INTERNAL CONTROL MEASURES 1. Proper internal contro! over receivables shauld observe a. Sales must be separated from the accounting for em. b. Accounting for sales must be separated from the receipt of cash arising from the receivables. ¢. Returns, allowances, discounts, and uncollectible charge-offs must be properly approved and separated from the cash receipts function. d. Periodically, receivables shauld be aged in order to determine the actions and efficiency of the credit department. 2. Notes receivable custodian should not have access to cash or to the accounting record. 3. A responsible official who does not have access to the notes should approve note renewals as well as charge~ ffs of defaulted notes in writing, 4, Proper procedures should be adopted for the follow-up Of defaulted notes. ‘SUBSTANTIVE AUDIT OF RECEIVABLES Sales and Accounts Receivable Balances Existence or occurrence: Sales and accounts receivable are for shipments made to customers 1. Confirm accounts receivable and perform procedures for confirmations not retumed. 2. Perform analytical procedures to accounts receivable. test sales and Completeness: Sales transactions that occurred and existing receivables are recorded 3. Perform a test of sales cutoff. Rights and obligations: Accounts receivable are owned by the client 4. Review minutes of the board of directors’ meetings, inquire of the client personnel, read contracts and agreements, and confirm with lenders any indications that accounts have been assigned, sold, or pledged. Valuation and allocation: Accounts receivable are properly valued 5. Verity mathematical accuracy of the accounts receivable aging schedule and trace it to the accounts receivable subsidiary ledger. 6. Test the adequacy of the allowance for uncallectible accounts. Presentation and disclosure: Sales and accounts receivable are properly presented and disclosed in accordance with GAAP. 7. Review financial statements and perform analytical procedures to determine whether accounts are ‘classified and disclosed in accordance with GAAP. ‘Sales Transactions Completeness: Sales transactions that occurred are recorded For a sample of shipping documents, trace sales invoice and entry into sales journal and accounts receivable subsidiary ledger. Perform cutoff tests. Occurrence: Recorded sales are for shipments actually made to customers For a sample of entries in the sales journal, compare sales invoice copy, customer order, and sales invoice. Classification: Sales and accounts receivable transactions have been recorded in the proper accounts For 3 sample of entries in the sales journal, verify the accuracy of account coding. Accuracy (Valuation): recorded For a sample of entries in the sales journal, (a) examine sales invoice, shipping document, and customer for consistency of descriptions and quantities; (b) examine sales orders for credit approval; and (c) check prices and extensions, Foot sales journal and general ledger account. Sales are correctly billed andPROBLEM NO, 1 ‘The December 31, 2019 statement of financial position of Help Company included the following information: Notes receivable 598,000 Less: NR discounted 380,000) P 218,000 ‘Accounts receivable 2,240,000 Less: Allow. for D.A, 141,000) 2,099,000 Total receivables 2.317.000 ‘The following transactions occurred during 2020: 1. Sales on account: 8,812,000, 2. Collections on accounts 8,410,000 3. Accounts receivable written off as ‘uncollectble 138,000 4, Notes receivable collected 230,000 5. Customer notes received in payment ‘of accounts receivable 740,000 6. Notes receivable discounted paid at ‘maturity 7. Notes receivable discounted defaulted, including interest of P200 and a P100 fee. “This amount is expected to be collected in 2021 8. Proceeds from customer notes discounted (Face value P450,000, ‘accrued interest income, P2,000) 9. Collections on accounts previously writen off 10, Sales retumns and allowances 411, Required allowance for doubtful ‘accounts based on impairment assessment at year end 360,000 20,300 448,500 5,000 20,000 12,000 (QUESTIONS: Based on the above and the result of your audit, answer the following: 1. The loss from discounting of notes receivable is a. P3,500 c. P1500 b. P2000 apo 2. The adjusted balance of Accounts Receivable as of December 31, 2020 is a. 2,479,060 c. P1,729,000 b. Pt,739,000 4. Pt,744,000 3. The adjusted balance of Notes Receivable as of December 31, 2020 is a. 238,000 < P668,000 . P688,300 688,000 4. The amount to be reported as trade and other receivables in. the entity's statement of financial position as of December 31, 2020 is 1,970,300 © P1,965,300 1,950,000 dé. P1,945,000 ‘5. When designing audit procedures, tracing of source documents to the customers subsidiary ledger and Subsequently to the general ledger is done to satisty what assertion? a. Valuation © Completeness b. Cutoft 4. Classification PROBLEM NO. 2 {In connection with the audit of the financial statements of Praktis Corporation, your audit senior instructed you to ‘examine the company's accounts receivable. From the schedule of accounts receivable as of December 34, 2020, you determined that this account includes the lowing: ‘Accounts with debit balances P 441,100 ‘Advances to officers 16,400 ‘Accounts with credit balance (15,600) ‘Accounts receivable per GL. 443,500 ‘The credit balance in customer's account represents collection from a. customer whose account had been written-off as uncollectible in 2019. Accounts receivable for mare than @ year totaling P21,000 should be written off, Confirmation replies recelved directly from customers disclosed the following exceptions: Customer's Customer ‘Comments Aucit Findings Jessie The goods sold on The client failed to December 1 were record credit memo returned ‘on no. 23 for P12,000. December 16,2020. The merchandise was included in the fending inventory at cost. Robert We do not owe this Investigation amount *9#@ (bad revealed that goods word). We did not sold for P16,000 receive any were shipped” to ‘merchandise from Robert on December your company. 29, 2020, terms: FOB Shipping point. The ‘goods were lost in transit and the shipping company hhas acknowledged its responsibilty for the loss ofthe ‘merchandise. ‘Anne 1 am entitled to a Anne is an employee 10% employee of Praktis. _ Starting discount. Your Pill November 2020, all should be reduced company employees by P1,200. were entitled to a special discount. Jay-ar We have not yet sold Merchandise billed the goods. We will for 18,000 were emit the proceeds consigned to Jay-ar {a5 soon as the goods. on December 30, are sold. 2020. The goods ‘cost P13,000. Roy We do not owe you The sale of P20,000. ‘We merchandise on already paid our December 18, 2020 ‘accounts 5 was paid by Roy on evidenced by ORF January 6, 2021, 1234, Roldan Reduce your bill by This amount P1,500 represents freight paid by the customer for the merchandise shipped on December 17, 2020, terms, FOB . P78,038 a. P77,652 14, How much is the adjusted cash balance as of July 31 a. 62,877 , P74,291 b. 769,815 4. P61,805 15. Which of the following represents a normal substantive audit procedure for cash balances? ‘2. Review cash received by the client from the bank. b. Verify material deposits-in-transit to subsequent statements. Foot cutoff bank statements provided by the ‘nancial institutions. d. Perform kiting techniques to transfer cash between two client accounts. © - end of AP.2904- ©