Which measure would be helpful in detecting a skimming scheme?

• A. Examining journal entries for accounts receivable write-offs
• B. Confirming customers' outstanding account balances
• C. All of the above
• D. Examining journal entries for false credits to inventory

Answer: (C)

Skimming schemes hide cash receipts by taking money before it’s properly recorded, and the concealment can appear in several places in the records. To spot this, you want to look for anomalies in how the books match cash, customer balances, and inventory.

Examining journal entries for accounts receivable write-offs helps because if cash was skimmed, there may be unusual or excessive write-offs used to cover up missing receipts rather than legitimate bad debts. This can be a red flag that the loss isn’t being properly absorbed by bad debt and is instead hidden in the records.

Confirming customers’ outstanding balances is useful too. External confirmations can reveal discrepancies between what the customer says they owe and what is on the books. If cash receipts were skimmed or misapplied, payments may not be properly recorded against the correct accounts, leading to mismatches that confirmations can uncover.

Examining journal entries for false credits to inventory is another helpful check. A skimmer might create bogus credits to inventory to balance out the missing cash or to disguise the theft within the cost of goods sold and inventory accounts. Detecting such false credits can expose concealment tactics used with skimming.

Because skimming can be concealed in multiple ways, using a combination of these measures provides the best chances of detecting the scheme.