Answered: ropriate one of the following risks…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Sadaf Oman Co. is using internal control procedures to mitigate the risks to which it is exposed. Listed below are some internal control procedures applicable to Sadaf Oman Co's revenues and receivable system. Match the most appropriate one of the following risks mitigated to the correct internal control procedure stated below. Risks mitigated: (A) Sales staff misappropriate sales receipts then write off bad debts in the general ledger (B) Sales are made to customers who cannot pay (C) Sales are not made to existing customers (D) Sales staff do not communicate with the accounts staff regularly, so the debt uncollected at the end of the period are written off in the ledger by the accounts staff (E) Customer refuses to pay for goods allegedly not received (F) Customer orders are not being fulfilled. (G) Revenues on books are overstated and exceed actual revenues in bank (H) Posting a sale that is beyond the credit limit of the customers ) Company employees steal collections (U) Without proper cutoff, an overstatement of accounts receivables and revenue occurs Internal control procedures: 1. Ensure credit limits for customers are not exceeded. 2. Verify credit notes with correspondence, original invoices, amounts and authorisation. 3. Customer outstanding balances are checked against their credit limits before sales orders are accepted. 4. Ensure bad debt write-offs are only written off after due investigation and acknowledged authorisation by senior management. 5. Goods delivered to customers are accompanied by two copies of the Delivery Receipt Note. One note is signed by the customer and is kept with Sadaf Oman Co. in the Dispatch Department; and the other is given to the customer. 6. Customer claims, if any, should be recorded and investigated by an independent person, not responsible for invoicing or dispatching goods.

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