11-32(Objective 11-3) The following is the description of sales and cash receipts for the Lady’s Fashion Fair, a retail store dealing in expensive women’s clothing. Sales are mainly on the account using the store’s own billing rather than credit cards; however, some customers prefer to pay cash.

Salesclerks assist customers and then direct them to the central desk for payment. The computer used to enter sales is operated by the store supervisor, who has been employed for 10 years by Alice Olson, the store owner. The desk and computer are located at the store entrance to control the theft of clothes.

When the sale is for cash, the supervisor enters the sale into the computer and generates two copies of a receipt, keeping one copy for the store’s records and providing one copy to the customer. The supervisor also enters the code for the sales clerk who assisted the customer into the computer in order to keep track of the sales by each clerk. If no sales clerk assisted the customer, the supervisor leaves the field blank.

If the customer would like to purchase merchandise on credit, the credit sale is approved by the supervisor from an approved credit list. The supervisor then enters the sale into the computer, and generates two copies of an invoice, keeping one for the store’s records and giving the second copy to the customer. The supervisor enters the code for the salesclerk, if the customer was assisted.

At the end of the day, the supervisor recaps the sales on credit and cash sales according to the invoice and receipt copies and compares the totals to a daily computer-generated summary. The supervisor deposits the cash at the end of each day in the bank’s deposit box. The supervisor’s copies of the invoices are sent to the accounts receivable clerk along with copies of the receipts and a summary of the day’s receipts. The bank electronically sends the deposit slip directly to the accounts receivable clerk.

A daily summary of sales for each sales clerk is generated from the computer and is used in part to calculate employees’ sales commissions. Marge, the accountant, who is prohibited from handling cash, receives the daily sales summary and the invoice and receipt copies. Daily, she generates a complete printout of all input and summaries. The accounting summary includes sales by the sales clerk, cash sales, credit sales, and total sales. Marge compares this output with the invoice and receipt copies and reconciles all differences.

The computer updates accounts receivable, inventory, and general ledger master files. After the update procedure has been run on the computer, Marge’s assistant files all sales invoices and receipts by customer number. A list of the invoice numbers in numerical sequence, and a list of receipt numbers in numerical sequence, are included in the sales printout.

The mail is opened each morning by a secretary in the owner’s office. All correspondence and complaints are given to the owner. The secretary prepares a
list of cash receipts. He totals the list, prepares a deposit slip, and deposits the cash daily. A copy of the prelist, the emailed deposit slip, and all remittances
returned with the cash receipts are given to Marge. She uses this list and the remittances to record cash receipts and update accounts receivable, again by
computer. She reconciles the total receipts on the prelist to the deposit slip and to her printout. At the same time, she compares the deposit slip received from the bank for
cash sales to the cash receipts journal.

A weekly aged trial balance of accounts receivable is automatically generated by the computer. A separate listing of all unpaid bills over 60 days is also automatically
prepared. These are given to Mrs. Olson, who acts as her own credit collector. She also approves all write-offs of uncollectible items and forwards the list to Marge,
who writes them off.

Each month Marge mails statements generated by the computer to customers. Complaints and disagreements from customers are directed to Mrs. Olson, who
resolves them and informs Marge in writing of any write-downs or misstatements that require correction.

The computer system also automatically totals the journals and posts the totals to the general ledger. A general ledger trial balance is printed out, from which Marge
prepares financial statements. Marge also prepares a monthly bank reconciliation and reconciles the general ledger to the aged accounts receivable trial balance.
Because of the importance of inventory control, Marge prints out the inventory perpetual totals monthly, on the last day of each month. Salesclerks count all
inventory after store hours on the last day of each month for comparison with the perpetual. An inventory shortages report is provided to Mrs. Olson. The perpetual
are adjusted by Marge after Mrs. Olson has approved the adjustments.

Required
a. For each sales transaction-related management assertion based on AICPA auditing standards (see Table 6-3), identify one or more existing controls.
b. For each cash receipts transaction-related management assertion based on AICPA auditing standards (see Table 6-3), identify one or more existing controls.
c. Identify deficiencies in internal control for sales and cash receipts.

Answer rating: 100% (QA)

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