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Homework answers / question archive / Granger is a privately owned incorporated business that operates a garage which repairs and services motor vehicles

Granger is a privately owned incorporated business that operates a garage which repairs and services motor vehicles

Finance

Granger is a privately owned incorporated business that operates a garage which repairs and services motor vehicles. Most customers are required to pay by cash or cheque on collecting their vehicle. Credit accounts are available to business customers, These customers sign the invoice on collection of the vehicle and their business is billed monthly. Separate series of pre-numbered invoices are drawn up by the foreman for cash sales and for credit sales. All customer accounts are maintained by the receptionist. His duties include the following:

Cash sales

Collect cash or cheques from customers on collecting their vehicle. At the end of the day, check the numerical sequence of cash sales invoices, add the sales total and agree the total to the amount of cash and cheques received. Record the total cash sales in the cash receipts book.

Credit sales

Obtain the customer's signature on the copy invoice of business account customers. Enter the invoices in numerical sequence in the sales journal and post the customer's account in the accounts receivable ledger. Send monthly statements to credit account customers and follow up overdue accounts. List the balances on the accounts receivable ledger at the end of the month and reconcile the total with the control account in the general ledger. Write off uncollectible balances to bad debts.

Cash receipts

Open the mail, extract cheques from credit account customers, record them in the cash receipts book and post the accounts receivable ledger,

Make up the day's banking of cash (and cheques) from both cash and credit sales, prepare the deposit slip and bank the cash (and cheques). All other accounting duties are the responsibility of two further accounts clerks and all are subject to supervision by the garage manager.

Required:

(a) (i) Explain why the functions assigned to the receptionist result in an inadequate segregation of duties. Your explanation should identify misstatements that could occur and indicate how those duties could be reassigned to other staff members.

(ii) Identify other control procedures you would consider necessary to ensure the completeness of the recorded cash receipts and accounts receivable.

(b) As a member of the audit staff of the company's external auditors, you visit the garage and make a count of cash on hand. You subsequently compare details of unbanked cash receipts that you counted with the entry in the cash receipts boots for that date. Although the total in the cash receipts book is the same, the amount of banknotes and coins is less and there is a cheque from a business customer that you did not record.

Required:

(i) Explain the procedures to be followed in making a cash-count for audit purposes. 

 

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