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Questions Requiring Analysis 12-21
Nolan Manufacturing Company retains you on April 1 to perform an
audit for the fiscal year ending June 30. During the month of May,
you make extensive studies of internal control over inventories.
All goods purchased pass through a receiving department under the
direction of the chief purchasing agent. The duties of the receiving
department are to unpack, count, and inspect the goods. The quantity
received is compared with the quantity shown on the receiving
department’s copy of the purchase order. If there is no discrepancy,
the purchase order is stamped ―OK—Receiving Dept.‖ and forwarded
to the accounts payable section of the accounting department. Any
discrepancies in quantity or variations from specifications are called
to the attention of the buyer by returning the purchase order to him
with an explanation of the circumstances. No records are maintained
in the receiving department, and no reports originate there.
As soon as goods have been inspected and counted in the
receiving department, they are sent to the factory production area and