Question

An auditor noted that the accounts receivable department is separate from other accounting activities. Credit is approved by a separate credit department. Control accounts and subsidiary ledgers are balanced monthly. Similarly, accounts are aged monthly. The accounts receivable manager writes off delinquent accounts after 1 year, or sooner if a bankruptcy or other unusual circumstances are involved. Credit memoranda are prenumbered and must correlate with receiving reports. Which of the following areas could be viewed as an internal control deficiency of the above organization?

A. Write-offs of delinquent accounts.
B. Credit approvals.
C. Monthly aging of receivables.
D. Handling of credit memos.

Answer 1

Answer: Option (A) is correct

Write-off refers to accounting term that curtails the amount of an asset while synchronously soliciting liabilities. It is principally utilized in its literal term by organizations seeking to rationalize unpaid loan obligations,receivables, or losses. Delinquent account refers to a credit account, where a individual has be found lacking to make at least the minimum monthly payment.

Therefore, Write-offs of delinquent accounts could be viewed as the internal control deficiency of the given organization.