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Chapter 8: Q3RQ (page 465)

What is a critical element of internal control in the handling of receivables by a business? Explain how this element is accomplished.

Short Answer

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Answer

A critical element of internal control is the separation of duties related to managing cash and cash-accounting duties.

Step by step solution

01

Meaning of receivables

The sums that customers and other parties owe a business are known as receivables. Receivables are any assets that result from a company's core operations and any assets that reflect cash that needs to be collected from outside parties that owe the company money.

02

Explaining critical element of internal control in the handling of receivables by a business

The division of responsibilities for handling and accounting for cash is an essential component of internal control. The company must uphold the Separation of responsibilities, and the credit department shouldn't have access to money for effective internal control over cash collections from receivables. Additionally, those who deal with cash shouldn't be able to give customers credit.

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Most popular questions from this chapter

How is the acid-test ratio calculated, and what does it signify?

How do the percent-of-receivables and aging-of-receivables methods compute bad debts expense?

Unique Media Sign Incorporated sells on account. Recently, Unique reported the following figures:

2018

2017

Net Credit Sales

\( 594,920

\)602,000

Net Receivables at end of year

38,500

47,100

Requirements

1. Compute Unique鈥檚 days鈥� sales in receivables for 2018. (Round to the nearest day.)

2. Suppose Unique鈥檚 normal credit terms for a sale on account are 2/10, net 30. How well does Unique鈥檚 collection period compare to the company鈥檚 credit terms? Is this good or bad for Unique?

What is the difference between accounts receivable and notes receivable?

What are some limitations of using the direct write-off method?
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