Question

Which of the following controls most likely will be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?

1. Employees responsible for authorizing sales and bad debt write-offs are denied access to cash.
2. Employees involved in the credit-granting function are separated from sales function
3.Shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts.
4. Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit.

Answer 1

2. Employees involved in the credit-granting function are separated from sales function.

Step-by-step explanation:

With this measure, there would be an independent credit approving department that analyzes each potential client's credit history, financial condition, and probability of paying, and determines whether the credit can be approved or not.

Sales people will have the task to present the product to the clients, and let them know about the credit conditions, but they will not have the power to approve or disapprove the credits.

This is how many banks operate.