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The client tightened its credit policy during the current year and sold considerably less merchandise to customers with poor credit ratings. The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet. Internal control activities over the recording of cash receipts have been improved since the end of the prior year. Which of the following client explanations would satisfy the auditor?Ī greater percentage of accounts receivable are listed in the "more than 120 days overdue" category than in the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year. The confirmation of accounts receivable is most closely associated with: Tracing sales invoices to shipping documents to test the occurrence of reported sales. Tracing sales invoices to shipping documents to test the completeness of recorded accounts receivable. Tracing shipping documents to sales invoices to test the occurrence of reported sales. Tracing sales invoices to shipping documents to tests the completeness of reported sales. In a particular case, s/he might do this by: The auditor therefore develops general and specific procedures to apply to the accounts and transactions.

An audit basically consists of having the auditor form an opinion regarding management's financial statement assertions. Observation of the physical inventory count at year-end. Tracing the total sales in the sales journal to the general ledger. Sales department Which procedure would be of most assistance to an auditor discovering a large credit sale that has erroneously been recorded twice? For effective internal control, the billing function should not be performed by the: Year 2 accounts receivable compared to year one accounts receivable. Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful accounts?Īccounts receivable divided by Cost of goods sold.Ĭash Sales divided by Accounts receivable.