3724461248 - CHAPTER 16 Auditing Operations and Completing...

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Unformatted text preview: CHAPTER 16 Auditing Operations and Completing the Audit Review Questions 16-1 Revenue accounts that are verified during the audit of balance sheet accounts are the following (only three required): Balance Sheet Item Revenue Accounts Receivable Sales Notes Receivable Interest Securities and other investments Interest, dividends, gains on sale, share of investee's income Property, plant, and equipment Rent, gains on sales Intangible assets Royalties 16-3 Items often misclassified as miscellaneous revenue include the following (only three required): (1) Collections on previously written-off receivables; these should be credited to the allowance for doubtful accounts and notes receivable. (2) Write-offs of old outstanding checks or unclaimed wages; in states having unclaimed property laws these write-offs should be credited to a liability account. (3) Proceeds from sale of scrap; these are generally applied to reduce cost of goods sold. (4) Rebates or refunds of insurance premiums; these should be offset against the related insurance expense or unexpired insurance. (5) Proceeds from sales of plant assets; these should be accounted for in the determination of gain or loss on the assets sold. 16-13 A complete review by the auditor of all correspondence in the client's files is usually out of the question. This would consume an enormous count of time and would yield only incidental benefits. The auditor's use of the correspondence files will usually be limited to a request for letters bearing on issues arising during the examination of other records. These are generally letters to banks and other financial institutions, attorneys, and governmental agencies....
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3724461248 - CHAPTER 16 Auditing Operations and Completing...

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