Reference no: EM132602547

Question - Following is the extracted description of sales and cash receipts for Baby's Shop, a store dealing in expensive babies' clothes. Sales are for credit only, using the store's own credit system rather than credit cards.

Customer orders are received and checked by an order clerk to make sure all the information is correct and goods is in hand. Orders that satisfy all criteria result in the production of a sales order that lists the goods ordered. The sales order is then forwarded to the credit supervisor, who approves credit sale based on an approved list of criteria and notes his approval on the sales order. The approved sales order will be sent to the sales department.

In the sales department, each sales clerk has their own sales book. Sales clerks prepare the sales invoices in four copies, which are not pre-numbered. The original copy is sent to customer, the second one is given to James, the accountant, and the third one is given to the supervisor. The fourth copy is retained by the sales clerk in the sales book. Each clerk summarises their sales each day on a daily summary form, which is used to calculate and record employees' sales commissions.

James, who also receives payment from customers, records the sales transactions into the firm's computerised accounting system based on the copy of invoice that he is given. The accounting provides a complete printout of all input and summaries. The accounting summary includes sales by sales clerk and total sales. Jenny compares this output with the supervisor's and sales clerks' summaries and reconciles all differences. The computer also updates accounts receivable master file on a daily basis.

Required - Based on the information available above:

(a) Critically evaluate the strength of the client's internal control over the sales and collection cycle by identifying and explaining THREE (3) internal control activities present in the system.

(b) For each internal control listed in (a), identify a financial report assertion that the control addresses.

(c) Critically evaluate the weaknesses of client's internal control through the identification and explanation of one (1) weakness in the sales system at Baby's Shop.