing clerk records the sale in the digital Sales Journal, sends Copy 4 (customer bill) to the customer, and sends…The sales department clerk receives hard-copy customer orders and manually prepares a six-part hardcopy sales order. Copies of the sales order are distributed to various departments as follows: Copies 1, 2, and 3 go to the shipping department, and Copies 4, 5, and 6 are sent to the billing department where they are temporarily filed by the billing clerk. Upon receipt of the sales order copies, the shipping clerk picks the goods from the warehouse shelves and ships them to the customer. The clerk sends Copy 1 of the sales order along with the goods to the customer. Copy 2 is sent to the billing department, and Copy 3 is filed in the shipping department. When the billing clerk receives Copy 2 from the warehouse, she pulls the other copies from the temporary file and completes the documents by adding prices, taxes, and freight charges. Then, using the department PC, the billing clerk records the sale in the digital Sales Journal, sends Copy 4 (customer bill) to the customer, and sends…
- Precision Industries, Inc., is a manufacturer of electronic components. When a purchase order is received from a customer, a sales clerk prepares a serially numbered sales order and sends copies to the shipping and accounting departments. When the merchandise is shipped to the customer, the shipping department prepares a serially numbered shipping advice and sends a copy to the accounting department. Upon receipt of the appropriate documents, the accounting department records the sale in the accounting records. All shipments are FOB shipping point. Assume that all shipments for the first five days of the following year were recorded as occurring in the current year. If not corrected, what effect will this cutoff error have upon the financial statements for the current year?Credit is granted by a credit department. Once shipment occurs and is recorded in the sales journal, all shipping documents are electronically marked “recorded” by the accounting staff. Sales returns are presented to a sales department clerk, who prepares a prenumbered receiving report. Cash receipts received in the mail are received by a secretary with no record-keeping responsibility. Cash receipts received in the mail are forwarded unopened with remittance advices to accounting. The cash receipts journal is prepared by the treasurer’s department. Cash is deposited weekly. Statements are sent monthly to customers. Write-offs of accounts receivable are approved by the controller. The bank reconciliation is prepared by individuals independent of cash receipts record keeping. For each of the preceding 10 items, indicate whether the item represents an internal control strength for the sales and collection cycle. internal control deficiency for the sales and collection cycle. For…The following describes the revenue cycle procedures for a hypothetical company.The sales department clerk receives hard-copy customer orders and manually prepares a six-part hardcopy sales order. Copies of the sales order are distributed to various departments as follows: Copies 1, 2, and 3 go to the shipping department, and Copies 4, 5, and 6 are sent to the billing department where they are temporarily filed by the billing clerk.Upon receipt of the sales order copies, the shipping clerk picks the goods from the warehouse shelves and ships them to the customer. The clerk sends Copy 1 of the sales order along with the goods to the customer. Copy 2 is sent to the billing department, and Copy 3 is filed in the shipping department. When the billing clerk receives Copy 2 from the warehouse, she pulls the other copies from the temporary file and completes the documents by adding prices, taxes, and freight charges. Then, using the department PC, the billing clerk records the sale in the…
- The sales department receives the unstandardised sales order since customer orders are mailed, e-mailed or faxed to the sales department. The sales clerk first converts the unstandardised sales order into the standardised sales order. For this purpose, the sales representative requests the missing information, if any. When the order is received, the sales clerk checks the customer’s creditworthiness of the customer from his computer terminal. Three years ago, the sales clerk requested the accounting department to provide him with a list of customers whose account receivables are written off. The sales clerk is still using this information to check the creditworthiness of the customers. The sales clerk is using the same procedure to check the creditworthiness of the new customers.The customer’s order is rejected if the customer’s credit is not verified. The sales order processing is started after the credit verification. In particular, the sales clerk records the approved standardised…The sales department receives the unstandardised sales order since customer orders are mailed, e-mailed or faxed to the sales department. The sales clerk first converts the unstandardised sales order into the standardised sales order. For this purpose, the sales representative requests the missing information, if any. When the order is received, the sales clerk checks the customer’s creditworthiness of the customer from his computer terminal. Three years ago, the sales clerk requested the accounting department to provide him with a list of customers whose account receivables are written off. The sales clerk is still using this information to check the creditworthiness of the customers. The sales clerk is using the same procedure to check the creditworthiness of the new customers.The customer’s order is rejected if the customer’s credit is not verified. The sales order processing is started after the credit verification. In particular, the sales clerk records the approved standardised…Choose the one correct answer. As orders are received from customers, a personnel in the sales department prepares a sales order and sends a copy to the credit department for checking the viability of the customer's credit. A copy of the sales order is then sent to the shipping department for the preparation of the goods for delivery, the delivery receipt and the sales invoice which is then sent to the customer. A copy of the sales order, delivery receipt and the sales invoice is then sent to the accounting department for recording. What area in the transaction cycle is deemed a control weakness instead of a strength?a. The approval of the customer credit.b. The preparation of the delivery receipt.c. The preparation of the sales invoice.d. None can be deemed as a weakness.
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