How would you verify the Accounts Receivable and Sales
The term
“receivables” is used broadly to include almost all amounts receivable by a
concern from its customers, offices, branches, and affiliated or subsidiary
concerns, except those which are evidence by a bond or other security. From the
verification point of view they can be divided into here classes:
a) Accounts
Receivable from customers
b) Notes
Receivables
c) Other
Receivables.
Purpose of
verification of Receivables may be stated as under:
1) To determine
whether the Balance Sheet or general ledger amount or receivables is supported
by valid accounts.
2) To determine
where the receivables as stated are collectible;
3) To determine
whether the receivables are properly classified and described;
4) Determine
whether sales transactions have been accounted for properly during the period.
Audit Programme
for Accounts Receivables and Sales
1) To determine
the specific debtors making up the total amounts receivable, obtain a detailed
list of the receivables, compare with the subsidiary ledger accounts, foot and
agree total with Control Accounts or Balance Sheet amount.
2) Obtain
independent verification of balances:
a) Send confirmation requests to a representative portion of the
debtors;
b) Obtain satisfactory explanations for any confirmation returned
with exceptions of differences;
c) Investigate the propriety of any accounts for which confirmation
were requested and not returned.
3) To consider
collectibility of account balances:
a) Review accounts with credit manager or over due balances;
b) Review collection on account in period following balance sheet
date;
c) Ensure that Reserve for Bad Debts is adequate to cover all
uncollectible accounts plus a reasonable provision for doubtful debts.
4) To Test
arithmetical accuracy of accounts, both controlling account and subsidiary
ledger, foot and balance ledger accounts for receivables:
a) General Ledger control account or accounts;
b) A representative portion of subsidiary ledger accounts.
5) To test reliability
of book-keeping procedures:
A) Test postings to books of original entry:
(a) General
Ledger control account or accounts;
(b) A
representative portion of subsidiary ledger accounts;
B) Investigate propriety of any unusual entries in the general ledger
controlling account or accounts.
6) To verify
sales transactions for a test period:
a) Compare duplicate sales invoices with entries in sales book
b) Foot sales book;
c) Trace postings to general ledger accounts;
d) Examine documentary evidence supporting sales returns and sales
allowance transactions;
e) Account for all sales invoices and for all credit memos issued
for the test period;
f) Foot and balance the Sales account.
g) Investigate propriety of any unusual entries in the Sales
account.
7) To determine
whether sales book has been help open past the closing date or receipts of the
book with date of deposit and date of remittance advice if available, for last
cash receipts of the period and first cash receipts of the following period.
8) Prepare any
necessary adjusting or re-classifying journal entries.
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