Sales, cost of sales, inventories and accounts receivable may have to be adjusted if title has not passed to the buyer as of December 31, 2014. 6. (a) Determine if such advance payment has been received and that it has been properly recorded. A review should be made of other advance payments to ascertain that charges against such advances have been properly handled. (b) If the advance payment was to cover these invoices, the auditor should propose a reclassification of the P1,350, debiting the advance payment account and crediting accounts receivable--trade. 7. (a) Examine the shipping order for indications that the goods were shipped and, if available, carrier’s invoice and/or bill of lading for receipt of the goods. (b) If it appears that goods were shipped, send all available information to the customer and ask the customer to reconfirm. If the customer still insists that goods were never received, all data should be presented to an appropriate company official for a complete explanation. This may indicate that accounting for shipments is inadequate and consideration should be given to reviewing the procedures to determine if improvements can be made. (c) If the goods were not shipped, the auditor should recommend an adjustment reducing sales, cost of sales, and accounts receivable, and increasing inventories. 8. This should be discussed with the appropriate officials and correspondence with the customer should be reviewed to allow determination whether an adjustment should be made in the amount receivable or if an allowance for doubtful accounts should be set up. 9. As title on any goods shipped on consignment does not pass until those goods are sold, the sales entry should be reversed, inventory charged, and cost of sales credited if it is actually a consignment sale. Other so-called sales should be reviewed and company officials queried to determine if other sales actual represent consignment shipments; if so, the adjustment set forth in the preceding sentence should be made for all consignment shipments. 10. This is a noncurrent asset and should be reclassified to either deposit or prepaid rent. A review of other accounts, especially those with round numbers, may disclose other accounts that should be so reclassified. 11. This may indicate a misposting of the credit or a delay in posting the credit. Comments under 2 above would also apply to credits.
Substantive Tests of Receivables and Sales 10-9 10-10. Ken Company Requirement (a) Ken Company Accounts Receivable Aging Schedule May 31, 2015 Age Category Proportion of Total Amount in Category Probability of Non-Collection Estimated Uncollectible Amount Not yet due .680 P 816,000 .010 P 8,160 Less than 30 days past due .150 180,000 .035 6,300 30 to 60 days past due .080 96,000 .050 4,800 61 to 120 days past due .050 60,000 .090 5,400 121 to 180 days past due .025 30,000 .400 12,000 Over 180 days past due .015 18,000 .900 16,200 1.000 P1,200,000 P52,860 Requirement (b) Ken Company Analysis of Allowance for Doubtful Accounts May 31, 2015 June 1, 2015 balance P 30,250 Bad debt expense accrual (3,000,000 x .04) 120,000 Balance before write-offs of bad accounts P150,250 Write-offs of bad accounts 108,750
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- ........., Receivables and Sales