AUDITING PRACTICE
Audit of Accounts Receivable
PROBLEM 1
Pinnacle Corporation’s general ledger showed the following information:
Accounts Receivable
Allowance for Doubtful Accounts
P550,000 (debit)
16,500 (debit)
On the other hand, the accounts receivable subsidiary ledger shows the following composition:
Customer A
Invoice Date
12/06
11/29
Invoice Amount
P42,000
63,540
P105,540
9/27
8/20
36,000
26,760
62,760
12/30
12/08
10/25
20,000
40,000
31,800
91,800
11/17
10/09
69,420
66,000
135,420
12/12
8/20
57,600
37,200
94,800
9/12
52,200
52,200
Customer B
Customer C
Customer D
Customer E
Customer F
Balance
Audit notes:
a. Accounts receivable confirmation letters were sent to the customers. You have noted the
following:
Customer
Balance per reply
Remarks
Customer B
P36,000
Invoice dated 8/20 was already settled. Investigation
revealed that Customer B’s payment was erroneously
posted against Customer E’s account for an invoice
dated 12/20 for the same amount.
Customer C
71,800
The difference was due to the invoice dated 12/30.
Goods have not yet been received by Customer C as
of December 31. Terms of sale is FOB Destination.
Customer E
121,560
“Amount per our records appear to be higher, so
please check”.
Customer F
No reply
Customer F is under liquidation and the amount
receivable from the company is deemed definitely
uncollectible.
b. The company’s policy with regard uncollectible accounts is summarized below:
Age
30 days and below
31-60 days
61-90 days
91-120 days
Over 120 days
Collectibility %
99%
98%
95%
90%
50%
c. In the event that the Accounts Receivable general ledger does not reconcile with the subsidiary
ledger after corrections are made and the difference cannot be located, you have come into an
agreement with the client to adjust the control to the sum of the subsidiaries as miscellaneous
income or expense.
Requirements:
1. The erroneous posting of Customer B’s payment to Customer E’s account resulted to total accounts
receivable being
a. Properly stated
b. Overstated P26,760
c. Understated by P26,760
d. Understated by P53,520
2. The correct bad debt expense for the year is
a. P67,113
b. P70,383
c. P100,113
d. P103,393
3. The journal entry to reconcile the balances of the Accounts Receivable general and subsidiary ledger
after corrections, if any, will include a
a. Debit to Sales
b. Credit to Accounts Receivable
c. Credit to Miscellaneous Income
d. No journal entry required
4. What is the audited balance of the Accounts Receivable account as of December 31?
a. P438,907
b. P443,560
c. P458,707
d. P470,320
5. What is the correct Allowance for Doubtful Accounts balance as of December 31?
a. P31,413
b. P31,613
c. P44,525
d. P44,725
6. What is the audited net realizable value of the Accounts Receivable as of December 31?
a. P 438,907
b. P 441,947
c. P 458,707
d. P 470,320
PROBLEM 2
You are auditing the accounts receivable and the related allowance for doubtful accounts of Mr.
Accounting Inc. for calendar year 2025. The control account of the aforementioned accounts had the
following balances:
Accounts receivable
Allowance for doubtful accounts
Net realizable value
P1,270,000
(78,000)
P1,192,000
Upon your investigation, you found out the following information:
a. The company’s normal sales term is n/30.
b. The allowance for doubtful accounts had the following details in the general ledger:
Allowance for Doubtful Accounts
July 31 Write-off P 24,000 Jan. 1 Balance P30,000
Dec. 31 Provisions 72,000
c. The subsidiary ledger balances of the company’s account receivable as of December 31 contained
the following information:
Debit balances
Under 1 month P540,000
1-6 months
552,000
Over 6 months
228,000
Total
P1,320,000
Credit balances
ABC Co.
P12,000
DEF Corp.
21,000
GHI, Inc.
27,000
Total
P60,000
Additional information:
i.
The credit balance of ABC Co. was for an overpayment from the customer. The company
delivered additional merchandise to ABC Co. on January 3, 2026 to cover such overstatement.
ii. The credit balance of DEF Corp. was due to a posting error as the amount should have been
credit to XYZ Corp. for a 60-day outstanding receivable.
iii. The credit balance of GHI Inc. was a cash advance for a delivery to be made on January 15,
2026.
d. It was estimated that 1% of accounts receivable under 1 month is doubtful of collection while 2%
of accounts receivable under 1-6 months are expected to require an allowance for doubtful
accounts. The accounts over 6 months are analyzed as follows:
Definitely uncollectible
Doubtful (estimated to be 50% collectible)
Apparently good but slow (estimated to be 90% collectible)
Total
P72,000
36,000
120,000
P228,000
Requirements:
1. Assuming the difference is immaterial and cannot be located, what is the entry to adjust the difference
between the control account and the subsidiary ledger?
a. Sales
10,000
Accounts Receivable
10,000
b. Miscellaneous Expense
10,000
Accounts Receivable
10,000
c. Accounts Receivable
10,000
Miscellaneous Income
10,000
d. No adjustment is necessary since the control account and subsidiary ledger reconcile.
2. The adjusted accounts receivable balance on December 31, 2025 should be
a. P1,212,000
b. P1,227,000
c. P1,239,000
d. P1,260,000
3. The required balance of the allowance for doubtful accounts on December 31, 2025 is
a. P46,020
b. P46,440
c. P64,020
d. P142,020
4. What is the entry to adjust the allowance for doubtful accounts to its required balance?
a. Bad Debt Expense
46,020
Allowance for doubtful accounts
46,020
b. Bad Debt Expense
52,020
Allowance for doubtful accounts
52,020
c. Bad Debt Expense
6,000
Allowance for doubtful accounts
6,000
d. Bad Debt Expense
40,020
Allowance for doubtful accounts
40,020
5. The adjusted bad debt expense for 2025 is
a. P124,020
b. P78,000
c. P118,020
d. P112,020
6. What is the adjusted net realizable value of accounts receivable as of December 31, 2025?
a. P1,180,980
b. P1,213,980
c. P1,114,980
d. P1,174,980