Carolyn Furniture Galleries sells traditional furniture from

two stores in #2340

Carolyn Furniture Galleries sells traditional furniture from two stores in St. Louis. Carolyn’s
credit terms allow customers to pay for purchases over three months with no finance charges.
Carolyn’s accountant has been responsible for approving customers for credit, recording cash
received from customers in the accounting records, depositing cash collections in the bank, and
following up on customers who are behind in their payments. Each month the accountant has
prepared a report for Carolyn’s president, indicating the cash collected outstanding receivables,
and uncollectible accounts.Carolyn’s president has been concerned about a significant
increase in uncollectible accounts that began about two years ago, shortly after the current
accountant was hired. Recently, a personal friend of Carolyn’s president called. The caller had
moved from St. Louis to Denver about six months ago. A month ago, the caller’s new bank had
refused a loan because a credit rating bureau in St. Louis had indicated that the caller had left
bills unpaid at Carolyn Furniture. Carolyn’s president knew that the caller had paid his account
before leaving the community.Carolyn’s president called a detective agency and arranged for
an investigation. Two weeks later, Carolyn’s president was informed that the accountant had
been spending much more money than his salary would warrant. Carolyn then called its auditor
and arranged to have the accounting records for receivables and uncollectible accounts
examined. This examination indicated that about $400,000 of cash had been stolen from the
firm by the accountant. The accountant had identified customers who had moved and had
recorded cash sales to continuing customers as credit sales in the accounts of the relocated
customers. Carolyn’s accountant had kept the cash received from the cash sales and had
eventually written off the fictitious credit sales as uncollectible accounts. Without the
accountant’s knowledge, one of Carolyn’s new employees had sent the names of the
customers who had apparently defaulted on their accounts to the credit
bureau.Required:Identify the internal control weaknesses that permitted the accountant to steal
the $400,000.Suggest internal control procedures that would make it difficult for someone else
to repeat this theft.View Solution:
Carolyn Furniture Galleries sells traditional furniture from two stores in

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