Exam 13: Completing Tests in the Sales and Collection Cycle: Accounts Receivable

Comparing the provision for doubtful debts as a percentage of accounts receivable with previous years, can help detect errors in the bad debts expense account.

Explain two particular matters for the presentation and disclosure assertion for accounts receivable balances.

Sales returns should be recorded in the period in which the return occurs.

Client business risks affecting accounts receivable are considered in the auditor's evaluation of inherent risk.

The use of the positive (as opposed to the negative) form of receivables confirmation is preferred when:

Testing the information on the aged trial balance for detail tie- in is a necessary audit procedure which would normally include:

Analytical procedures are often done:

The starting point for the evaluation of the allowance for doubtful debts is:

Returns of positive confirmation requests for accounts receivable were very poor. As an alternative procedure, the auditor decided to check subsequent collections. The auditor had satisfied himself that the client satisfactorily listed the customer name next to each cheque listed on the deposit slip; hence, he decided that for each customer for which a confirmation was not received that he would add all amounts shown for that customer on each validated deposit slip for the two months following the balance sheet date. The major fallacy in the auditor's procedure is that: