Which of the following controls will most likely prevent the concealment of a ca
ID: 2580772 • Letter: W
Question
Which of the following controls will most likely prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable? A. Write-offs must be approved by a responsible officer after review of credit department recommendations and supporting evidence. B. Write-offs must be authorized by company field sales employees who are in a position to determine the financial standing of the customers. C. Write-offs must be supported by an aging schedule showing that only receivables overdue several months have been written off. D. Write-offs must be approved by the cashier who is in a position to know if the receivables have, in fact, been collected.
Explanation / Answer
A. Write-offs must be approved by a responsible officer after review of credit department recommendations and supporting evidence.
The above control will ensure that any existing cash shortage is not written off against a trade account receivable(which is not actually going to result in bad debt in near future). As in the given case first there would be a check done by department and the decision would be suggested on the basis of supporting evidence and then the same would be reviewed and approved by an officer.