Abernethy And Chapman Case
David LaFlamme Kelly Heikens Kelsey Carlson Joel Cramblit
Case 5 - Exercise 1
Abernethy and Chapman
Internal Control Questionnaire - Accounts Receivable
Client: The Lakeside Company
Prepared by: Abernethy and Chapman (Mitchell)
Date: July 6, 2015
Questions
Comments on Current System
Significance
Suggestions
1
Does an independent party on a regular basis reconcile the subsidiary ledger?
Yes, the independent auditors examine it at least once a year.
No control is maintained over Miller’s handling of the subsidiary ledger throughout the year. The possibility that errors will be discovered on a timely basis becomes impossible. Miller has the opportunity for manipulating the records to cover thefts and other defalcations.
A member of the administrative staff should verify that the subsidiary ledger for accounts …show more content…
receivable agrees with the ledger control account.
2
Are appropriate, established criteria in place for writing off doubtful accounts?
No, uncollectible accounts are estimated at 0.7% of net credit sales made by distributorship since company inception. The criteria for writing off accounts are vague and seemingly based on the judgement of Miller.
A problem exists as to the consistency of removing bad debts from one year to the next. No control appears to exist over Miller’s judgement.
A formal system for writing off bad accounts needs to be established. This system should constitute a list of steps to be taken prior to the decision to remove an account. Additionally, this account needs to be reviewed on a predetermined basis.
3
Are accounts to be written off properly reviewed and authorized by an independent party?
No independent party authorizes the write-off of bad accounts.
The removal of bad accounts can be used to cover cash thefts. Also, write-offs may be approved without sufficient attempts being made at collecting receivables.
Once a system has been established for the write-off procedure, an independent employee should be required to review every account prior to removal to make certain that all proper steps have been followed.
4
Is an appropriate follow up made on accounts that are written off?
No, follow-up of bad debts is not addressed.
If no follow-up is made, the company reduces the possibility of making any future collection. If no follow-up is carried out, the opportunity exists for employees to steal the money if it should be received at a later date. Additionally, attempting to collect an old account receivable is a control mechanism to determine that the balance has not actually been paid and the money stolen or the collection recorded incorrectly.
A member of Lakeside’s staff can be assigned to look into the bank accounts periodically, or the receivable can be turned over to an outside collection agency.
5
Does the company periodically re-evaluate the method in use for estimating bad accounts?
No re-evaluation of the method for estimating bad accounts has been made Lakeside.
No proof exists that the bad debt expense and the allowance for doubtful accounts is fairly presented.
Lakeside should schedule recent bad accounts to arrive at a new estimation of the bad debt percentage.
6
Are customers billed regularly by a party separate from the subsidiary ledger?
The first three invoices are mailed by the sales division; any further billings is made by Miller, who is in charge of the subsidiary ledger.
By having Miller send the last invoices, the opportunity for manipulation is increased. This procedure should be accompanied by additional control and reconciliation procedures.
Increased control procedures along with Miller continuing the billing.
7
Is an independent verification made of complaints from customers concerning their bills?
The responsibility for looking into complaints is entrusted in Miller.
All of the responsibilities are in the hands of one person with no independent control being applied. This lack of control reduces the possibility that errors will be discovered.
Lakeside should have complaints sent to an employee who can then discuss the matter with both Miller and the customer to make certain that the issue is properly resolved.
8
Was the company’s policy of granting credit changed over the past year?
According to the client, no formal change in the policy of granting credit has been made. However, the increase in the size of the receivables, the increase in the average age of the balances, and the apparent write-off of additional uncollectible accounts indicate the possibility that some modification has occurred.
Any shift in credit policy requires auditor attention as to the effect on the allowance account and bad debt expense. Abernethy and Chapman may want to review the new customer accounts opened during the current year for any indication of a change in credit policy. This issue may be especially significant in the Lakeside audit since credit reports are filed by the sales representatives who are paid on commission, thus benefiting from an increase in sales.
Lakeside should adopt a policy to guide Rogers in his credit decisions. In addition, outside verification of credit ratings on a periodic basis would help reduce the risk of high bad debt losses.
9
Can a credit sale possibly be made without prior credit approval?
No indication is given in the case as to whether sales invoices are verified after the shipment to ascertain appropriate credit approval. The system is designed so that credit approval is necessary before the sale is made, but no control mechanism is identified to assure that the system is working properly.
The possibility of a sale being made without credit approval casts further doubts on the reliability of the system of controls. As a part of the tests of controls, the auditor will want to review a sample of sales invoices for proper credit approval.
At the point in the accounting system at which the extensions and prices are verified, the presence of credit approval should also be checked.
10
Are credit files complete and periodically reviewed?
Credit files contain only the sales representative’s credit reports and do not appear to be reviewed periodically.
As indicated above, the credit granting policy is informal and based almost solely on Rogers’ judgement. Thus, the efficiency of the system is unknown and review of the system by the auditor is quite difficult.
As part of the design of a comprehensive credit system, Lakeside should determine the desired contents of a credit file including items such as outside credit reports, financial statements, correspondence, etc. Periodically, these files need to be reviewed by an independent Lakeside employee to verify that all information is complete and up to date. Each customer’s file is also reevaluated at regular time intervals to judge whether credit should continue to be offered.
11
Are invoices verified as to agreement with goods shipped and price of goods?
Verification of goods and prices is conducted by Lakeside’s Sales Division. Miller implies that his checking of prices and extensions are not made on a timely basis. In addition, this verification is another responsibility to accounts receivable concentrated in Miller’s hands.
Verifying extensions and prices after the invoice has been sent to the customer is not a logical approach. Also, having Miller perform this task adds nothing to the efficiency of the organization.
All verifications should be made prior to mailing the invoice, ideally by an alternative employee.
12
Are extensions and footing recalculated?
Miller describes that in the event of an error, the invoice is recalculate and a rebill is issued to the customer.
Extensions should be verified prior to invoicing the customer. Customers should receive a single accurate invoice, thus limiting the risk of multiple invoices being unaccounted for or simply not paid by the customer.
Lakeside should have a process in place to verify pricing and extensions, along with quantities and descriptions prior to the submission of invoices to the customer.
13
Are cash discounts recomputed and verified as to actual days?
Cash discounts are verified by the sales division.
System appears adequate. Financial information should be fairly presented.
None
14
Can a sale possibly be made and goods shipped without an invoice being recorded or mailed?
Using pre-numbered sales invoices and bills of lading along with the periodic verification of all numbers is essential in assuring that all sales are recorded. In an earlier case, the use of pre-numbered forms is mentioned. Miller suggests that the presence of all forms is tested periodically, but the auditor should specifically ask about that procedure.
If the possibility exists that the company can make sales without recording them, the auditor’s ability to gain assurance to assert its completeness assertion may be severely hampered.
Since the documents are already pre-numbered, the auditor needs to make certain that Lakeside has a policy for periodically verifying the presence of all forms.
Case 5 - Exercise 2
Abernethy and Chapman
Internal Control Evaluation
Client: The Lakeside Company
Prepared by: Abernethy and Chapman (Mitchell)
Date: July 6, 2015
Exhibit 5-2 is a portion of the audit program that Mitchell designed to test the operating efficiency of controls in the revenue and cash receipts cycle. For each individual test, indicate the anticipated results if the control procedure is working properly. Also, if the control is not functioning properly, list the potential problems that exist. Use the following format for your response:
Step
Anticipated Results
Potential Problem(s)
1-A
The total listed on the sales invoice should agree with the total on the sales invoice slip. In addition, evidence should be present to indicate that a Lakeside employee has already made this same comparison.
If the invoices do not agree, the possibility is raised that fictitious or misstated sales are being recorded. Lack of tangible evidence (e.g., initials) that the matching procedure has been carried out would indicate that the employees are not complying with the requirements of the system.
1-B
The quantity and description of the items sold should be the same as the items shipped. Again, Lakeside employees are supposed to have previously made this comparison and left their initials or other proof of the execution of this test.
Differences warn the auditor that sales have been both billed and recorded incorrectly, or incorrect amounts or types of inventory have been shipped. Once again, a lack of compliance by Lakeside’s employees may be shown if this comparison has not been made.
1-C
Cash received as per the remittance list should be consistent with the invoice and the invoice slip. Customers should be encouraged to include the amount of payment on the invoice slip as a further control procedure. Because of the discount, the auditor may want to perform this step in connection with the discount computation in step 1-d.
The cash may have been stolen, or someone in the company may be engaged in lapping.
1-D
Calculated cash discounts should be identical with the amounts by the client company. In most cases, this calculated discount figure will be equal to the difference between the sales invoice total and the cash remittance.
Discounts may be incorrectly recorded to hide cash shortages or as a step in stealing cash funds from the company. Also, the company may be allowing customers to take discounts that have not actually been earned. Allowing these reductions would indicate lack of efficiency in internal control.
1-E
All prices on the invoices should agree with the prices being shown on the approved price list.
All prices detailed on invoices should align with prices on the approved price list. Improper pricing, either intentionally or unintentionally, also leads to incorrect sales and receivables figures on the financial statements. If the invoice price is too high, sales and income are overstated; if too low, the figures will be understated, and company employees may be receiving kickbacks from
customers.
1-F
The extensions and footings on the invoice should be correct.
Improper footings or extensions, either intentionally or unintentionally, also leads to incorrect sales and receivables figures on the financial statements.
1-G
The amount received according to the invoice slip should agree with the listing of individual items being deposited. In addition, the date of deposit should be the same as the date on which the payment is received.
A discrepancy in the amount received and deposit or date of deposit and date of payment received could indicate the theft of the cash receipts. This test also may alert the auditor to the possibility of lapping.
1-H
All cash remittances should be recorded promptly as credits to the specific subsidiary ledger accounts.
Since the subsidiary ledger is not well controlled in the Lakeside organization, this procedure may be used to determine the possibility of errors within the ledger. This test also may indicate lapping as well as other manipulations of the accounts so as to conceal cash shortages.
1-I
Each invoice should be initialed by either Rogers or Miller to indicate credit approval.
Because the credit system is not well documented, the auditor will be searching for evidence that sales were potentially made without credit approval. Such evidence would have an effect on the auditor’s judgment as to the amount of evidence needed in examining the allowance account and bad debt expense.
2-A
Each debit entry should be corroborated by an appropriate sales invoice agreeing as to amount and customer.
This test has major significance in that it can alert the auditor to any falsification of sales for the year. Fictitious sales could easily be created by Lakeside since they prepare all sales invoices and other documents internally.
2-B
Each credit should agree with the cash remittance list as to amount and possibly date of payment depending upon the method of posting.
This tracing could denote errors in postings within the system. Errors could indicate lapping by company employees.
2-C
Each credit to a specific account should agree with the listings of individual items on the bank deposit slips.
Again, lapping or attempts by employees to cover cash shortages may be uncovered through this test.
3
For each of the customers, complete and updated credit reports should be on file.
The use of credit reports is an essential step in establishing an appropriate credit-granting system. The presence of these reports would indicate that the control procedure is operating efficiently. If the reports are missing or incomplete, the auditor may want to seek additional evidence as to the validity and collectability of the receivables.
4
Each list should be arithmetically correct. Its total ought to agree in amount and date with the balance entered in the cash receipts journal.
Cash shortages and cash thefts are often covered by incorrectly footing a listing of cash transactions.
Consulting Partner Review:
1. Loosening the credit-granting policy is the practice of making credit easier to come by. From an economy and business perspective, this can be achieved by lowering interest rates for borrowers or relaxing the lending criteria. In turn companies tend to expand operations and people spend more on goods and services.
Loosening credit standards to customers is a big decision that can have multiple impacts on a business. A company’s credit-granting policy can have a significant impact on sales. Customers like easy credit, so the more relaxed the credit policy, the higher sales tend to be. Conversely, a tighter credit policy will lower sales somewhat. Companies offer different forms of credit terms to their customers depending upon the customer’s financial strength, nature of relationships with the customer, and types of credit terms offered by competitors. In order to loosen the credit-granting policy, companies can do such things as increase the credit period from 30 to 60 days, ease its credit standards (offer credit to weaker customers who often pay late or not at all) and loosen collection methods.
These credit easing actions will also have an effect on accounts receivables. There will be an increase in the time customers pay, delaying collections. Also, selling to weaker customers will lead to slower payments. Thus, easing credit-granting policy would increase the investment in accounts receivable because both sales and the collection period have increased. There is also an effect on the cost of goods sold. Products and services need to be available to customers upon request. By extending credit to customers, these products/services will not be paid for immediately, therefore the company needs to have enough cash flow to compensate for the delayed payment. The loss of interest income the company might have earned also becomes a trade-off by extending credit to customers. There exists a possibility that some of the debts owed will never be collected. Therefore, companies need to allow for a percentage of bad debts that will never be collected. The trade-off for more customers and higher sales is that some of the credit sales will never be paid.
2. Handling customer complaints is a critical component to running a successful business. When companies are unable to resolve the problems of a complaining customer, they risk the chance of keeping the customer satisfied and loyal to their product. Employees that deal with customers need to have proper training in customer service.
The first step in dealing with an unhappy customer is to listen and understand exactly what their concern is. Put any personal emotions to the side and calmly listen to what the customer is saying. Ask questions rather than jumping to conclusions. Get more information and a better understanding of the clients concern, so you are better able to understand their perspective. Empathize with their point of view and let the customer know that you are willing to work with them to get the issue resolved as quickly as possible.
Offer the customer a solution to their problem. If you are not able to solve the problem, put them in contact with someone that can. Focus on what can be done versus what cannot be done. It might not be exactly what the customer is asking for, but being flexible will alleviate some of the customers concern. Make sure the customer fully understands what you are able to do or not do to accommodate their requests. Follow through with the agreed upon solution and do it as quickly as possible.
Offer the customer a sincere apology. Let them know you are sorry they were inconvenienced or disappointed and upset and thank them for giving you an opportunity to resolve the issue. This effort will leave a positive impression on the customer. Be sure to follow up with the client, or have management follow up to be sure they are satisfied with the proposed solution and that you have taken care of their concern. This will show the customer that you care and that you are willing to take the time and put in the effort to resolve their complaint as quickly as possible.
Case 5 - Exercise 1
Abernethy and Chapman
Internal Control Questionnaire - Accounts Receivable
Client: The Lakeside Company
Prepared by: Abernethy and Chapman (Mitchell)
Date: July 6, 2015
Questions
Comments on Current System
Significance
Suggestions
1
Does an independent party on a regular basis reconcile the subsidiary ledger?
Yes, the independent auditors examine it at least once a year.
No control is maintained over Miller’s handling of the subsidiary ledger throughout the year. The possibility that errors will be discovered on a timely basis becomes impossible. Miller has the opportunity for manipulating the records to cover thefts and other defalcations.
A member of the administrative staff should verify that the subsidiary ledger for accounts …show more content…
receivable agrees with the ledger control account.
2
Are appropriate, established criteria in place for writing off doubtful accounts?
No, uncollectible accounts are estimated at 0.7% of net credit sales made by distributorship since company inception. The criteria for writing off accounts are vague and seemingly based on the judgement of Miller.
A problem exists as to the consistency of removing bad debts from one year to the next. No control appears to exist over Miller’s judgement.
A formal system for writing off bad accounts needs to be established. This system should constitute a list of steps to be taken prior to the decision to remove an account. Additionally, this account needs to be reviewed on a predetermined basis.
3
Are accounts to be written off properly reviewed and authorized by an independent party?
No independent party authorizes the write-off of bad accounts.
The removal of bad accounts can be used to cover cash thefts. Also, write-offs may be approved without sufficient attempts being made at collecting receivables.
Once a system has been established for the write-off procedure, an independent employee should be required to review every account prior to removal to make certain that all proper steps have been followed.
4
Is an appropriate follow up made on accounts that are written off?
No, follow-up of bad debts is not addressed.
If no follow-up is made, the company reduces the possibility of making any future collection. If no follow-up is carried out, the opportunity exists for employees to steal the money if it should be received at a later date. Additionally, attempting to collect an old account receivable is a control mechanism to determine that the balance has not actually been paid and the money stolen or the collection recorded incorrectly.
A member of Lakeside’s staff can be assigned to look into the bank accounts periodically, or the receivable can be turned over to an outside collection agency.
5
Does the company periodically re-evaluate the method in use for estimating bad accounts?
No re-evaluation of the method for estimating bad accounts has been made Lakeside.
No proof exists that the bad debt expense and the allowance for doubtful accounts is fairly presented.
Lakeside should schedule recent bad accounts to arrive at a new estimation of the bad debt percentage.
6
Are customers billed regularly by a party separate from the subsidiary ledger?
The first three invoices are mailed by the sales division; any further billings is made by Miller, who is in charge of the subsidiary ledger.
By having Miller send the last invoices, the opportunity for manipulation is increased. This procedure should be accompanied by additional control and reconciliation procedures.
Increased control procedures along with Miller continuing the billing.
7
Is an independent verification made of complaints from customers concerning their bills?
The responsibility for looking into complaints is entrusted in Miller.
All of the responsibilities are in the hands of one person with no independent control being applied. This lack of control reduces the possibility that errors will be discovered.
Lakeside should have complaints sent to an employee who can then discuss the matter with both Miller and the customer to make certain that the issue is properly resolved.
8
Was the company’s policy of granting credit changed over the past year?
According to the client, no formal change in the policy of granting credit has been made. However, the increase in the size of the receivables, the increase in the average age of the balances, and the apparent write-off of additional uncollectible accounts indicate the possibility that some modification has occurred.
Any shift in credit policy requires auditor attention as to the effect on the allowance account and bad debt expense. Abernethy and Chapman may want to review the new customer accounts opened during the current year for any indication of a change in credit policy. This issue may be especially significant in the Lakeside audit since credit reports are filed by the sales representatives who are paid on commission, thus benefiting from an increase in sales.
Lakeside should adopt a policy to guide Rogers in his credit decisions. In addition, outside verification of credit ratings on a periodic basis would help reduce the risk of high bad debt losses.
9
Can a credit sale possibly be made without prior credit approval?
No indication is given in the case as to whether sales invoices are verified after the shipment to ascertain appropriate credit approval. The system is designed so that credit approval is necessary before the sale is made, but no control mechanism is identified to assure that the system is working properly.
The possibility of a sale being made without credit approval casts further doubts on the reliability of the system of controls. As a part of the tests of controls, the auditor will want to review a sample of sales invoices for proper credit approval.
At the point in the accounting system at which the extensions and prices are verified, the presence of credit approval should also be checked.
10
Are credit files complete and periodically reviewed?
Credit files contain only the sales representative’s credit reports and do not appear to be reviewed periodically.
As indicated above, the credit granting policy is informal and based almost solely on Rogers’ judgement. Thus, the efficiency of the system is unknown and review of the system by the auditor is quite difficult.
As part of the design of a comprehensive credit system, Lakeside should determine the desired contents of a credit file including items such as outside credit reports, financial statements, correspondence, etc. Periodically, these files need to be reviewed by an independent Lakeside employee to verify that all information is complete and up to date. Each customer’s file is also reevaluated at regular time intervals to judge whether credit should continue to be offered.
11
Are invoices verified as to agreement with goods shipped and price of goods?
Verification of goods and prices is conducted by Lakeside’s Sales Division. Miller implies that his checking of prices and extensions are not made on a timely basis. In addition, this verification is another responsibility to accounts receivable concentrated in Miller’s hands.
Verifying extensions and prices after the invoice has been sent to the customer is not a logical approach. Also, having Miller perform this task adds nothing to the efficiency of the organization.
All verifications should be made prior to mailing the invoice, ideally by an alternative employee.
12
Are extensions and footing recalculated?
Miller describes that in the event of an error, the invoice is recalculate and a rebill is issued to the customer.
Extensions should be verified prior to invoicing the customer. Customers should receive a single accurate invoice, thus limiting the risk of multiple invoices being unaccounted for or simply not paid by the customer.
Lakeside should have a process in place to verify pricing and extensions, along with quantities and descriptions prior to the submission of invoices to the customer.
13
Are cash discounts recomputed and verified as to actual days?
Cash discounts are verified by the sales division.
System appears adequate. Financial information should be fairly presented.
None
14
Can a sale possibly be made and goods shipped without an invoice being recorded or mailed?
Using pre-numbered sales invoices and bills of lading along with the periodic verification of all numbers is essential in assuring that all sales are recorded. In an earlier case, the use of pre-numbered forms is mentioned. Miller suggests that the presence of all forms is tested periodically, but the auditor should specifically ask about that procedure.
If the possibility exists that the company can make sales without recording them, the auditor’s ability to gain assurance to assert its completeness assertion may be severely hampered.
Since the documents are already pre-numbered, the auditor needs to make certain that Lakeside has a policy for periodically verifying the presence of all forms.
Case 5 - Exercise 2
Abernethy and Chapman
Internal Control Evaluation
Client: The Lakeside Company
Prepared by: Abernethy and Chapman (Mitchell)
Date: July 6, 2015
Exhibit 5-2 is a portion of the audit program that Mitchell designed to test the operating efficiency of controls in the revenue and cash receipts cycle. For each individual test, indicate the anticipated results if the control procedure is working properly. Also, if the control is not functioning properly, list the potential problems that exist. Use the following format for your response:
Step
Anticipated Results
Potential Problem(s)
1-A
The total listed on the sales invoice should agree with the total on the sales invoice slip. In addition, evidence should be present to indicate that a Lakeside employee has already made this same comparison.
If the invoices do not agree, the possibility is raised that fictitious or misstated sales are being recorded. Lack of tangible evidence (e.g., initials) that the matching procedure has been carried out would indicate that the employees are not complying with the requirements of the system.
1-B
The quantity and description of the items sold should be the same as the items shipped. Again, Lakeside employees are supposed to have previously made this comparison and left their initials or other proof of the execution of this test.
Differences warn the auditor that sales have been both billed and recorded incorrectly, or incorrect amounts or types of inventory have been shipped. Once again, a lack of compliance by Lakeside’s employees may be shown if this comparison has not been made.
1-C
Cash received as per the remittance list should be consistent with the invoice and the invoice slip. Customers should be encouraged to include the amount of payment on the invoice slip as a further control procedure. Because of the discount, the auditor may want to perform this step in connection with the discount computation in step 1-d.
The cash may have been stolen, or someone in the company may be engaged in lapping.
1-D
Calculated cash discounts should be identical with the amounts by the client company. In most cases, this calculated discount figure will be equal to the difference between the sales invoice total and the cash remittance.
Discounts may be incorrectly recorded to hide cash shortages or as a step in stealing cash funds from the company. Also, the company may be allowing customers to take discounts that have not actually been earned. Allowing these reductions would indicate lack of efficiency in internal control.
1-E
All prices on the invoices should agree with the prices being shown on the approved price list.
All prices detailed on invoices should align with prices on the approved price list. Improper pricing, either intentionally or unintentionally, also leads to incorrect sales and receivables figures on the financial statements. If the invoice price is too high, sales and income are overstated; if too low, the figures will be understated, and company employees may be receiving kickbacks from
customers.
1-F
The extensions and footings on the invoice should be correct.
Improper footings or extensions, either intentionally or unintentionally, also leads to incorrect sales and receivables figures on the financial statements.
1-G
The amount received according to the invoice slip should agree with the listing of individual items being deposited. In addition, the date of deposit should be the same as the date on which the payment is received.
A discrepancy in the amount received and deposit or date of deposit and date of payment received could indicate the theft of the cash receipts. This test also may alert the auditor to the possibility of lapping.
1-H
All cash remittances should be recorded promptly as credits to the specific subsidiary ledger accounts.
Since the subsidiary ledger is not well controlled in the Lakeside organization, this procedure may be used to determine the possibility of errors within the ledger. This test also may indicate lapping as well as other manipulations of the accounts so as to conceal cash shortages.
1-I
Each invoice should be initialed by either Rogers or Miller to indicate credit approval.
Because the credit system is not well documented, the auditor will be searching for evidence that sales were potentially made without credit approval. Such evidence would have an effect on the auditor’s judgment as to the amount of evidence needed in examining the allowance account and bad debt expense.
2-A
Each debit entry should be corroborated by an appropriate sales invoice agreeing as to amount and customer.
This test has major significance in that it can alert the auditor to any falsification of sales for the year. Fictitious sales could easily be created by Lakeside since they prepare all sales invoices and other documents internally.
2-B
Each credit should agree with the cash remittance list as to amount and possibly date of payment depending upon the method of posting.
This tracing could denote errors in postings within the system. Errors could indicate lapping by company employees.
2-C
Each credit to a specific account should agree with the listings of individual items on the bank deposit slips.
Again, lapping or attempts by employees to cover cash shortages may be uncovered through this test.
3
For each of the customers, complete and updated credit reports should be on file.
The use of credit reports is an essential step in establishing an appropriate credit-granting system. The presence of these reports would indicate that the control procedure is operating efficiently. If the reports are missing or incomplete, the auditor may want to seek additional evidence as to the validity and collectability of the receivables.
4
Each list should be arithmetically correct. Its total ought to agree in amount and date with the balance entered in the cash receipts journal.
Cash shortages and cash thefts are often covered by incorrectly footing a listing of cash transactions.
Consulting Partner Review:
1. Loosening the credit-granting policy is the practice of making credit easier to come by. From an economy and business perspective, this can be achieved by lowering interest rates for borrowers or relaxing the lending criteria. In turn companies tend to expand operations and people spend more on goods and services.
Loosening credit standards to customers is a big decision that can have multiple impacts on a business. A company’s credit-granting policy can have a significant impact on sales. Customers like easy credit, so the more relaxed the credit policy, the higher sales tend to be. Conversely, a tighter credit policy will lower sales somewhat. Companies offer different forms of credit terms to their customers depending upon the customer’s financial strength, nature of relationships with the customer, and types of credit terms offered by competitors. In order to loosen the credit-granting policy, companies can do such things as increase the credit period from 30 to 60 days, ease its credit standards (offer credit to weaker customers who often pay late or not at all) and loosen collection methods.
These credit easing actions will also have an effect on accounts receivables. There will be an increase in the time customers pay, delaying collections. Also, selling to weaker customers will lead to slower payments. Thus, easing credit-granting policy would increase the investment in accounts receivable because both sales and the collection period have increased. There is also an effect on the cost of goods sold. Products and services need to be available to customers upon request. By extending credit to customers, these products/services will not be paid for immediately, therefore the company needs to have enough cash flow to compensate for the delayed payment. The loss of interest income the company might have earned also becomes a trade-off by extending credit to customers. There exists a possibility that some of the debts owed will never be collected. Therefore, companies need to allow for a percentage of bad debts that will never be collected. The trade-off for more customers and higher sales is that some of the credit sales will never be paid.
2. Handling customer complaints is a critical component to running a successful business. When companies are unable to resolve the problems of a complaining customer, they risk the chance of keeping the customer satisfied and loyal to their product. Employees that deal with customers need to have proper training in customer service.
The first step in dealing with an unhappy customer is to listen and understand exactly what their concern is. Put any personal emotions to the side and calmly listen to what the customer is saying. Ask questions rather than jumping to conclusions. Get more information and a better understanding of the clients concern, so you are better able to understand their perspective. Empathize with their point of view and let the customer know that you are willing to work with them to get the issue resolved as quickly as possible.
Offer the customer a solution to their problem. If you are not able to solve the problem, put them in contact with someone that can. Focus on what can be done versus what cannot be done. It might not be exactly what the customer is asking for, but being flexible will alleviate some of the customers concern. Make sure the customer fully understands what you are able to do or not do to accommodate their requests. Follow through with the agreed upon solution and do it as quickly as possible.
Offer the customer a sincere apology. Let them know you are sorry they were inconvenienced or disappointed and upset and thank them for giving you an opportunity to resolve the issue. This effort will leave a positive impression on the customer. Be sure to follow up with the client, or have management follow up to be sure they are satisfied with the proposed solution and that you have taken care of their concern. This will show the customer that you care and that you are willing to take the time and put in the effort to resolve their complaint as quickly as possible.