Question

The accounts receivable clerk destroys all invoices for sales made to family and friends and does not record the sales in the accounts receivable subsidiary ledgers. The family and friends usually give the clerk cash as a "thank you." Which procedure will not prevent or detect this fraud?

a. Send monthly statements to all customers with balances owed.
b. Reconcile sales invoices in the billing department to the total debits to accounts receivable subsidiary ledgers.
c. Sequentially prenumber all invoices and prepare a sequence check at the end of each day.
d. Reconcile the accounts receivable control account to the accounts receivable subsidiary ledger.

Answer 1

Option (a) will not prevent or detect the fraud described as it relies on recorded transactions, which the clerk is omitting.

Step-by-step explanation:

The question is asking which procedure will not prevent or detect the fraud conducted by an accounts receivable clerk who destroys invoices for sales made to family and friends and receives cash in return without recording the sales.

Option (a), sending monthly statements to all customers with balances owed, would not detect the fraud if no invoices are issued and no balances are recorded on the customers' accounts. Monthly statements only work if all transactions are recorded properly.

Option (b), reconciling sales invoices in the billing department to the total debits to accounts receivable subsidiary ledger, would not prevent or detect the fraud because the transactions are not being recorded in the first place.

Option (c), prenumbering invoices and performing a sequence check would likely detect missing invoices but would not prevent the fraud.

Finally, option (d), reconciling the accounts receivable control account to the accounts receivable subsidiary ledger, might detect discrepancies but would not prevent the fraud nor detect it if the invoices are not being recorded at all.