Smith Manufacturing Company's accounts receivable clerk has a friend who is also Smith's customer. The accounts receivable clerk, on occasion, has issued fictitious credit memorandums to his friend for goods supposedly returned (these returns did not exist). The most effective control for preventing this activity is to:
A)prenumber and account for all credit memorandums.
B)require receiving reports to support all credit memorandums before they are approved.
C)have the sales department independent of the accounts-receivable department.
D)mail monthly statements to the customer.

Question

Quizplus · Accepted Answer

Requiring receiving reports to support all credit memorandums before they are approved ensures that there is physical or documented evidence of a return, making it difficult to issue fictitious credits without actual returns. This control directly addresses the issue of issuing credit for non-existent returns.

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