Accounts Receivable

Question 1

What is the first thing you will do when testing A/R?

Answer 1

Establish that your subledger reconciles to the G/L.

Question 2

What is the second step in testing A/R?

Answer 2

Select from the sub ledger to send a confirmation to selected.

Confirm all material accounts.

Question 3

Define positive confirmation?

Answer 3

Positive= request a response either if they disagree or agree

Question 4

Define a negative confirmation?

Answer 4

Negative= request a response ONLY if the customer disagrees

Question 5

What should you do if you don’t receive a response on a positive confirmation?

Answer 5

1) Send a second request

2) Alternative procedures

Question 6

What are some alternative procedures? (two types)

Answer 6

1) Subsequent cash receipts- for evidence of payment on the invoice
2) Vouch to (inspect) the underlying documents (purchase order, client’s sales invoice, and shipping documents)

Question 7

How do you test completion with respect to A/R?

Answer 7

Do cut-off procedures a few days before and after year end to make sure transactions are captured in the right period.

Question 8

How do you address rights and obligation?

Answer 8

Inquire about A/R that may be used as security and collateral.

Read the debt agreement on collateral agreements.

Document: Make sure you document and record in management rep letter

Question 9

How do you test valuation assertion with respect to A/R?

Answer 9

Review aged trial balance for debt that is old and unlikely to be collected. You want to create an estimate for balance that will not be collected.

Test sales returns estimates.