Page 1 of 19 | AUD Handouts No. 06
RECEIVABLES
DARRELL JOE O. ASUNCION, CPA, MBA
RECEIVABLES
DARRELL JOE O. ASUNCION, CPA MBA
STUDY OUTLINE:
I.
Def inition of receivables, trade receivables and Nontrade receivables
II.
T-ACCOUNT OF AR
T-ACCOUNT OF ALLOWANCE FOR DA
III.
CONFIRMATION OF ACCOUNTS RECEIVABLE
IV.
V.
Guide questions in the audit of AR and related accounts
Notes Receivable
VI.
VII.
Loan Receivable
VIII.
Loan Impairment
Lecture Notes:
RECEIVABLES
Receivable is a financial asset that represents a contractual right to receive cash or another financial asset from
another entity. It represents the amount collectible from customers and others, most frequently arising from sale of
merchandise, claims for money lent, or the performance of services.
Classification of receivables
A. As to source
1. Trade receivables – refer to claims arising from sale of merchandise or services in the ordinary course of the
business operations. This includes:
a. Accounts Receivable/customer’s accounts/trade debtors – these are open accounts not supported
by promissory note arising from sale of merchandise or services in the ordinary course of business.
b. Notes Receivable - is a formal claim against another that is evidenced by a written promise called
promissory note, or a written order to pay at a later time called time draft. Negotiable promissory note is
an unconditional written agreement to pay a certain sum of money on a specific or determinable date to
order of the payee or to bearer.
Note: Only negotiable promissory note is included as part of notes receivable. Dishonored notes
receivable do not qualify as note receivable in the statement of financial position as well as overdue notes.
They are reclassified as accounts receivable together with the accrued interest.
2. Nontrade receivables – these are receivables that arise from sources other than from sale of goods or
services in the normal course of business.
B. As to Statement of Financial Position Classification
1. Current
a. Trade receivables – generally classified as current because of the concept of normal operating cycle
notwithstanding the period from the reporting date
b. Nontrade receivables – classified as current only if they are reasonably expected to be realized in cash
within 12 months after the reporting date
Normal operating cycle is the period between the acquisition of materials entering into a process (or the
purchase of goods for resale) and its realization in cash or an instrument that is readily convertible into
cash.
2.
Non-current - nontrade receivables that are not reasonably expected to be realized in cash within 12 months
after the reporting date.
INITIAL RECOGNITION
Receivables are recognized simultaneously with the recognition of revenue under PFRS 15.
INITIAL MEASUREMENT
Receivables are recognized simultaneously with the recognition of revenue under PFRS 15. Under PFRS 15 Revenue
from Contract with Customers, revenue should be measured at the amount of the transaction price (which excludes
estimates of variable consideration), while under PFRS 9 Financial Instruments, financial asset (e.g., receivables) are
initially measured at fair value plus transaction cost.
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DARRELJOE O. ASUNCION, CPA MBA
RECEIVABLES OF ACCOUNTING
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for
transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for
example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts,
variable amounts, or both.
SUBSEQUENT MEASUREMENT
Receivables are subsequently measured at amortized cost (net realizable value) using the effective interest rate
method.
Amortized cost is the amount at which the receivable is measured initially minus principal repayments, plus or minus
the cumulative amortization of any difference between the initial amount recognized and the principal maturity minus
reduction for impairment or uncollectibility. The amortized cost is also mentioned under PFRS 9 as the gross carrying
amount of the asset less allowance for expected credit loss.
SHORT-TERM RECEIVABLES
INITIAL MEASUREMENT: SHORT-TERM RECEIVABLES
Short term receivables with no stated interest rates can be measured initially at transaction price (e.g., invoice price)
when the effect of discounting is immaterial.
SUBSEQUENT MEASUREMENT: SHORT TERM RECEIVABLES
Short-term receivables are subsequently measured at their net realizable value. The net realizable value may be
determined as follows:
Face Value
XX
Less: Allowance for freight charge
( XX)
Allowance for sales discount
( XX)
Allowance for doubtful accounts ( XX)
Net realizable Value
XX
Methods of Accounting for Bad Debts
1) Direct write-off (tax): When a specific account is ascertained or proven to be uncollectible (which may not occur
in the period of sale), Bad Debt Expense is debited and Accounts Receivable is credited. This method is
theoretically undesirable because it:
a) Makes no attempt to match revenues and expenses;
b) Does not result in receivables being stated at net realizable value in the statement of financial position.
2) Allowance method (GAAP): At the end of each accounting period, an estimate is made of expected losses from
uncollectible accounts. This estimate is debited to Bad Debt Expense and credited to the Allowance for Doubtful
Accounts.
Methods of estimating bad debt expense under the allowance method
1) Percentage of sales (Income Statement Approach): Bad debt expense is estimated directly by multiplying a
percentage to a sales account (e.g. credit sales, net credit sale, net sales, gross sales).
Advantage: Proper matching of cost against revenue is achieved.
Argument: Accounts receivable may not be shown at estimated realizable value because the allowance for
doubtful accounts may prove excessive or inadequate.
2) Percentage of A/R (Balance Sheet Approach)
a) First, the required ending balance in the Allowance for Doubtful Accounts is estimated by multiplying a
percentage (a single composite rate) times the ending outstanding receivables.
b) Then, bad debt expense is equal to the difference between the required ending balance and the existing
balance in the Allowance account.
Advantage: It present accounts receivable at estimated realizable value. It is also simple to apply.
Argument: It violates matching principle and loss experience rate may be difficult to obtain and may not be
reliable.
3) Aging the A/R (Balance Sheet Approach): This is the same procedure in percentage of receivables; the only
difference is the percentage use for each term in the aging schedule
Advantage: It is more accurate and scientific computation of the allowance for doubtful accounts; thus, the
accounts receivable are fairly presented in the statement of financial position at net realizable value.
Argument: It violates matching principle and time consuming if large number of accounts are involved.
Past due accounts refers to the period beyond the maximum credit term.
Note:
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DARRELJOE O. ASUNCION, CPA MBA
RECEIVABLES OF ACCOUNTING
 Change in estimating bad debts treated as change in accounting estimate. Accordingly, the effect should be
treated currently and prospectively.
Doubtful accounts in the Income Statement
Doubtful account, which is also termed as bad debts and credit losses, are classified as administrative expense in
the P&L since under a good internal control, the granting of credit is granted to the credit department and not on the
sales department.
PROBLEM NO. 1
LILIA GARCIA, Inc. grants its customers 45 days credit. The company uses the allowance method for its uncollectible
accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% times the amount of credit
sales for the month. At the f iscal year-end of December 31, an aging of accounts receivable schedule is prepared and the
allowance for uncollectible accounts is adjusted accordingly.
At the end of 2020, accounts receivable were ₱2,500,000 and the allowance accounts had a credit balance of ₱212,000.
Accounts receivable activity for 2021 was as follows:
Credit sales
Write-offs
Collections
₱ 7,600,000
164,000
?
The company’s controller prepared the following aging summary of year-end accounts receivable:
Age Group
Amount
Percent Uncollectible
0 - 60 days
61 - 90 days
91 - 120 days
Over 120 days
Total
₱ 1,650,000
440,000
100,000
256,000
₱ 2,446,000
2%
10%
30%
40%
Based on the preceding information, determine the following:
1. Allowance for uncollectible accounts bef ore year-end adjustment
a. ₱200,000
c. ₱212,000
b. ₱209,400
d. ₱152,000
2. Required balance in the allowance for uncollectible accounts at December 31, 2021
a. ₱200,000
c. ₱209,400
b. ₱152,000
d. ₱212,000
3. Correct bad debt expense for 2021
a. ₱152,000
c. ₱9,400
b. ₱142,600
d. ₱161,400
4. Net realizable value of accounts receivable at December 31, 2021
a. ₱2,246,000
c. ₱2,446,000
b. ₱2,236,600
d. ₱2,284,600
5. Collections f rom customers during 2021
a. ₱2,664,000
c. ₱9,882,000
b. ₱9,936,000
d. ₱7,490,000
PROBLEM NO. 2
(Computation of Percentage of Bad debts expense)
Use the following data for the next nine questions:
Since it started its operations in 2017, Valdez Co. carried no allowance for doubtf ul accounts. Uncollectible receivables
were expensed as written off and recoveries were credited to income as collected. On March 1, 2021 (af ter the f inancial
statements were issued), management recognized that Valdez’s accounting policy with respect to doubtf ul accounts was
not correct, and determined that an allowance for doubtf ul accounts was necessary.
Data for f ive years follow:
Accounts
Credit Sales
written off
2,100,000
20,000
2017
Recoveries
15,000
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DARRELJOE O. ASUNCION, CPA MBA
RECEIVABLES OF ACCOUNTING
2018
2019
2020
2021
1,850,000
2,050,000
2,000,000
2,000,000
40,000
130,000
22,000
113,000
20,000
5,000
20,000
40,000
The year-end balances of accounts Receivable are as follows:
December 31, 2020
1,000,000
1,200,000
December 31, 2021
Questions:
Based on the above data, answer the following:
Case No. 1: Bad debts are provided for as a percentage of credit sales. The historical bad debt loss percentage is to be
computed based on all available years up to a maximum of f ive years.
1. The percentage to be used to compute the allowance for bad debts on December 31, 2021 is
a. 2.50%
c. 3.65%
b. 1.90%
d. 2.25%
2.
How much is the doubtf ul accounts expense for 2021?
a. 50,000
c. 45,000
b. 38,000
d. 73,000
3.
Assuming the Allowance for Doubtful accounts on January 1, 2021 is ₱400,000, how much is the allowance for doubtful
accounts December 31, 2021?
a. 372,000
c. 400,000
b. 365,000
d. 377,000
Case No. 2: Bad debts are provided for as a percentage of credit sales. The company’s contracts are generally for two
years.
4. The percentage to be used to compute the allowance for bad debts on December 31, 2021 is
a. 2.50%
c. 3.65%
b. 1.90%
d. 2.25%
5.
How much is the doubtf ul accounts expense for 2021?
a. 50,000
c. 45,000
b. 38,000
d. 73,000
6.
How much is the allowance for doubtf ul accounts December 31, 2021?
a. 25,000
c. 27,000
b. 19,000
d. 73,000
Case No. 3: Assume that a policy was established to maintain an allowance for doubtful accounts based on historical bad
debt loss percentage applied to year-end accounts receivable. The historical bad debt loss percentage is to be recomputed
each year based on all available past years up to a maximum of f ive years.
7. The percentage to be used to compute the allowance for bad debts on December 31, 2021 is
a. 2.50%
c. 3.65%
b. 1.90%
d. 2.25%
8.
How much is the doubtf ul accounts expense for 2021?
a. 50,000
c. 81,000
b. 38,000
d. 73,000
9.
How much is the allowance for doubtf ul accounts December 31, 2021?
a. 25,000
c. 27,000
b. 19,000
d. 73,000
PROBLEM NO. 3
The Hope Co. sells direct to retail customers and also to wholesalers. On January 1, 2021 the balance of the retail accounts
receivable was ₱418,000 while the allowance for bad debts with respect to retail customers was a credit of ₱15,200.
The following summary pertains only to retail sales since 2023:
Credit
Bad Debts
Bad Debts
Sales
Written Off
Recoveries
2018
₱2,220,000
₱52,000
₱4,300
2019
2,450,000
59,000
7,500
2020
2,930,000
60,000
7,200
2021
3,000,000
62,000
8,400
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DARRELJOE O. ASUNCION, CPA MBA
RECEIVABLES OF ACCOUNTING
Bad debts are provided f or as a percentage of credit sales. The accountant calculates the percentage annually by using the
experience of the three years prior to the current year. The formula is bad debts written off less recoveries expressed as a
percentage of the credit sales for the same period. Total collections f rom customers amounted to ₱2,760,400. This amount
included ₱50,000 for which the goods are to be delivered next year. During the year, the company recorded the bad debts
written off as bad debts expense.
Questions:
Based on the above and the result of your audit, answer the following:
1. The percentage to be used to compute the allowance for bad debts on December 31, 2021 is
a. 2%
c. 1.90%
b. 2.82%
d. 1.88%
2.
How much is the doubtf ul accounts expense for 2021?
a. ₱60,000
c. ₱57,000
b. ₱83,190
d. ₱59,000
3.
The doubtf ul accounts expense for 2021 is overstated by
a. None
c. ₱1,600
b. ₱2,000
d. ₱3,000
4.
The ledger balance of the accounts receivable af ter necessary adjustments on December 31, 2021 was a debit of
a. ₱654,000
c. ₱595,600
b. ₱645,600
d. ₱346,800
5.
The ledger balance of the allowance for bad debts af ter necessary adjustments on December 31, 2021 was a credit of
a. ₱21,600
c. ₱20,600
b. ₱44,790
d. ₱18,600
PROBLEM NO. 4
From inception of operations in 2017, Joseph Co. carried no allowance for doubtf ul accounts. Uncollectible receivables
were expensed as written off and recoveries were credited to income as collected. On March 1, 2021 (af ter the f inancial
statements were issued), management recognized that Joseph’s accounting policy with respect to doubtf ul accounts was
not correct, and determined that an allowance for doubtf ul accounts was necessary. A policy was established to maintain
an allowance for doubtf ul accounts based on historical bad debt loss percentage applied to year-end accounts receivable.
The historical bad debt loss percentage is to be recomputed each year based on all available past years up to a maximum
of f ive years.
Inf ormation for the f ive years is as follows:
Accounts
Year
Credit Sales
written off
Recoveries
2017
3,000,000
30,000
0
2018
4,500,000
76,000
5,400
2019
5,900,000
104,000
5,000
2020
6,600,000
130,000
9,600
2021
8,000,000
166,000
10,000
The adjusted accounts receivable balance on December 31, 2020 was ₱2,500,000 while the unadjusted balance of the
accounts receivable as of December 31, 2021 amounted to ₱4,000,000.
Audit Notes:
• Sales for 2021 do not include the selling price of goods delivered to customer on December 31, 2021, FOB shipping
point amounting to ₱100,000.
• You noticed that accounts amounting to ₱40,450 were incorrectly written off by the company in 2021. Upon verif ication
of this account, you have conf irmed that this is still collectible. The company recorded this transaction by debiting to
Bad debts and crediting to Accounts receivable.
Questions:
Based on the above data, answer the following:
1. The adjusting journal entry necessary to set up the beginning allowance for doubtf ul accounts in 2021 will include a
a. Debit to Retained earnings, ₱40,000.
b. Debit to Bad debts expense, ₱40,000.
c. Credit Miscellaneous income, ₱9,600.
d. No adjusting journal entry
2.
The average percentage of net doubtf ul accounts to charge sales that should be used in setting up the ending balance
of 2021 allowance for bad debts is
a. 1.60%
c. 1.55%
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DARRELJOE O. ASUNCION, CPA MBA
RECEIVABLES OF ACCOUNTING
b. 1.70%
d. 1.43%
3.
How much is the doubtf ul accounts expense for 2021?
a. 139,727
c. 145,398
b. 141,797
d. 184,758
4.
The allowance for doubtful accounts at the end of 2021 is
a. 66,247
c. 70,388
b. 64,177
d. 59,208
5.
The net realizable value of accounts receivable that should be presented on the December 31, 2021 statement of
financial position is
a. 4,076,273
c. 4,070,062
b. 4,074,203
d. 4,081,242
PROBLEM NO. 5
During your examination of the 2021 f inancial statements of the JOSIAH Company you f ind that the company does not
provide allowance for doubtful accounts ever since it started operations in 2017. The company’s practice is to directly writeoff as expense doubtf ul accounts and credit recoveries to income. The company’s contracts are generally for two years.
Upon your recommendation, the company agreed to change its accounts for 2021 to give ef f ect to doubtf ul treatment on
the allowance basis. The allowance is to be based on a percentage of sales which is derived f rom the experience of prior
years. Statistics for 2017 to 2021 are shown as follows:
Year of Sale
Charge Sales
2017
₱1,200,000
Accounts Written off & Year of
Sale
2017
6,600
2018
18,000
2019
6,000
2020
2021
Recoveries & Year of Sale
2017
2018
1,200
2019
2020
2021
2018
₱3,000,000
12,000
48,000
14,400
2019
₱3,600,000
2020
₱3,900,000
2021
₱3,300,000
15,600
54,000
32,400
18,000
60,000
16,800
4,800
6,000
7,200
Accounts receivable at December 31, 2021 were as follows:
From 2020 sales
From 2021 sales
Total
₱180,000
1,620,000
₱1,800,000
REQUIRED:
Based on the above and the result of your audit, you are to provide the answers to the following:
1.
The average percentage of net doubtf ul accounts to charge sales that should be used in setting up the 2021 allowance
is
a. 2.05%
b. 2.50%
c. 1.90%
d. 1.77%
2.
How much is the doubtf ul accounts expense for 2021?
a. ₱65,700
b. ₱82,500
c. ₱87,600
3.
The doubtf ul accounts expense for 2021 is over(under) stated by
a. ₱111,900
b. ₱26,700
c. (₱65,700) d. (₱82,500)
4.
The net realizable value of accounts receivable that should be presented on the December 31, 2021 balance sheet
is
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DARRELJOE O. ASUNCION, CPA MBA
RECEIVABLES OF ACCOUNTING
a. ₱1,663,200
5.
b. ₱1,707,600 c. ₱1,737,300 d. ₱1,620,000
The adjusting journal entry necessary to set up the allowance for doubtf ul accounts as of December 31, 2021 will
include
a.
A debit to Provision for Doubtful Accounts of ₱26,700
b.
A debit to Retained Earnings of ₱111,900
A credit to Bad Debt Recovery of ₱7,200.
c.
d.
A credit to Allowance for Doubtf ul Accounts of ₱82,500.
PROBLEM NO. 6
You are examining the f inancial statements of BRAYDEN COMPANY for the year ended December 31, 2021. Your audit
of the accounts receivable and other related accounts disclosed the following inf ormation:
1.
The December 31, 2021 balance in the Accounts Receivable control account is ₱788,000.
2.
The only entries in the Bad Debts Expense account were:
a. A credit of ₱1,296 on December 1, 2021, because customer A remitted in f ull for the account charged off
October 31, 2021.
b. A debit on December 31 for the amount of the credit to Allowance for Bad Debts.
3.
The Allowance for Bad Debts account is presented below:
Date
Jan.
1
Oct.
31
Dec.
4.
31
Particulars
Balance
Uncollectible:
Customer
A
B
C
3% of ₱788,000
Debit
₱1,296
3,280
2,256
Credit
₱6,032
Balance
₱15,250
9,218
32,858
₱23,640
An aging schedule of the accounts receivable as of December 31, 2021, and the decisions are shown in the table below:
AGE
0-1 month
1-3 months
3-6 months
Over 6 months
Net Debit
Balance
₱372,960
307,280
88,720
24,000
₱792,960
Amount to which the allowance is to be adjusted af ter
adjustments and corrections have been made
.
1%
2%
3%
Def initely uncollectible, ₱4,000; ₱8,000 is considered to be 50%
uncollectible; the remainder is estimated to be 80% collectible
5.
There is a credit balance in one account receivable (0-1 month) of ₱8,000; it represents an advance on a sales contract;
also there is a credit balance in one of the 1-3 months accounts receivable of ₱2,000 for which merchandise will be
accepted by the customer.
6.
The Accounts Receivable control account is not in agreement with the subsidiary ledger. The differences cannot be
located, and the company’s accountant decides to adjust the control to the sum of the subsidiaries af ter corrections are
made.
1.
The adjustment to correct the entry made on December 31, 2021, is
A. Bad Debts Expense
Accounts receivable
B. Bad Debts Expense
Allowance for Bad Debts
C. Accounts receivable
Allowance for Bad Debts
D. No adjusting entry is necessary.
1,296
1,296
1,296
1,296
1,296
1,296
2.
The required allowance balance (per aging) on December 31, 2021, is
A. ₱29,354
C. ₱19,858
B. ₱19,058
D. ₱32,858
3.
The net realizable value of BRAYDEN ’s accounts receivable on (per aging) on December 31, 2021, is
A. ₱779,902
C. ₱793,200
B. ₱774,142
D. ₱788,664
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RECEIVABLES OF ACCOUNTING
4.
BRAYDEN should report bad debt expense for 2021 of
A. ₱13,344
C. ₱10,296
B. ₱22,344
D. ₱33,936
5.
What entry is necessary to adjust the allowance account at December 31, 2021?
A. Bad Debts Expense
10,296
Allowance for Bad Debts
B. Bad Debts Expense
13,800
Allowance for Bad Debts
C. Allowance for Bad Debts
10,296
Bad Debts Expense
D. Allowance for Bad Debts
13,800
Bad Debts Expense
10,296
13,800
10,296
13,800
CONFIRMATION OF ACCOUNTS RECEIVABLE
NATURE
Conf irmation of customer’s accounts involves requesting customers to inf orm the auditor whether the balances due them
as appearing in the client’s records are correct.
Elements of a satisfactory confirmation procedures
Conf irmation of customer’s accounts, to be ef f ective, should observe the following:
1. The auditor has a f reehand in selecting the customer’s accounts to be conf irmed.
2. The mailing of the requests is made under the control and supervision of the auditor.
3. The customer’s replies or requests returned by the post office are received directly by the auditor without any
possible tampering by the client management or staf f .
4. Exceptions or complaints expressed by the customers are verif ied by the auditor and discussed with appropriate
officer of the company.
5. The conf irmation should be signed by the client’s officer.
TYPES OF CONFIRMATION REQUEST
POSITIVE TYPE.
2 methods are possible
1. Request the respondent to indicate whether s/he agrees with the amount (or other inf ormation included on the request.
2. Do not include the amount (or other inf ormation) on the request and ask respondent to f ill in the inf ormation (ref erred to
as the “blank” positive form)
-use of the blank positive form may result in a lower response rate, although it may decrease the risk that
respondents sign and return the conf irmation without verif ying the inf ormation.
The positive type of conf irmation request is used if the:
1. Internal accounting controls over receivables are weak.
2. The individual balances are large.
3. Accounts are in dispute.
4. Auditor suspects the possibility of irregularities involving accounts receivable.
5. Auditor believes that the customer may ignore the conf irmation request.
NEGATIVE TYPE. A conf irmation procedure wherein the customer is requested to communicate with the auditor only when
he does not agree with the balance as shown in the client’s records.
Under this type of conf irmation, when no response is received f rom the customer, the balance is assumed to have been
conf irmed. This assumption worries some auditors as it is possible that the customer merely ignored the request.
The negative type is used if the:
1. Internal accounting controls over receivables are strong. (The combined assessed level of inherent and control risk
is low.)
2. The individual balances are small.
3. The auditor believes that the customer will not ignore the conf irmation request.
Frequently, both forms are used by sending positive conf irmation on some customers’ accounts and negative conf irmation
on others.
When using confirmations the auditor should consider
a. Prior experience-response rates, misstatements identif ied, and inaccurate replies.
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RECEIVABLES OF ACCOUNTING
b.
c.
Nature of information being confirmed-consider whether respondents may reply ef f ectively and understand the
inf ormation being conf irmed.
Appropriate respondent-consider who should receive the conf irmation request so as to help assure meaningf ul
response.
The auditor should maintain control over the confirmation requests and the responses
a. Oral replies (e.g. telephone)-when signif icant, the auditor should requests written conf irmation.
b. Fax replies-consider verif ying source and contents through a telephone call and by asking that the original request
be mailed (in addition to the f ax replies) to the auditor.
c. Second, and sometimes third requests should be sent when positive requests be used.
ALTERNATIVE PROCEDURES
a. Should generally be perf ormed when no reply to a positive conf irmation request has been received.
b. Omission of alternative procedures may be acceptable when
1. No unusual f actors related to nonresponses have been noted (e.g. they don’t all relate to year-end
transactions) and
2. The total of nonresponses in aggregate, when projected as 100% misstatements, and all other unadjusted
diff erences noted in the audit are still immaterial.
SUMMARY AUDIT PROCEDURES
RECEIVABLES
Presentation and disclosure
Completeness
1. Review disclosures for
9. Perf orm analytical
compliance with GAAP.
procedures.
2. Inquire about pledging,
Valuation
Discounting
10. Foot subsidiary ledger.
3. Review loan agreements
11. Reconcile subsidiary
for pledging, factoring.
ledger to general ledger.
Existence or occurrence
12. Examine subsequent
4. Conf irmation
cash receipts.
5. Inspect notes
13. Age receivables to test
6. Vouch (examine shipping
adequacy of allowance for
documents, invoices, credit
doubtf ul accounts.
memos.
14. Discuss adequacy of
Rights and obligations
allowance for doubtful account
7. Review cutof fs (sales,
with management and
sales returns, purchase
compare to historical
8. Inquire about f actoring
experience.
of receivables.
PROBLEM NO. 7
1. What is the primary assertion being addressed by conf irmation of receivables?
a. Completeness
c. Gross valuation
d. Accuracy
b. Existence
2.
During the process of conf irming receivables as of December 31, 2018, a positive conf irmation was returned
indicating the “balance owed as of December 31 was paid on January 9, 2019.” The auditor would most likely
a. Determine whether there were any changes in the account between January 1 and January 9, 2019.
b. Determine whether a customary trade discount was taken by the customer.
c. Reconf irm the zero balance as of January 10, 2019.
d. Verif y that the amount was received.
3.
Which of the following is least likely to be typically considered to be an alternate procedure for handling nonreplies
to positive accounts receivable conf irmations?
a. Examine bills of lading.
b. Physically examine items sold.
c. Examine correspondence.
d. Examine subsequent cash receipts.
4.
An auditor conf irms a representative number of open accounts receivable as of December 31, and investigates
respondents’ exceptions and comments. By this procedure the auditor would be most likely to learn of which of the
following?
a. One of the cashiers has been covering a personal embezzlement by lapping.
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RECEIVABLES OF ACCOUNTING
b.
c.
d.
One of the sales clerks has not been preparing charge slips for credit sales to f amily and f riends.
One of the computer control clerks has been removing all sales invoices applicable to his account f rom the
data f ile.
The credit manager has misappropriated remittances f rom customers whose accounts have been written
off.
5.
Conf irmation of individual accounts receivable balances directly with debtors will, of itself , normally provide evidence
concerning the
a. Collectability of the balances conf irmed
b. Ownership of the balances conf irmed
c. Validity of the balances conf irmed
d. Internal control over balances conf irmed
6.
Cooper, CPA, is auditing the f inancial statements of a small rural municipality. The receivable balances represent
resident’s delinquent real estate taxes. The internal control structure at the municipality is weak. To determine the
existence of the accounts receivable balances at the statement of f inancial position date, Cooper would most likely
a. Send positive conf irmation requests
b. Send negative conf irmation requests
c. Examine evidence of subsequent cash receipts
d. Inspect the internal records such as copies of the tax invoices that were mailed to the residents.
7.
The use of positive (as opposed to negative) form of receivables conf irmation is indicated when
a. Internal control surrounding accounts receivable is considered ef f ective.
b. There is reason to believe that a substantial number of accounts may be in dispute.
c. A large number of small balances are involved.
d. There is a reason to believe a signif icant portion of the request will most be answered.
8.
In auditing accounts receivable the negative form of conf irmation request most likely would be used when
a. Recipients are likely to return positive conf irmation requests without verif ying the accuracy of the
inf ormation
b. The combined assessed level of inherent and control risk relative to accounts receivable is low.
c. A small number of accounts receivable are involved but a relatively large number of errors are expected.
d. The auditor perf orms dual-purpose test that assesses control risk and obtains substantive evidence.
9.
The negative request form of accounts receivable conf irmation is usef ul particularly when the
Combine Assessed level
Number of small
Consideration
of Inherent &Control Risk
is
of the recipient
balances is
is
a. Low
Many
likely
b. Low
Few
Unlikely
c. High
Few
likely
d. High
Many
likely
10. Negative conf irmation of accounts receivable is less ef f ective than positive conf irmation of accounts receivable
because
a. A majority of recipients usually lack the willingness to respond objectively.
b. Some recipients may report incorrect balances that require extensive follow-up.
c. The auditor cannot inf er that all nonrespondents have verif ied their account inf ormation.
d. Negative conf irmation do not produce evidential matter that is statistically quantif iable.
11. Which of the following is the best argument against the use of negative accounts receivable conf irmations?
a. The cost-per response is excessively high.
b. There is no way of knowing if the intended recipients received them.
c. Recipients are likely to f eel that in reality the conf irmation is a subtle request for payment.
d. The inf erence drawn f rom receiving no reply may not be correct.
12. Which of the following is correct concerning the use of negative conf irmation request?
a. Unreturned negative conf irmation request rarely provide significant explicit evidence.
b. Negative conf irmation requests are ef f ective when detection risk is low.
c. Unreturned negative conf irmation requests indicate that alternative procedures are necessary.
d. Negative conf irmation requests are ef f ective when understatements of account balances are suspected.
13. In which of the following circumstances would the use of the negative form of accounts receivable conf irmation most
likely be justified?
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RECEIVABLES OF ACCOUNTING
a.
b.
c.
d.
A substantial number of accounts may be in dispute and the accounts receivable balance arises f rom sales
to a f ew major customers.
A substantial number of accounts may be in dispute and the accounts receivable balance arises f rom sales
to many customers with small balances.
A small number of accounts may be in dispute and the accounts receivable balance arises f rom sales to a
f ew major customers.
A small number of accounts may be in dispute and the accounts receivable balance arises f rom sales to
many customers with small balances.
14. When there are a large number of relatively small account balances, negative conf irmationof accounts receivable
is f easible if internal accounting control is
a. Strong, and the individual receiving the conf irmation request are unlikely to give them adequate
consideration.
b. Weak, and the individuals receiving the conf irmation request are likely to give them adequate consideration.
c. Weak, and the individual receiving the conf irmation request are unlikely to give them adequate
consideration.
d. Strong, and the individual receiving the conf irmation request are likely to give them adequate consideration.
15. Smith is engaged in the audit of a cable TV f irm which services a rural community. All receivable balances are
small, customers are billed monthly, and internal control is ef f ective. To determine the validity of the accounts
receivable balances at the statement of f inancial position date, Smith would most likely
a. Send positive conf irmation requests
b. Send negative conf irmation requests
c. Examine evidence of subsequent cash receipts instead of sending conf irmation requests.
d. Use statistical sampling instead of sending conf irmation requests.
16. An auditor would least likely to use a negative accounts receivable conf irmation form when
a. Internal control surrounding accounts receivable is ef f ective.
b. A large number of small balances are involved.
c. The number of requests mailed will be minimal.
d. Customers are unlikely to conf irm the information.
17. An auditor may use positive and/or negative forms of conf irmation requests for accounts receivable. An auditor
most likely will use
a. The positive form to confirm all balances regardless of size.
b. A combination of the two forms with the positive form used f or large balances and the negative form for the
small balances.
c. A combination of the two forms, with the positive form used for trade receivables and the negative form for
the other receivables.
d. A positive form when controls related to receivables are satisf actory, and the negative form when controls
related to receivables are unsatisf actory.
18. An auditor usually perf orm alternative procedures to substantiate the existence of accounts receivable when
a. No reply to a positive conf irmation request is received.
b. No reply to a negative conf irmation request is received.
c. Collectability of the receivables is in doubt.
d. Pledging of the receivables is probable.
19. It is sometimes impracticable or impossible for an auditor to use normal accounts receivable conf irmation
procedures. In such situations the best alternative procedure that auditor might resort to would be
a. Examining subsequent receipts of year-end accounts receivable.
b. Reviewing accounts receivable aging schedules prepared at the statement of f inancial position date and at
a subsequent date.
c. Requesting that the management increase the allowance for uncollectible accounts by an amount equal to
some percentage of the balance in those accounts that cannot be conf irmed.
d. Perf orming an overall analytical review of accounts receivable and sales on a year-to-year basis.
20. An aged trial balance of accounts receivable is usually used by the auditor to
a. Verif y the validity of recorded receivables.
b. Ensure that all accounts are promptly credited.
c. Evaluate the results of compliance tests.
d. Evaluate the provision for bad debts expense.
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RECEIVABLES OF ACCOUNTING
21. To conceal def alcation involving receivables, the auditor would expect an experienced bookkeeper to charge which
of the following accounts?
a. Miscellaneous income
b. Miscellaneous expense
c. Petty cash
d. Sales returns
22. Tracing bills of lading to sales invoices provides evidence that
a. Shipments to customers were recorded as sales.
b. Recorded sales were shipped.
c. Invoiced sales were shipped.
d. Shipments to customers were invoiced.
23. To verif y that all sales transactions have been recorded a test of transactions should be completed on a
representative sample drawn f rom
a. Entries in the sales journal.
b. The billing clerk’s f ile of sales orders.
c. A f ile of duplicate copies of sales invoices for which all prenumbered forms in the series have been
accounted for.
d. The shipping clerk’s f ile of duplicate copies of bills of lading.
24. Which of the following procedures would ordinarily be expected to best reveal unrecorded sales at the statement of
f inancial position date?
a. Compare shipping documents with sales records.
b. Apply gross profit rates to inventory disposed of during the period.
c. Trace payments received subsequent to the statement of f inancial position date.
d. Send accounts receivable conf irmation requests.
25. If the objective of a test of details is to detect overstatement of sales, the auditor should trace transactions f rom the
a. Cash receipts journal to the sales journal.
b. Sales journal to the cash receipts journal.
c. Source documents to the accounting records.
d. Accounting records to the source documents.
26. Which of the following most likely would be detected by an auditor’s review of a client’s sales cut-off?
a. Unrecorded sales for the year
b. Lapping of year-end accounts receivable.
c. Excessive sales documents
d. Unauthorized goods returned for credit.
27. Cut off test designed to detect credit sales made bef ore the end of the year that have been recorded in the
subsequent year provide assurance about management’s assertion of
A. Rights and Obligation
B. Completeness
C. Existence
D. Valuation and Allocation
28. An auditor most likely would review an entity’s periodic accounting for the numerical sequence of shipping
documents and invoices to support management’s f inancial statement assertion of
A. Existence
B. Rights and Obligations
C. Valuation and allocation
D. Completeness
AUDIT OF A/R AND RELATED ACCOUNTS
Guide questions in the audit of A/R and related accounts:
If answer
is:
Scenario 1:
Then,
Was there a valid sale?
Yes
Was the sale recorded?
Yes
NO adjusting entry
Were the inventories
EXCLUDED in the count?
Yes
NO adjusting entry
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RECEIVABLES OF ACCOUNTING
Scenario 2:
Was there a valid sale?
If answer
is:
Yes
Was the sale recorded?
No
Were the inventories
EXCLUDED in the count?
No
Scenario 3:
Was there a valid sale?
Was the sale recorded?
Were the inventories
EXCLUDED in the count?
If answer
is:
None
No
No
Then,
Accounts receivable
Sales
xx
Cost of sales
Mdse. inventory
xx
xx
xx
Then,
NO adjusting entry
NO adjusting entry
Scenario 4:
Was there a valid sale?
If answer
is:
None
Was the sale recorded?
Yes
Were the inventories
EXCLUDED in the count?
Yes
Then,
Sales
xx
Accounts receivable
xx
Mdse. inventory
xx
Cost of sales
xx
PROBLEM NO. 8
LUKE AUTO PARTS sells new parts to auto dealers. Company policy requires that a prenumbered shipping document be
issued for each sale. At the time of pick-up or shipment, the shipping clerk writes the date on the shipping document. The
last shipment made in the year ended December 31, 2021, was recorded on document 3167. Shipments are billed in the
order that the billing clerk receives the shipping documents.
For late December 31, 2021 and early January 2022, Shipping Documents are billed on sales invoices as follows:
Shipping
Document No.
3163
3164
3165
3166
3167
3168
3169
3170
3171
3172
Sales
Invoice No.
5332
5326
5327
5330
5331
5328
5329
5333
5335
5334
The December 2021 and January 2022 sales journal have the following inf ormation included:
SALES JOURNAL-DECEM BER 2021
Day of
Month
30
30
31
31
31
Sales
Invoice No.
5326
5329
5327
5328
5330
Amount
of Sale
₱ 72,611
191,430
41,983
62,022
4,774
SALES JOURNAL- 2022
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RECEIVABLES OF ACCOUNTING
Day of
Month
1
1
1
2
2
1.
Amount
of Sale
₱ 264,131
10,639
85, 206
125,050
64,658
What is the net overstatement (understatement) of LUKE’s sale for the year ended December 31, 2021?
A. ₱21,318
2.
Sales
Invoice No.
5332
5331
5333
5335
5334
B.₱253,452
C.(₱253,452)
D.( ₱ 21,318 )
What adjusting entry is necessary to correct LUKE’s f inancial statements for the year ended December 31, 2021?
A. Accounts Receivable
Sales
B. Accounts Receivable
Sales
C. Sales
Accounts Receivable
D.
Sales
Accounts Receivable
21,318
253,452
21,318
253,452
21,318
21,318
253,452
253,452
PROBLEM NO. 9
Your sales cut-of f examination revealed the following inf ormation:
1. The December 31 inventory was determined based on a physical count conducted on December 29. Based on
such count, inventory was valued at ₱360,000.
2. The 2020 ledger shows a Sales balance of ₱4,000,000
3. The company’s gross profit rate is 20%.
4. All customers are within a three-day delivery area of the company plant.
5. The sales register for December, 2020 and January 2021, showed the following details:
December Register
FOB Terms
Date Shipped
Invoice Number
100
Destination
12/28
101
Shipping point
12/30
102
Destination
12/27
103
Shipping point
12/29
104
Destination
12/30
105
Shipping point
12/28
January Register
Invoice Number
FOB Terms
Date Shipped
106
Destination
12/31
107
Shipping Point
12/29
108
Destination
01/02
109
Destination
12/27
110
Shipping Point
12/31
Required:
1. What is the adjusted sale in 2020?
2. What is the adjusted inventory balance at December 31, 2020?
NOTES RECEIVABLE
1. Interest bearing note
a. stated rate approximates the prevailing market
rate.
b. unrealistic interest rate (i.e. the stated rate and
market rate are diff erent)
2. Noninterest bearing
a. Periodic payment
(With available cash price)
b. Lump-sum payment
c. Periodic payment
(no available cash price)
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Amount
₱ 24,000
15,000
22,500
30,000
5,000
-measured at f ace value. (Present value is equal to the f ace
value)
-Present value of Principal add the Present value of the interest
payments.
INITIAL PRESENT VALUE
-Present value of the note is equal to the cash price.
-Present value of the note is equal to f ace value x PV of 1
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Amount
₱10,000
12,000
9,000
17,500
7,200
18,000
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RECEIVABLES OF ACCOUNTING
1.
Unif orm payment
2.
Non-unif orm
-Present value of the note is equal to periodic payment x PV of
ordinary annuity of 1 or annuity due.
-Present value of the note is equal to periodic payment x PV of 1
factors
PROBLEM NO. 10
You were able to gather the following inf ormation in connection with your audit of JOSIAH Company for the year 2021
relating to the company’s notes receivable:
•
On January 1, 2021, JOSIAH Co. sold a delivery equipment with a cost of ₱3,200,000 and accumulated depreciation
of ₱1,120,000. In consideration for the sale, JOSIAH received cash of ₱160,000 and a noninterest-bearing note
receivable of ₱1,600,000 due on December 31, 2023. The prevailing rate of interest for this type of note is 10%.
•
On January 1, 2021, JOSIAH Co. sold a machinery with a cost of ₱4,000,000 and accumulated depreciation of
₱1,500,000. In consideration for the sale, JOSIAH Co. received cash of ₱160,000 and a noninterest-bearing note
receivable of ₱1,800,000 due in 4 equal annual instalments starting December 31, 2021. The prevailing rate of
interest of this type of note is 10%.
QUESTION:
Based on the above data, answer the following: (Round off present value f actors to four decimal places)
1. The gain or loss on sale of delivery equipment in 2021 is
a. Nil
c. 1,837,920
b. 717,920
d. 1,120,000
2.
The interest income to be recognized in 2021 is
a. 340,000
c. 244,134
b. 262,849
d. 709,665
3.
The carrying amount of the note as of December 31, 2021 is
a. 2,441,339
c. 3,254,517
b. 2,339,652
d. 1,442,701
4.
The current portion of the note on December 31, 2021 is
a. 244,134
c. 1,826,421
b. 338,095
d. 1,400,384
5.
The non-current portion of the note on December 31, 2021 is
a. 2,103,244
c. 244,134
b. 1,830,552
d. 363,617
PROBLEM NO. 11
You were able to gather the following inf ormation in connection with your audit of JOSIAH Company for the year 2021
relating to the company’s notes receivable:
• On January 1, 2021, JOSIAH Co. sold delivery equipment costing ₱4,000,000 with accumulated depreciation of
₱2,200,000 in exchange for a 3-year, ₱2,400,000 noninterest-bearing note receivable due as follows:
Expected date of collection
December 31, 2021
December 31, 2022
December 31, 2023
Total
Amount of cash f low
1,200,000
800,000
400,000
2,400,000
The prevailing rate of interest for this type of note is 12%.
•
On January 1, 2021, JOSIAH Co. sold office equipment with a cost of ₱3,000,000 and accumulated depreciation of
₱1,200,000 in exchange for a 3-year, 3%, ₱2,000,000 note receivable. Principal is due on December 31, 2023 but
interest is due annually every December 31. The prevailing interest rate for this type of note is 12%.
•
On April 1, 2021, JOSIAH Co. sold machinery with a cost of ₱2,000,000 and accumulated depreciation of
₱1,100,000 in exchange for a ₱1,200,000 interest-bearing note receivable due in equal annual payment starting
April 1, 2022. The note bears interest of 10% and is due every April 1.
QUESTION:
Determine the following: (Round off present value f actors to f our decimal places)
1. The gain (or loss) on sale of delivery equipment in 2021
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RECEIVABLES OF ACCOUNTING
2.
How much is the interest income for 2021?
3.
How much is the carrying amount of the note on December 31, 2021?
4.
How much is the current portion of the note on December 31, 2021?
5.
How much is the noncurrent portion of the note on December 31, 2021?
PROBLEM NO. 12 (LOAN RECEIVABLE)
Chris Garcia Bank granted a loan to a borrower on January 1, 2021. The interest on the loan is 10% payable annually
starting December 31, 2021. The loan matures in three years on December 31, 2023. Data related to the loan are:
Principal amount
Origination f ees charged against the borrower
Direct origination cost incurred
₱4,000,000
342,100
150,020
Questions:
Based on the above data, answer the following: (Round off present value f actors to four decimal places)
1. The carrying amount of the loan as of January 1, 2021 is
a. ₱3,807,920.
c. ₱4,192,080.
b. ₱4,000,000.
d. ₱4,492,120.
2.
The ef f ective interest rate of the loan is
a. 9%.
c. 12%.
b. 10%.
d. 12.19%.
3.
The interest income to be recognized in 2021 is
a. ₱400,000.
c. ₱464,185.
b. ₱456,950.
d. ₱404,291.
4.
The carrying amount of the loan as of December 31, 2021 is
a. ₱3,864,870.
c. ₱4,000,000
b. ₱3,872,105
d. ₱4,496,411
5.
The current portion of the loan as of December 31, 2021 is
a. Nil
c. ₱63,784
b. ₱56,950.
d. ₱400,000.
PROBLEM NO. 13 Impairment of Receivable, One-time Collection of Principal
On January 1, 2018, Marcy Co. received a ₱16,000,000 note receivable f rom Lynn Inc. The principal is due on December
31, 2022 while interest at 10% is due annually at the end of each year for f ive (5) years.
Lynn Inc. made the required payments during 2018 and 2019. However, during 2020, Lynn Inc. began to experience
f inancial difficulties, requiring Marcy Co. to reassess the collectability of the note. Interest was accrued in 2020. On
December 31, 2020, Marcy Co. determined that the note has been impaired and projects f uture cash f lows as follows:
Amount
Expected date of collection of cash flow
December 31, 2021
1,600,000
December 31, 2022
3,200,000
December 31, 2023
4,800,000
Questions:
Based on the above data, answer the following:
Case No. 1
1. How much is the loan impairment in 2020?
a. 9,894,720
c. 7,705,280
b. 8,294,720
d. 2,189,440
2.
How much is the interest income for 2021?
a. Nil
c. 687,581
b. 770,528
d. 1,600,000
3.
How much is the carrying amount of the note on December 31, 2021?
a. 4,800,000
c. 4,363,389
b. 6,875,808
d. 8,000,000
Effectiveness. Efficiency. Convenience
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Page 17 of 19 | AUD Handouts No. 06
DARRELJOE O. ASUNCION, CPA MBA
RECEIVABLES OF ACCOUNTING
Case No. 2- Assume instead that On January 1, 2018, the loan receivable was issued at ₱14,846,080 to yield 12% and
the loan was impaired on December 31, 2020 af ter the receipt of interest on that date.
4. How much is the loan impairment in 2020?
a. 7,525,643
c. 8,062,314
b. 7,834,603
d. 9,434,603
Case No. 3- Go back to the original data and assume that the equal principal are due annually including the interest 10%
on the outstanding balance starting December 31, 2018. Also, assume that the interest was not accrued and the projected
cash f lows are:
Amount
Expected date of collection of cash flow
December 31, 2021
1,000,000
December 31, 2022
2,000,000
December 31, 2023
4,800,000
5.
How much is the impairment loss?
PROBLEM NO. 14
You are assigned to audit Joanna Co. for the year ending December 31, 2021. The accounts receivable were circularized
as at December 31, 2021 and the following exceptions/replies have not been disposed of at the date of your examination.
Cust.
A
Balance
₱6,000
Comments from customers
Balance was paid December
29, 2021.
Balance was offset by our
December 10 shipment of tires.
Audit findings
Joanna received mailed check on January 3, 2022.
B
14,800
C
32,400
The above balance has been
paid.
Our records show a bigger
balance, please check.
The payment was credited to customer D.
D
20,000
E
47,400
We do not owe Joanna anything
as the goods were received
January 2022, FOB destination.
F
30,000
Our deposit of ₱90,000 should
cover this balance.
The shipment costing ₱32,600 was made on
December 29, 2021 and the goods were not included
in recording the December 31, 2021 inventory
summary.
Joanna had previously credited the deposit to sales.
G
13,000
We never
goods.
H
20,000
We are rejecting
which is too much.
I
J
Joanna credited accounts payable for ₱14,800 to
record purchase of tires.
A new conf irmation was mailed.
these
The shipment was erroneously made to another
customer and the goods costing ₱10,200 are now on
its way to customer G. The shipment, FOB Shipping
point, was made December 31, 2021.
the price,
Joanna’s clerk erroneously computed the unit price at
₱200. The correct pricing should have been at ₱120
per unit.
36,000
Amount is okay. Since this is on
consignment, we will remit
payment upon selling the
goods.
Goods cost ₱24,000 and were not included in Joanna’s
inventory.
1,200
CM No.
balance.
The CM dated November 30, 2021 was recorded by
Joanna in January, 2022.
received
888
cancels
this
The following are the unadjusted balances as of December 31, 2021:
Accounts receivable
Merchandise inventory
Net Sales
Cost of sales
₱ 200,000
300,000
1,000,000
600,000
Questions:
Based on the above data, answer the following
Effectiveness. Efficiency. Convenience
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Page 18 of 19 | AUD Handouts No. 06
DARRELJOE O. ASUNCION, CPA MBA
RECEIVABLES OF ACCOUNTING
1.
How much is the adjusted Accounts receivable on December 31, 2021.
a. ₱62,600
c. ₱63,800
b. ₱56,200
d. ₱78,600
2.
How much is the adjusted Merchandise inventory on December 31, 2021.
a. ₱356,600
c. ₱332,600
b. ₱324,000
d. ₱267,400
3.
How much is the adjusted Net Sales for the year ending December 31, 2021.
a. ₱847,400
c. ₱818,600
b. ₱832,400
d. ₱817,400
4.
How much is the adjusted Cost of Sales for the year ending December 31, 2021.
a. ₱632,600
c. ₱567,400
b. ₱543,400
d. ₱576,000
5.
How many units were sold to Customer H?
a. 50
c. 150
b. 100
d. 125
6.
Adjusting entries as of December 31, 2021.
PROBLEM NO. 15
As part of your engagement to audit the f inancial statements of San Antonio Corporation, you have been assigned to
examine the accounts receivable. You gathered the following data f rom the trial balance as of December 31, 2021:
Accounts receivable
Allowance for doubtful accounts
₱2,000,000
100,000
You determined the following f rom the schedule of accounts receivable as of December 31, 2021:
Accounts with debit balances
60 days old and below
61 to 90 days
Over 90 days
Advances to officers
Accounts with credit balances
Accounts receivable per GL
₱1,000,000
500,000
400,000
₱1,900,000
150,000
(50,000)
₱2,000,000
Additional Information:
• Accounts receivable for more than a year totaling to ₱40,000 should be written off.
• On October 1, 2021, goods amounting to ₱50,000 were shipped to ABC Co., FOB shipping point but the same has not
been recorded by the company. No collection has yet been made by the company on this account.
• The bank returned on December 29, 2021, a customer’s check for ₱20,000 marked “No Suf f icient Funds”, but no journal
entry was made. The customer’s invoice was dated and recorded on December 1, 2021.
• Conf irmation replies received directly f rom customers disclosed the following exceptions:
Customers
Comments from Customers
Tim
We do not owe this amount *%#@
(bad word). We did not receive any
merchandise f rom your company.
Tony
Boris
Kawhi
Danny
We do not owe ₱45,000 to San
Antonio on December 31 as goods
were received in January 3, 2022,
FOB destination
We have not yet sold the goods. We
will remit the proceeds as soon as
the goods are sold.
Balance amounting to ₱10,000 was
paid on December 29, 2021.
We are rejecting the price, which is
too much
Audit Findings
Investigation revealed that goods sold for ₱60,000 were shipped
to Tim on December 29, 2021, terms FOB shipping point. The
goods were lost in transit and the shipping company has
acknowledged its responsibility for the loss of the merchandise.
The shipment costing ₱20,500 was made on December 29, 2021
but the goods were included in recording the December 31, 2021
inventory
Goods billed for ₱45,000 were consigned to Boris on December
30, 2021. The goods cost ₱39,000.
San Antonio received mailed check on January 4, 2022. Kawhi
was billed on December 5, 2021.
Danny’s balance amounted to ₱30,000. San Antonio’s clerk
erroneously computed the unit price at ₱200. The correct pricing
Effectiveness. Efficiency. Convenience
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Page 19 of 19 | AUD Handouts No. 06
DARRELJOE O. ASUNCION, CPA MBA
RECEIVABLES OF ACCOUNTING
should have been at ₱150 per unit. Danny was billed on October
30, 2021.
•
Based on your discussion with San Antonio’s Credit Manager, you both agreed that an allowance for doubtful accounts
should be maintained using the following rates:
60 days old and below
61 to 90 days
Over 90 days
4%
5%
10%
Questions:
Based on the above and the result of your audit, compute for the following:
1. The adjusted balance of accounts receivable in the 60 days and below category as of December 31, 2021
a. ₱880,000
c. ₱930,000
b. ₱890,000
d. ₱975,000
2.
The adjusted balance of accounts receivable as of December 31, 2021
a. ₱1,742,500
c. ₱1,792,500
b. ₱1,782,500
d. ₱1,832,500
3.
The adjusted allowance for doubtful accounts as of December 31, 2021
a. ₱96,225
c. ₱102,450
b. ₱101,225
d. ₱102,825
4.
The adjusted balance of the doubtf ul accounts expense for the year ended December 31, 2021
a. ₱36,225
c. ₱42,450
b. ₱41,225
d. ₱42,825
5.
The adjusting entry to correct the error for customer Danny should include a
a. Debit to accounts receivable, ₱22,500
b. Debit to Sales, ₱22,500.
c. Credit to Accounts receivable, ₱7,500.
d. No Adjusting entry is necessary.
ENTHUSIASTIC: YOUR HEART IS THE SOURCE OF ENERGY FOR THE TEAM.
PEOPLE CAN SUCCEED AT ALMOST ANYTHING FOR WHICH THEY HAVE ENTHUSIASM. –CHARLES SCHWAB
DISCIPLINED: WHERE THERE’S A WILL, THERE’S A WIN.
TENACIOUS: NEVER, NEVER, NEVER QUIT
--- END OF HANDOUTS ---
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