Last Updated on January 31, 2022 by Admin 3
Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?
- Employees responsible for authorizing sales and bad debt write-offs are denied access to cash.
- Shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts.
- Employees involved in the credit-granting function are separated from the sales function.
- Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit.
Explanation:
Choice “C” is correct. Sales personnel will have a tendency to maximize sales volume by selling to customers that may not be creditworthy, thereby resulting in high bad debt write-offs. To prevent sales to customers that may not be creditworthy, employees involved in the credit-granting function are separated from the sales function.
Choice “A” is incorrect. Employees responsible for authorizing sales and bad debt write-offs should be denied access to cash to prevent the embezzlement of cash, not to prevent them from maximizing sales volume at the expense of high bad debt write-offs.
Choice “B” is incorrect. This control does not affect the sales department or the tendency to maximize sales volume at the expense of high bad debt write-offs.
Choice “D” is incorrect. This control does not affect the sales department or the tendency to maximize sales volume at the expense of high bad debt write-offs.
Choice “C” is correct. Sales personnel will have a tendency to maximize sales volume by selling to customers that may not be creditworthy, thereby resulting in high bad debt write-offs. To prevent sales to customers that may not be creditworthy, employees involved in the credit-granting function are separated from the sales function.
Choice “A” is incorrect. Employees responsible for authorizing sales and bad debt write-offs should be denied access to cash to prevent the embezzlement of cash, not to prevent them from maximizing sales volume at the expense of high bad debt write-offs.
Choice “B” is incorrect. This control does not affect the sales department or the tendency to maximize sales volume at the expense of high bad debt write-offs.
Choice “D” is incorrect. This control does not affect the sales department or the tendency to maximize sales volume at the expense of high bad debt write-offs.