AUDIT OF ACCOUNTS RECEIVABLE AUDIT OF ACCOUNTS RECEIVABLE

GUIDE DICTIONARY Final Balan

Issues with
METHODS OF COMPUTING ADA/BAD  Past due accounts – accounts thatproblem Accounts
are r
DEBTS EXPENSE already beyond their credit period and Credit
not sale
 Initial
yet paid by customers. Usually, mas malaki  FinalSale
1. Percent of Sales Method ang rate of uncollectibility nito unlike sa Coll
 It depends if where you would current accounts. 1.Recovery
First stra
multiply the uncollectibility rate: o So getting the % of AR could look Write-off
likea. ADA
o Sales revenue this: Accounts
b. Add:s
o Net sales o Current accounts xx*3% ARc.credit Lessb
o Credit sales o Past due accounts Overstatem
xx*10% d. Som
o Total xx Clerical
methe
o Net credit sales
Accounts
e. ADA
 Proforma #1:  ADA, end before adjustments – this is the
*Recovery
o Sales xx ending balance of ADA after the ff.2.line Second s
thea.proble
ADA
o Less: Cash sales xx items but before the bad debts expense:
entries,
compute it
o Credit sales xx o ADA given amount xx meaning
o Add: Recoveries xx allowanz
initially per
o Less: Write-offs (xx) *AR
 Proforma #2: a. credit
“Rep
o Credit sales xx o Sometimes: Bad debts expensestrategy of
i. Ba
o Sales return xx initial ADA method used xx sa
o Sales discount xx o ADA, end (before adj.) xx  Net Re
ii. Ba
o Net credit sales xx o And before the bad debts expenseo Acc
is computed using the 3 methods. oiii.Les Fin
2. Percent of AR Method o NRV
 % of AR, ending balance  Control account and subsidiary account 3.*nasa– itaas
Entry for ae
there are problems that would give youis twoyour comp
 % of current accounts + % of past Strategy ft
(2) balances of AR. unadjusted
due accounts
o Adjustments should be accounted forsubsidiary
ADA acco
for
(Ex. AA, BB
3. Aging Method separately for control account and for
subsidiary account. 4. NRV of AR
 Same output with Percent of AR 1.o IfAR,the e
o The problem will state if which record
method. customers
o ADA,
of AR (between the 2) would BB) be – Det
followed in the end. o Hindi
Difference between Percent of Sales and effect) lan
o Huwag mong ilalagay sa subsidiary % of s
Percent of AR problem th
 % of sales: Sales * % = Bad debts account yung adjustment na for NRV, o

expense control account lang (and vice versa)

Inclusions
5. Expected
 % of AR: AR, end * % = required 1. Advanc
o Entry:
ADA, end rationale)
o Amou
based sa
o BD
huwag mo
o BD
o Exp