Due Day 3 Credit Memos Created When Product Is Returned

Due Day 3credit Memos Are Created When A Product Is Returned Credit M

Due Day 3 credit memos are created when a product is returned. Credit memos reduce A/R (accounts receivable) by crediting the account, and it writes off the invoice. This also records a debit to the Sales Returns and Allowances account. You have noticed that the A/R clerk has created an abnormally high number of credit memos. You also notice the inventory does not reflect the additional inventory resulting from the sales returns. Respond to the following in a minimum of 175 words: What would you do, and how would you document your decision?

Paper For Above instruction

In response to the observation of an unusually high number of credit memos and discrepancies in inventory records, I would undertake a systematic investigation to identify the root cause. First, I would review the details of the credit memos issued over the recent period, examining documentation such as transaction records, customer return authorizations, and approval protocols. This review helps determine whether the memos are justified or if potential fraud or procedural violations are involved.

Simultaneously, I would reconcile the inventory records with physical counts to identify discrepancies. If the inventory has not increased accordingly, it could indicate that credit memos are being issued improperly or that inventory adjustments are not being properly recorded. I would also interview the A/R clerk to understand their process for issuing credit memos and whether they have encountered any issues that could lead to over-issuance.

Based on findings, I would escalate the issue to management and recommend implementing tighter controls. These include requiring dual approval for credit memos above a certain threshold, regular audits of credit memos, and automatic updates of inventory records upon issuance. Proper documentation of all findings, decisions, and corrective actions taken would be maintained in compliance with internal policies and audit standards. Additionally, staff training on company policies regarding returns and credit memos would be reinforced to prevent future inconsistencies.

References

  • Horngren, C. T., Sundem, G. L., & Elliott, J. A. (2013). >Introduction to Financial Accounting. Pearson.
  • Elizabeth, J. (2020). Internal Controls and Fraud Prevention. Journal of Accounting & Finance, 35(4), 78-89.
  • Hampton, J. J. (2017). Financial Decision-Making. Cengage Learning.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
  • Accounting Standards Updates (ASUs). (2018). FASB Publications.
  • Gibson, C. H. (2017). Financial Reporting and Analysis. Cengage.
  • Financial Accounting Standards Board (FASB). (2020). Accounting Standards Codification.
  • Richman, P. (2018). Auditing for Internal Controls. Internal Auditing, 33(2), 45-53.
  • Jones, M. (2019). Inventory Management and Control. Journal of Business Logistics.
  • PwC. (2021). Internal Controls over Financial Reporting: Best Practices. PricewaterhouseCoopers.

Related Assignments