Lapping of receivables is best described as a fraud where:

• A. A Cash larceny occurs through misappropriation of cash receipts.
• B. B Receipts from later customers are applied to earlier accounts to conceal theft.
• C. C Vendors are used as shell companies.
• D. D Payments are returned to vendors after double payment.

Answer: (B)

Lapping of receivables is a fraud where the thief hides the misappropriation of cash by using a later customer’s payment to cover an earlier, unrecorded receipt. The perpetrator pockets a payment meant for one customer and then applies a later payment to that same first customer’s account, making it look as though the original balance was settled. When new receipts come in, the process repeats, continually concealing the theft in the records until a reconciliation or audit reveals the pattern. This description matches the idea that receipts from later customers are applied to earlier accounts to conceal theft. The other scenarios describe different frauds—cash larceny is stealing cash receipts outright, vendor shell schemes involve fake vendors, and double payments returned to vendors is not about applying payments to conceal missing receivables. Strengthening controls like separating duties for handling cash, posting payments, and reconciling accounts helps detect and prevent lapping.