David, Angelica A.
March 14, 2024
BSA 1
Multiple-Choice Questions
1. Which function or department records a sale in the
sales journal?
Answer: a. Billing department
2. Which functions should be segregated?
Answer: b. Picking goods from the warehouse
shelves and updating the inventory subsidiary
ledger
3. Which of the following is an incompatible task?
Answer: c. The AR clerk authorises the write-off of
bad debts.
4. Which control helps to ensure that the inventory
items shipped to the customer are the correct type and
the correct amount?
Answer: d. Reconcile stock release document and
packing slip
5. The bill of lading is prepared by the
Answer: c. shipping clerk.
6. Which of the following is NOT an independent
verification control?
Answer: d. The billing department reconciles the
shipping notice with the sales invoice to ensure
that custo- mers are billed for only the quantities
shipped.
7. Which document defines terms for shipped goods
ownership?
Answer: d. Bill of lading
8. Which of the following sets of tasks should not be
separated?
Answer: e. All of the above tasks should be
separated
9. Which of the following is often called a compen-
sating control?
Answer: a. Supervision
10. Which document triggers the billing function?
Answer: d. Sales order
PROBLEMS
1. SEGREGATION OF FUNCTIONS
Which, if any, of the following situations represents
improper segregation of functions? Explain your
answer.
a. The billing department prepares the customers
invoices and records the sale in the sales journal.
Answer: In most cases this state of affairs is
acceptable. The billing office has the duty to issue
invoices to customers and also record sales in the
AE 20 - Accounting Information Systems
sales journal. Here there seems to be no real threat
or signs of mismanagement.
b. Mail room clerk opens cash receipts envelopes from
customers and also prepares the remittance list.
Answer: The clerk of the mailing room in this case
has to manually handle the remittance list; a task
that however, inherently needs precise physical
insight. The enumeration of items through the
making of remittance list, however, shows clearly
the division of labor.
c. Accounting clerk receives journal vouchers from
various departments and also posts to the GL
accounts.
Answer: This situation shows a proper segregation
of function. The major responsibility of the
accounts clerk is to receive the journal vouchers
and to post them to the general ledger (GL). These
duties are included in the accounting functions
and performed by the accounting department or
person.
d. The sales department approves sales credit memos
as the result of product returns and forwards these to
the AR department, which adjusts the customer
accounts to reflect the return.
Answer: In this case, there is a break of the basic
principle of function segregation: in accordance
with it, the sales department, which initiates the
credit memos, cannot be authorised to verify them
and correct customer account balances at the
same time. Lack of segregation in this situation
may cause mistakes or the scam, since it doesn’t
involve independent reviewing. The right
separation of function must be carried out and
different departments must be assigned between
the departments of approval and revision to make
sure that there is a good workflow and balance in
the operations.
5. RISKS AND INTERNAL CONTROLS
Following describes the credit sales procedures for
clothing wholesalers that sell name-brand clothing to
department stores and boutique dress shops. The
company sells to both one-time and recurring custo-
mers. A flowchart of the system is provided in the
figure labelled Problem 5: Internal Control.
Customer orders are received by fax and e-mail in the
sales department. The sales clerk, who works on
commission, approves the credit sale, calculates
commissions and discounts, and records the sale in
the sales journal from the PC in the sales department.
The clerk then prepares a sales order, a customer
invoice, and a packing slip, which are sent to the
accounting department for processing. The account-
ing clerk updates the AR subsidiary ledger and sends
1
David, Angelica A.
BSA 1
an invoice to the customer. The clerk then forwards the
sales order and packing slip to the warehouse-
shipping department. The warehouse-shipping clerk
picks the items from inventory and sends them and the
packing slip to the carrier for shipment to the customer.
Finally, the clerk updates the inventory subsidiary
ledger and files the sales order in the department.
Cash receipts from customers go to the mail room,
which has one supervisor overseeing 32 employees
performing similar tasks: a clerk opens the envelope
containing the customer check and remittance advice,
inspects the check for complete- ness, reconciles it
with the remittance advice, and sends the remittance
advice and check to the accounting department.
The accounting department clerk reviews the
remittance advice and the checks, updates the AR
subsidiary ledger, and records the cash receipt in the
cash receipts journal. At the end of the day, the clerk
updates the AR control, cash, and sales accounts in
the general ledger to reflect the day's sales and cash
receipts.
March 14, 2024
AE 20 - Accounting Information Systems
- At the same time that we are covering a lot more, this
supervisor is also now responsible for over 32
employees, which creates a potential for mistakes or
possible fraud that can occur unnoticed.
- Compared to other staff, the cashier in a mail room
may handle more money by matching checks with
payments and they also send them to accounting. With
this, there is a higher risk of theft.
4. Lack of reconciliation controls:
- Triple entry of sales orders along with invoices,
shipments and packing slips are not mentioned as an
inventory recording activity, thus errors and omissions
that are probably due to manual operation are likely to
emerge.
5. Lack of controls over accounting processes:5.
Lack of controls over accounting processes:
- The clerk of accounting does the transaction of
accounts without proper review resulting in an
increased probability of mistakes or mishandling the
records.

Required

a. Describe the uncontrolled risks associated with this

system as it is currently designed.

1. Risk of unauthorised credit sales

2. Risk of inaccurate recording of sales
transactions.
3. Chance of mistakes and omissions when
recordings for accounts receivable are
updated.
4. Investment theft or mismanagement risk.
5. Risk of errors or fraud in the process of
handling cash receipts.
6. Risk of imperfect or erroneous matching of
cash receiving information.

b. For each risk, describe the specific internal control

weakness(s) in the system that causes or contributes
to the risk

1. Lack of segregation of duties:

- The tasks of the credit sales assistant include
approving the business and being in charge of
recording the transactions in the sales journal. This
can therefore enhance the chance of wrong
transactions being facilitated and this will be a serious
risk of fraud.
2. Lack of supervision in the warehouse-shipping
department:
- A warehouse clerk that is literally a shipping person
might get control over inventory and shipping without
enough supervision and such a situation means the
risk of inventory mishandling or even is going to cause
the won's of such a person.
3. . Lack of division of tasks in cash receipts
processing