Two features of internal control are presented in the following sections. Each is followed by a list of four irregularities that occurred in processing data. Identify the one irregularity from each list that would be discovered or prevented by the feature of internal control described.
a. The sum of the balances of the accounts in the customer's ledger is compared at the end of each month with the balance of the accounts receivable account in the general ledger by a person who has no responsibility for maintaining either the general ledger or the customers ledger.
Five hours of services were rendered but the customer was only billed for four hours.
A cash receipt of $750 was recorded correctly in the accounts receivable controlling account but was posted to the customer's ledger as $75.
A bill for services rendered to Cole Co. was erroneously posted to the account of Coleman Co. in the customer's ledger.
No entry was made in the accounting records for services rendered to a customer.
The irregularity that would be discovered or prevented by the feature of internal control described is:
b. Both cash and credit charges for services rendered are recorded on prenumbered invoices. At the end of the day, all invoices are accounted for before the duplicate copies of the invoices are routed to the Accounting Department for entry into the accounts and the cash is sent to the Cashier's Department for deposit.
Some charge customers complained that the monthly statements of account did not add all amounts correctly.
Some clerks used incorrect hourly rates in preparing invoices.
Some clerks destroyed duplicate copies of cash invoices and misappropriated the cash.
Some charge customers complained that the monthly statement of account did not indicate credits for payments made.
The irregularity that would be discovered or prevented by the feature of internal control described is: _____.

Answer: a. A cash receipt of $750 was recorded correctly in the accounts receivable controlling account but was posted to the customer's ledger as $75.

b. Some clerks destroyed duplicate copies of cash invoices and misappropriated the cash.

Explanation:

a. When the person (who not handled this account before) is crosschecking the balance on accounts in the Customers Ledger against the accounts receivable account in the general ledger, they will discover that $750 was recorded correctly in the Accounts Receivables Control Accounts in the General ledger but was recorded at only $75 in the Customers Ledger.

b. The sales clerks would have destroyed only duplicates whilst the originals were still there. Worse still for them is that these duplicates have been accounted for with the Originals. This way when they destroy the duplicates, the company can still confirm with the originals that that cash was indeed paid.