Internal Control - Accounts Receivable and Credit Sales

Internal Control - Accounts Receivable and Credit Sales
Typical errors or irregularities include:
 Sales amounts recorded incorrectly

 Goods shipped but not billed to customer
 Goods billed to customer but not shipped
 Sales recorded in wrong accounting period
 Goods sold to customers who were bad credit risks
 Sales occurred that were not authorized
 Sales posted to wrong account
 Unauthorized write-offs of receivables may have occurred.
Internal Control Questionnaire

These questions are designed around the perfect sales system. If the control does not exist then you tick
‘No’. The auditor then uses this information to identify weaknesses in the current sales system and relate
them to what could go wrong in the accounts.
“Can only approved customers be included in the sales ledger?” Yes No

1 Do all prospective customers undergo credit approval procedures?
If so
2 Must a standard, signed, application form be submitted?
3 Are two forms of identity obtained and details checked to application form?
4 Are credit references obtained?
5 Are credit limits set for all credit customers?
6 Are credit limits reviewed:

every 3 months
where debtor days exceed 3 months
where the debtor balance exceeds 75% of the credit limit
7 Where a credit limit is set above £100 is this based on either a recent set of published
accounts or past transaction history?
8 Are all new account applications signed as authorised by the Accounts Manager?
Continued...
“Can orders only be accepted for recognised customers within their credit limit?” Yes No
1 Are credit sales orders accepted only for approved customers (on the sales ledger)
2 Are all orders checked against the current sales ledger balance
3 Are all orders that take the balance to within 75% of the credit limit passed to the sales
manager for approval
4 Do all orders record an order approval reference number or get signed by the credit
controller
5 Is an aged debtor analysis prepared each month?
6 Are systems of chasing letters/solicitors letters in place for all balances outside of payment
terms?
7 Are customers in default immediately put on stop?
“Do all goods despatched result in a customer being invoiced?” Yes No
1 Are orders recorded on a pre-numbered sales order
2 Are pre-numbered goods despatch notes raised for all goods taken from stores?
3 Can a Goods despatched note (GDN) only be raised on the basis of an approved sales
order?
4 Are GDNs matched/retained with sales orders?
5 Does someone independent of the warehouse check goods leaving the premises with the
related GDNs?
6 Do customers sign for all goods accepted?
7 Are any queries agreed with the driver and recorded on the GDN?
8 Do both parties sign the amendments to the GDN?
9 Are signed GDNs/orders checked back in by the warehouse and any changes approved?
1 Does the warehouse manager check the sequence of GDNs to ensure all returned by the
0 driver?
1 Are all GDNs passed to the sales ledger department?
1
1 Are all invoices raised based on the GDN set?
2
1 Is a copy of the GDN referenced to the sales invoice number and filed in numerical order?
3
1 Does the accounts manager check the sequence of processed GDNs each month?
4
1 Does the accounts manager check invoices for accuracy and validity (based on approved
5 sales order, GDN and price lists)
Continued...
“Are all invoices raised recorded in the sales ledger?” Yes No
1 Is the invoicing assistant a different person to the sales ledger assistant?
2 Are invoices recorded in the sales day book in numerical order
3 Does the accounts manager check the sequence of invoices recorded in the sales day
book, each month?
4 Are invoice sets filed in numerical order?
5 Is the sales ledger assistant a different person to the invoicing assistant?
6 Are the sales day book totals posted to the main ledger by the Accounts Manager (as
distinct from the sales ledger assistant)?
7 Is sales ledger control account reconciliation performed by the accounts manager every
month?
8 Are statements issued monthly to active sales ledger accounts?
9 Is the statement run checked against the list of balances by the accounts manager?
“Can items in the sales ledger only be cleared by valid payment, credit note or journal Yes No
entry?”
1 Are all credit notes approved by the sales manager?
2 Does the accounts manager review all material credit notes issued during the month?
3 Can journal entries only be entered by the Accounts Manager?
4 Are cash receipts posted from the cash book each month
5 Is sales ledger control account reconciliation performed by the accounts manager every
month?
Continued...
“Is all cash received correctly identified, recorded, posted and promptly banked?” Yes No
1 Is all cash received in the post recorded immediately into a cash diary, to which it is cross
referenced?
2 Do at least two people open the post?
3 Is all cash received then passed immediately to the cashier, intact?
4 Is the cash receipts book written up by the cashier before lunch each day?
5 Is cash banked daily?
6 Is cash banked intact?
7 Is the time and route of the daily banking varied each day?
8 Is proper insurance held to cover loss on the premises or in transit?
9 Is fidelity insurance in place for all staff?
1 Is all cash retained on site kept in a locked safe?

0
1 Does the accounts manager check a sample of the cash diary daily takings to the cash
1 book?
1 Is the cash book posted to the sales ledger by someone different to the cashier?
2
WEAKNESSES RECOMMENDATIONS
1. Sales amounts recorded incorrectly Management should reconcile the balances
between the general ledger, subsidiary records
and the inventory count and account for the
discrepancies.
Maintain a complete and updated subsidiary

record for each of the inventory item traded by the
Agency. Each record should contain all necessary
information relative to the inventory items
2. Sales recorded in wrong accounting period Make correcting entries when you find errors.
There are two ways to make correcting entries:
reverse the incorrect entry and then use a second
journal entry to record the transaction correctly, or
make a single journal entry that, when combined
with the original but incorrect entry, fixes the error.
3. Goods sold to customers who were bad Management can use a business strategy called
credit risks “credit control” that promotes the selling of goods
by extending credit to customers. Most businesses
try to extend credit to customers with a good credit
history so as to ensure payment of the goods or
services.
4. Sales posted to wrong account If you originally posted to the wrong account, you
might need to adjust the entire entry. Or, you might
have to make a minor adjustment. If you need to
make a correcting entry, do the following:
 Find out all the accounts that are affected

by the error.
 Determine the amount that needs to be
adjusted.
You must make new entries for the correction. Use

the same accounts as the original posting for the
correcting entry.
5. Unauthorized write-offs of receivables may Double check cash discounts and make sure
have occurred. customers have earned the discounts by following
sales terms and conditions. Resolve any
differences of interpretations by meeting, phone, or
e-mail and confirm the agreement. Otherwise,
these will become systemic drip of profits.

Internal Control - Accounts Receivable and Credit Sales

Uploaded by

Copyright:

Available Formats

Internal Control - Accounts Receivable and Credit Sales

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Internal Control - Accounts Receivable and Credit Sales

Uploaded by

Copyright:

Available Formats

Internal Control - Accounts Receivable and Credit Sales

Typical errors or irregularities include:

 Sales amounts recorded incorrectly

Internal Control Questionnaire

“Can only approved customers be included in the sales ledger?” Yes No

4 Are credit references obtained?

5 Are credit limits set for all credit customers?

6 Are credit limits reviewed:

8 Do both parties sign the amendments to the GDN?

2 Are invoices recorded in the sales day book in numerical order

5 Is the sales ledger assistant a different person to the invoicing assistant?

3 Is all cash received then passed immediately to the cashier, intact?

5 Is cash banked daily?

6 Is cash banked intact?

8 Is proper insurance held to cover loss on the premises or in transit?

9 Is fidelity insurance in place for all staff?

1 Is all cash retained on site kept in a locked safe?

Maintain a complete and updated subsidiary

 Find out all the accounts that are affected

You must make new entries for the correction. Use

You might also like