Question

When an employee who is authorized to make customer entries in the accounts receivable subsidiary ledger, purposefully enters cash received into the wrong customer's account that employee may be suspected of:

A) kiting.
B) lapping.
C) floating.
D) shorting.

Answer 1

The employee is suspected of 'lapping', which is a fraudulent activity where cash receipts are manipulated to cover up theft by delaying the recording of transactions in the accounts receivable ledger.

Step-by-step explanation:

When an employee who is authorized to make customer entries in the accounts receivable subsidiary ledger purposefully enters cash received into the wrong customer's account, this action may lead to suspicion of lapping. Lapping involves delaying the recording of cash receipts to cover up an existing theft, and it involves manipulating the accounts to hide the irregularities. For example, if a customer's payment is stolen by an employee, the employee may apply a subsequent cash receipt from a different customer to the first customer's account to cover up the discrepancy. Over time, the employee continues to cover one theft by using payments from other customers, which can become a cycle that is difficult to detect without proper internal controls.