Why are monthly customer statements considered a control? Why is it important to separate the duties of responding to customer complaints from the accounts receivable and cash collection functions?

Explanation:

1. Monthly customer statements: • Monthly statements from customers are used to reconcile any differences between the client's account of customer and customer’s account of client. Monthly reconciliations will help the auditor to rely on this process as all differences will be reconciled in a short time and there won’t be any pending old/write off items in the customer accounts that warrants confirmations from customers.

Auditor can see this as a control and can check whether the control is operating effectively throughout the period and accordingly rely on the control to the extent he feel reliable.

2. A bookkeeping and accounting system needs internal control procedures for accounts receivable in order to minimize the risk of fraud, error and loss.

The purpose of accounts receivable internal controls is to ensure that sales invoices are properly recorded and that customers pay promptly in accordance with the agreed terms of business.

The internal control procedures for accounts receivable checklist below acts as a quick reference, and sets out the most commonly encountered techniques available when dealing with internal controls for accounts receivable.

Internal Control Procedures for Accounts Receivable Checklist

Policy

The business should have well documented policies and procedures on accounts receivable internal controls such as credit and collection policies, to ensure that all staff understand the accounts receivable process.

1. Segregation of Duties

Segregation of duties, sometimes referred to as separation of duties, is an accounting internal control which means that a financial process is dealt with by at least two individuals in order to prevent error, misappropriation or fraud.

In practice the segregation of duties means ensuring that the person dealing with physical assets such as cash, inventory, supplies etc, is not the same person responsible for the recording and bookkeeping of the transactions relating to those assets.

2. Receive Purchase Order from Customer

A. Check purchase order prices, terms, and conditions.

B. Check authorization levels for order approval.

C. Check the credit rating of the customer.

D. Check the account balance limits.

3. Create a Sales Order

* Compare the sales order and purchase order

* Stamp the sales order approved.

4. Prepare Sales Invoice

Prepare a prenumbered sales invoice.

*Check the accuracy of invoice calculations.

*Check the customers invoice address and promptly send the invoice to the customer.

*Independently review customer complaints about invoices.

*Separate the invoicing function from the cash collection function.

*Reconcile the goods dispatched to the customer to the quantities shown on the sales invoice.

5. Post the Sales Journal

* Post the sales journal from a copy invoice as soon as the transaction occurs, and file the invoices by invoice number

* Use the sales journal totals to post the accounts receivable control account in the general ledger.