Smith Manufacturing Company's accounts receivable clerk has a friend who is also a customer of Smith Manufacturing. The accounts receivable clerk has issued fictitious credit memos to his friend for goods supposedly returned. The most effective procedure for preventing this activity is to
A) prenumber and account for all credit memorandums.
B) require receiving reports that provide evidence of returned inventory items to support all credit memorandums before they are approved.
C) have independent sales and accounts receivable departments.
D) mail monthly statements to customers.

Question

Quizplus · Accepted Answer

Requiring receiving reports to support all credit memorandums before they are approved provides evidence that the goods were actually returned, and prevents the accounts receivable clerk from issuing fictitious credit memos to friends or other customers. Prenumbering and accounting for credit memorandums and having independent sales and accounts receivable departments are also effective control procedures, but they may not specifically address the problem of fictitious credit memos issued by an accounts receivable clerk to his or her friend. Mailing monthly statements to customers does not necessarily prevent or detect fictitious credit memos.

Smith Manufacturing Company's Accounts Receivable Clerk Has a Friend Who