CHAPTER 15:

1. Define what is meant by a control and weakness in internal control. Give two examples of
each in the sales and collection cycle.
A control is an existing procedure in internal control that aids in the prevention of erroneous
entries or omissions in the accounting system. A weakness describes a situation where controls
are inadequate for a given transaction-related objective.
Control:
a. Sales invoices are independently checked to customers' orders for prices, quantities,
extensions, footings, credit discount, and freight terms.
b. The management of the credit department operates completely independent of the sales
department.
c. The billing department is completely separated from accounts receivable and shipping
functions.
d. All discounts given other than those in the normal course of the company policy require
the approval of a responsible official.
Weakness:
a. Error in recording sales and collection transactions.
b. Frauds in Sales and Collection

2. Frank Dizon, a highly competent employee of Breezewater Sales Corporation, had been
responsible for accounting-related matters for two decades. His devotion to the firm and his
duties has always been given increased responsibility. Both the president of Breezewater
and the partner of an independent CPA firm in charge of the audit were shocked and
dismayed to discover that Dizon had embezzled more than P5,000,000 over a 10-year period
by not recording billings in the sales journal and subsequently diverting the cash receipts.
What major factors permitted the defalcation to the place?
The most important deficiency on entity’s internal control which allowed the
embezzlement to happen was the unable to properly segregate the accounting responsibility to
record billing in the sales journal from the custodial responsibility of cash receipts. Separation of
the custody of assets from accounting personnel is intended to avoid misappropriation of assets.
When both functions are performed by one personnel, it may be happened that he can misuse the
assets for their personal benefit and adjust the records to relieve him of charge of assets with
exposure increase.