Question

Cash receipts from sales on account have been misappropriated. Which of the following acts will conceal this embezzlement and be least likely to be detected by the auditor?

(1) Understating the sales journal
(2) Overstating the accounts receivable control account
(3) Overstating the accounts receivable subsidiary records
(4) Understating the cash receipts journal

Answer 1

The act that would most likely conceal the embezzlement and be the least likely to be detected by the auditor is option (3) Overstating the accounts receivable subsidiary records. This act involves overstating the accounts receivable and creating fake invoices to hide the misappropriation of cash receipts.

The correct option is 3.

Step-by-step explanation:

Out of the four options mentioned, the act that would most likely conceal the embezzlement and be the least likely to be detected by the auditor is option (3) Overstating the accounts receivable subsidiary records.

Here's how this act would work:

1. The employee would record fictitious sales in the sales journal, thereby overstating the accounts receivable.
2. They would then create fake invoices and record these in the accounts receivable subsidiary records, overestimating the amount owed by customers.
3. Finally, the employee would misappropriate the cash receipts from genuine sales, making it difficult for the auditor to detect any discrepancies in the accounts.

This act would conceal the embezzlement by inflating sales and accounts receivable, while misdirecting attention away from the cash receipts journal, where the theft is actually occurring.

The correct option is 3.