Chapter 14

Question 1

Sources of Accounts Payable

Answer 1

• Short-term obligations arising from purchase of goods and services in ordinary course of business;
• Invoices and statements from suppliers usually evidence accounts payable
• Interest-bearing obligations are not included in accounts payable; they are included as bonds, notes, etc.
  Example:
• Acquisition of merchandise on credit
• Receipt of services such as advertising, repairs.

Question 2

Sources of Accrued Liabilities

Answer 2

Sometimes called accrued expenses
- Example: salaries, interest, rent

Accumulate over time and management must make accounting estimate at year-end.
- Note that if management does not make such an estimate, no entry will occur since the related transactions (e.g. Interest) may have occurred months ago.

Question 3

Objective for audit A/P and Purchases

Answer 3

1- Use the understanding of the client and its environment to consider inherent risk, including fraud risks, related to A/P
2- Obtain an understanding of internal control over accounts payable.
3- assets the risks of material misstatement and design tests of controls and substantive procedures that:
A- Substantiate the existence of accounts payable and the client’s obligation to pay these