CHAPTER 11- Accounts Receivable, Notes Receivable, and Revenue Flashcards
A listing of individual customers’ accounts classified by the number of days
subsequent to billing, that is, by age. A preliminary step in estimating the collectibility of accounts receivable.
Aged trial balance
Transactions in which sales of merchandise are billed to customers prior to
delivery, with the goods being held by the seller. These transactions may overstate revenues and net
income if they do not meet specific requirements for recognition as sales.
Bill and hold
Software applications that are programmed to do certain repetitive tasks.
Bots
A marketing practice that suppliers sometimes use to boost sales by inducing
customers to buy substantially more inventory than they can promptly resell. Channel stuffing without
appropriate provision for sales returns is an example of booking tomorrow’s revenue today in order to
window dress the financial statements.
Channel stuffing
A request sent to a confirming party requesting that the confirming party
consider the accuracy of information included in that request. A confirmation request may take one of
two forms: positive confirmation request and negative confirmation request
Confirmation request
The individual who responds to the confirmation request. Responses to
confirmation requests provide more relevant and reliable audit evidence when the confirmation requests
are sent to confirming parties who the auditors believe are knowledgeable about the information to be
confirmed. For example, an individual in accounts payable may provide more relevant and reliable audit
evidence with respect to a client’s receivable balance than an individual who has no direct access to
accounts payable records
Confirming party
As included in the PCAOB auditing standards, a matter arising
from the audit of the financial statements that was communicated or required to be communicated to
the audit committee and that (1) relates to accounts or disclosures that are material to the financial
statements and (2) involved especially challenging, subject, or complex auditor judgment.
Critical audit matter (CAM)
Audit evidence obtained by the auditors as a direct written response to
the auditors from a third party (the confirming party) in paper form or by electronic or other medium
(e.g., the auditors’ direct access to information held by a third party).
External confirmation
A form of insurance protection that covers policyholders for losses that they incur
as a result of fraudulent acts by specified individuals. Fidelity bonds usually insure a business for losses
caused by the dishonest acts of its employees.
Fidelity bond
Those audit procedures that are performed before the balance sheet date.
The purpose is to facilitate earlier issuance of the audit report and to spread the auditors’ work more
uniformly over the year.
Interim audit work
Reviews conducted by management of estimates and other kinds of
financial information for reasonableness. They often involve the use of significant judgment, knowledge, and
experience in comparing recorded amounts with expectations of the reviewers. They often are considered
monitoring controls but may relate to any of the other COSO components that have the common characteristic
of management review of information to identify misstatements or breakdowns in other controls.
Management review controls
A request that the confirming party respond directly to the
auditors indicating where the confirming party disagrees with the information in the request.
Negative confirmation request
To assign to a bank, factor, finance company, or other lender an
exclusive claim against accounts receivable as security for a debt.
Pledging of receivables
A request that the confirming party respond directly to the
auditor providing the requested information or indicating whether the confirming party agrees or
disagrees with the information in the request.
Positive confirmation request (
Formal or informal modifications of normal terms and conditions of sales
transactions to entice customers to accept delivery of goods or services.
Side agreements
