MODULE 6 Audit of Receivables and Related Accounts With Discussion 3

MODULE 6.
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Audit of Receivables and Related Accounts

I. Nature of Receivable
II. Audit Objectives
III. Audit Procedures
IV. Audit Working Papers and Other Documentation
V. Fraud on Receivables
VI. Internal Controls
A. Problems (Do-It-Your Self)

B. Multiple Choice Problems (Do-It-Your Self) (22 Questions)
C. Multiple Choice Theory - Substantive Audit Procedures (Do-It-Your Self) (20 Questions)
D. Multiple Choice Theory - Internal Controls (Do-It-Your Self) (20 Questions)
E. Pre-Test No. 5 - Theory (15 PTS) and Problems (30 PTS - 15 Questions) - 45 POINTS
F. Post-Test No. 5 - Theory (20 PTS) and Problems (25 Questions - 2points each) - 70 POINTS
REFERRENCES
Applied Auditing 2017 Edition by Asuncion, Ngina and Escala
Basic Auditing Practice Volume 2 by Petronilo Santos
Textbook in Auditing Practice by Solita A. Frias
Practical Auditing 2019 Edition by Patricia M. Empleo
Practical Auditing 2001 Edition by Zenaida S. Bijasa-Sangcal
Applied Auditing by Baldres, De Leon, Magadia and Sarmiento
Comprehensive Manual of Auditing by Ma. Elenita Balatbat Cabrera
Intermediate Accounting by Robles and Empleo
Forensic Accounting 4th Edition by Zimbelman and Albrecht
DISCUSSION
I. NATURE OF RECEIVABLES
(Source: Intermediate Accounting by Robles and Empleo)
RECEIVABLES
Did they arise from sale of goods or

services in the normal course of
business?
Did they arise from sale of goods or
services in the normal course of
business?
YES NO
Are they collectible within twelve (1

months from the end of the reportin
period?
YES
Report as current
Assets
• Trade Receivables
1) Accounts Receivable
2) Notes Receivable
3) Installment Receivable
• Other Receivables
(non-trade receivables)
1) Accrued interest receivable
2) Accrued interest income
3) Rent Receivable
4) Dividends Receivable
5) Advances to Employees
6) Advances to Officers
7) Subscription Receivable (collectible within one year)
(if collectible beyond one year - deduction from Subscribed Share Capital)
8) Claims receivable
9) Due from Suppliers
10) Creditor's debit balance (Accounts Payable debit balances)
11) Claims agains common carries
12) Advances to Suppliers
CLASSIFIED AS CURRENT ASSETS:

1) TRADE RECEIVABLES -
If collectible within one year or normal operating cycle,whiever is longer, from the statement of financial position date or
reporting period
2) NONTRADE RECEIVABLES -
If collectible within one year, the normal operating cycle not withstanding, from the statement of financial position date or
reporting period
CLASSIFIED AS NONCURRENT ASSETS:

If collectible/refundable beyond one year or normal operating cycle (NOC), whichever is longer.
II. AUDIT OBJECTIVES

Source: Textbook in Auditing Practice by Solita A. Frias
A. Compliance Audit Objective
To ascertain the following:
. existence of internal control
. client's compliance with internal controls
. effectiveness of internal control
B. Substantive Audit Objective
To ascertain the following:
. that the receivables represent valid calim of the client againts third parties.
. that the receivables are collectible.
. that there is an adequate allowance for doubtful accounts.
. that there is a proper cut-off in the recording of receivable transactions.
. that the receivables are recorded ina ccordance with generally accepted accounting principles.
. that
that the generally
interest earnedaccepted
on notesaccounting
receivableprinciples
has beenapplied
received, to receivables
that cusch are consistently applied.
. receipt is proerly recorded, or if not yet received that it is properly accrued,
. or if the interest is received in advance that the entry for the deferral of
income is correct.
Source: Basic Auditing Practice Volume 2 by Petronilo Santos

ACCOUNTING CONTROL OBJECTIVES:
A. Sales
. Customers' orders are committed only, if:
A. The terms are acceptable to the company
B. Goods ordered are available in stock, and
C. Credit was appraised and aurthorized.
. Shipments are:
A. Made only for authorized sales
B. Independently reconciled with Sales Invoice.
C. Acknowledged by the customer by signing the delivery receipts
D. Billed or covered by a Sales Invoice
. Sales invoice are:
A. Promptly prepared and recorded
B. Reconciled with Customers' Orders
C. Independently rechecked as to merchandise specifications, quantity, pricing
and accuracy of arithmetical computations.
. Used and blank forms for Sales Invoices and Delivery Receipts are controlled and accounted for.
B. Accounts Receivables
. Accounts receivable are properly authorized and fully documented.
. Adjustments to accounts receivable are:
A. Authorized
B. Documented
C. Promptly recorded
. A Subsidiary Ledger is maintained and periodically reconciled with the controlling
general ledger account.
. Montly statements are mailed to customers.
. Customers' accounbts are regularly evaluated as to collectibility.
. Potential bad accounts are identified and correlated with balance of the allowance
for doubtful accounts.
C. Sales Returns and Allowances

. Merchandise being returned are properly inspected before acceptance.
. Merchandise returned are acknowledged by a Receiving Report and placed back in inventory.
. Credit Memoranda for sales returns are approved and issued to customers only
when evidenced by a Receiving Report.
. Used and blank Credit Memordanda are controlled and accounbted for.
AUDIT OBJECTIVES
A. Sales
To determine that:
. All significant sales are recorded.
. Recorded sales are all earned.
. Shipments to customers are billed or invoiced.
. Proper cut-off is observed in recording transactions.
. Only operating revenues are classified as sales.
. Financial statement presentation is appropriate and disclosures are adequate.
B. ACCOUNTS RECEIVABLE
To determine that:
. Accounts receivables are:
A. actually existing
B. valid claims against trade customers
C. collectible
. Allowance for doubtful accounts is adequate
. Proper cut-offis observed in recording transactions.
. Only trade receivables are classified as accounts receivable.
. Financial statement presentation is appropriate and disclosures are adequate.
C. SALES RETURNS AND ALLOWANCES

To determine that:
. Sales returns and allowances are:
A. Properly authorized
B. Evidenced by actual return of merchandise.
. Proper cut-off is observed in recording transactions.
. Financial statement presentation is apporpriate and disclosures are adequate
Source: Practical Auditing 2019 Edition by Patricia M. Empleo

The auditor's principal objectives in the audit of accounts receivable and sales are to:
. consider internal control over receivable and revenue transactions

. determine the existence of receivables, that the client has the rights to these assets, and the occurrence of revenue
transactions
. establish the completeness of recorded receivables and revenue transactions.
. determine that the receivables are measured at appropriate amortized cost, and
. establish that the presentation and disclosure of receivables and revenues are appropriate.
Source: Practical Auditing 2001 Edition by Zenaida S. Bijasa-Sangcal

The auditor's objectives are to determine that:
. Adequate control structure olicies and procedures exist.

. All sales and receivables that should be recorded are properly recorded. (completeness)
. Only sales and receivables that should ve recorded are recorded (existence).
. Receivables records and supporting schedules are mathematically correct and agree with general ledger accounts (cleric
accuracy).
. The presentation and disclosure of receivables is adequate; including the separation of receivables into appropriate
categories and adequate reporting of any receivables pledged as collateral and related party receivables.
Source: CPA Review Manual in Auditing Problems BY Ma. Elenita Balatbat C

A. ACCOUNTS RECEIVABLES
. To ascertain that the receivables represent valid and legal claims against third parties in the amounts indicated in th
accounting records.
. To ascertain whether the receivables are collectible.
. To determine the adequacy of the allowance for doubtful accounts.
.
To determine whether receivables have been properly classfied and described on the statement of financial position
B. NOTES RECEIVABLE
. To establish the existence abd validity of the notes.
. To ascertain ownership of the notes.
. To determine their collectibility.
. To determine propriety of statement of financial position presentation.
. To determine that interest collections have been received and that interest earned and accrued has been correctly
recorded.
C. ALLOWANCE FOR DOUBTFUL ACCOUNTS

. To asecrtain the adequacy of the allowance for doubtful accounts.
. To verify if proper procedures have been followed in writing off doubtful accounts.
III. AUDIT PROCEDURES
Source: Basic Auditing Practice Volume 2 by Petronilo Santos

TESTS OF COMPLIANCE
The interim tests of compliance for the revenue-receipt cycle are as follows:
A. SALES
. Obtain specifmen signatures of officers who approve transactions like:
A. Credit Manager
B. Sales Manager
C. Storekeeper
D. Shipping or Delivery Department Manager
E. Cashier
. Obtain speciment initials of persons who double-check the:
A. Sales Invoices
B. Delivery Receipts or Bills of Lading
. Check the file copies for the completeness of the numerical sequence of:
A. Charge Sales Invocies
B. Cash Sales Invoices
C Delivery Receipts or Bills of Lading
D. Credit Memoranda
. Select a sample of recorded sales invoices and:
A. Check arithmetical accuracy
B. Trace ti corresponding shipping documents
C. Test pricing by reference to official price list
D. Check approval for:
(1) Credit
(2) Terms
E. Compare details with customer orders, like merchandise specifications, price,
quantity, credit period, discounts, etc.
F. Trace postings to customers' subsidiary ledger.
G. Check entries for promptness and accuracy.
. Select a sample of sales invoices and:
A. Trace to sales register
B. Trace postings to customers' subsidiary ledger.
C. Look for initials of person double-checking the accuracy of invoices.
. Select a sample of delivery receipts or Bills of Lading and:
A. Trace to corresponding sales invoices
B. Compare with customers' orders
C. Trace postings to stock card orinventory records
D. Look for initials of person double-checking the accuracy of delivery receipts.
. Select a sample of entries in the subsidiary ledger and trace to:
A. Corresponding sales invoices
B. Entries in the sales register
. Check footings and cross-footings of sales register and trace footings to the general ledger.
. Observe proper segregation of duties.
B. ACCOUNTS RECEIVABLES
. Select a sample of postings in the subsidiary ledger and:
A. Trace to cash receipts register
B. Trace to debit/credit memo register
. Reverse the procedure in Number 1.
. Check for evidence showing monthly reconciliation of the subsidiary ledger balances with
the control account in the general ledger.
. Scan and investigate any unusual entries.
. Determine if write-offs and other adjustments are proeprly documented and authorized.
. Observe proepr segregation of duties.
C. SALES RETURNS AND ALLOWANCES

. Select a sample of credit memoranda and trace to:
A. Entries in the debit/credit memo register
B. Corresponding receiving reports
. Reverse the procedures in No. 1
. Select a sample of credit memoranda and:
A. Review for proper approval
B. Check pricing and arithmetical accuracy
. Check footings and cross-footings of debit/credit memo register and trace postings to the
general ledger.
. Observe proper segregation of duties.
YEAR-END SUBSTANTIVE TEST OF BALANCES AUDIT PROGRAM

The interim tests of compliance for the revenue-receipt cycle are as follows:
A. ACCOUNTS RECEIVABLE
. Obtain a list of aged accounts receivable balances from the subsidiary ledger and:
A. Foot and cross-foot the list
B. Check if the list reconciles with the general ledger control account.
C. Trace individual balances to the subsidiary ledger.
D. Test the accuracy of the aging.
E. Adjust non-trade accounts erroneously included in customers' accounts.
F. Investigate and reclassify significant credit balances.
. Test accuracy of balances appearing in the subsidiary ledger.
. Confirm accuracy of individual balances by direct communication with customers.
A. Investigate exceptions reported by customers and discuss with appropriate officer for
proper disposal.
B. Send a second request for positive confirmation requests without any replies from customers.
C. If the second request does not produce a reply from the customer, perform extended
procedures, like:
(1) Reviewing collections after year-end
(2) Checking supporting documents
(3) Discussing the account with apporpriate officer
D. Discuss with appropriate officer, confirmation requests returned by the posy office
and perform extended procedures.
E. Prepare a summary of confirmation results.
. Review correspondence with customers for possible adjustments.
. Test Examine
propriety Sales
of cut-off:
recorded and shipments made a week before and after the statement
A. of financial position date and ascertain whetehr the sales were recorded in the proper
period.
B. Investigate large amounts of sales returned shortly after the statement of financial
position date.
. Perform analytical review procedures, like:
A. Gross Profit ratio
B. Accounts Receivable turnover
C. Ratio of accounts written off to sales or balance of accounts receivable.
Compare with prior year and industry averages.
Any significant unexplained variation should be investigated.
. Review individual balances and age of accounts with appropriate officer and:
A. Determine accounts that should be written off
B. Determine adequacy of allowance for doubtful accounts.
. Ascertain whether some receivables are pledged.
. Determine propriety of financial statement presentation and adequacy of disclosures.
. Obtain accounts receivable representation letter from management.

TRADE ACCOUNTS AND NOTES RECEIVABLE
A. Review general ledger activity for trade accounts receivable
. Note and investigate unusual entries.
. Trade opening balances to the prior period work papers
B. Compare the accounts receivable turnover to the prior periods.
C. Obtain or prepare an aged trial balance of trade receivables as of the confirmation date.
. Foot and crossfoot the schedule.
. Trace individual confirmation requests to subsidiary accounts.
. Mail confirmations with auditor's return address.
. Prepare confirmation statistics.
. If the client request exemption from confirmation for any accounts, obtain and document satisfactory explanation, an
perform appropriate alternative procedures.
. Trace confirmation replies to the trial balance and investigate variances.
. Obtain new addresses for confirmation returned, and remail.
. Send second request for positive confirmations.
. Perform alternative auditing procedures for unanswered positive requests.
. Summarize the results of confirmation procedures.
D. For positive confirmation without response, and accounts exempted from confirmation at the client's request:
. Test subsequent paid items against specifically identified invoices.
. Examine customer purchase orders and other evidence supporting the existence of the liability.
. Establish the existence of the customer by references to credit bureaus or directors.
E. For accounts receivable confirmed on a date other than the statement of financial position date:
.
Prepare or obtain an analysis of transactions between the confirmation date and the statement of financial position d
. Trace amounts from the analysis to the ledgers.
F. Prepare or obtain an analysis of trade notes receivable including the following details:
. Maker
. Date issued and due
. Original terms of repayment
. Collateral, if any
. Interest rate
. Balance at the end of the prior period
. Principal - additions and repayments
. Balance at the end of the current period
. Interest income - balance from the prior period, receipts, accruals, and the balance at the end of the current period.
G. Perform the following tests on the trade notes receivable analysis:

. Foot the schedule
. Trace totals to the general ledger
. Physically inspect notes.
. Request positive confirmations
. Confirm notes out for collection and/or discounted with note holder.
. Inspect any collateral for the notes.
. Recompute interest income.
. Trace interest collections to the cash receipts journal.
H. Determine whether any accounts or notes have been pledged, assigned, or discounted.
I. Determine whether any accounts or notes are owed to employees or related parties. For notes owed to cusch parties:
. Determined the nature and purpose of the transactions(s) that resulted in the balance.
. Determine whether transactions were properly executed.
. Obtain positive confirmation of balances.
J. Prepare or obtain an analysis of the allowance for doubtful accounts.

. Review accounts written off during the period.
. Determined if write-offs have been properly authorized.
. Examine supporting documentations for write-offs.
K. Review the adequacy of the allowance for doubtful accounts by

. Reviewing an aged trial balance of accounts.
. Examining credit reports for large and delinquent accounts.
. Performing and reviewing ratio analysis for:
A. accounts receivable to credit sales
B. allowance for doubtful accounts to accounts receivable
C. Sales to returns and analysis
D. Doubtful accounts expense to credit sales
E. Doubtful accounts expense to write-offs
. Review post statement of financial position transactions related to receivables.

ACCOUNTS RECEIVABLE
. Examine sales invoices
. Trace sales invocies to entries in the sales journal.
. Trace sakes invoices to postings in the accounts receivable subsidiary ledger.
. Tie up examination of accounts receivable and audit procedures on cash.
. Examine general journal entries affecting accounts receivable.
. Prove mathematical accuracy of sales journals, cash receipts journals and subsidiary ledgers.
. Obtain from client a schedule of accounts receivable.
. Verify accounts receivable trial balance
. Test aging.
. Confirm accounts receivable.
. Select a confirmation date.
. Select form of confirmation and accounts to be circularized.
. Summarize results of confirmation.
. Follow up results of confirmation.
. Analyze doubtful accounts and allowance for doubtful accounts.
. Test proper cut-off.
.
Examine sales returns, allowances, discounts and returned collection checks after the statement of financial position date
. Obtain an accounts receivable certificate.
. Determine proper financial statement presentation and disclosures.
NOTES RECEIVABLE
. Examine notes receivable.
. Count promissory notes.
. Verify interest.
. Obtain confirmation of notes receivable.
. Examine doubtful accounts and allowance for doubtful accounts.
. Ascertain financial statement presentation and disclosures.

ACCOUNTS RECEIVABLE AND SALES
A. Presentation and Disclosure
. Review loan agreements
. Review of the accounts receivable trial balance
B. Existence and Occurrence

. Examine all aspects if a sample of sales transactions
a. Compare the sales invoice with the customer's purchase order.
b. Checking for proper credit approval.
c.
Comparing prices on sales invoices with those on price list. Ascertaining the propriety of discounts granted to s
d. Proving the correctness of the extensions and footings in each invoice in the sample.
e. Checking the recording ub the sales journal and the posting of the sale in the AR subsidiary ledger.
f. Proving the footings of the sales journal and tracing the total to the general ledger accounts for sales.
. Confirm accounts receivable on a test basis.
C. Rights and Obligations

. Review sales discount procedures and documentation
. Vouch debit in Individual AR accounts to Sales Invoices.
. Review the year end cut-off sales and cash receipts transactions.
The sales cur-off test involves the following:
a. Examining shipping documents for several days before and after the cut-off sate to determine the date and ter
shipment,
b. Tracing shipping documents to the sales and inventory records to establish that the entries were made in the
correct accounting period.
c. Inspecting invoices for a period of time before and after the cut-off date to ascertain the validity and propriety o
shipments and corresponding entries.
d. Inquiring from management about any direct shipments by ourside suppliers to customers and determining the
appropriateness of related entries.
D. Completeness
. Compare a sample of shipping documents to the related sales invoices for the purpose of discovering orders which
been shipped but not billed.
. Reconcile a sample of cash register tapes and sales tickets with the sales journals so that evidence is gathered that
shows that all sales have been recorded and recorded accurately.
. Perform analytical procedures for accounts receivable and sales.
a. the gross profit rate
b. accounts receivable turnover
c. the ratio of accounts receivable to the year's net credit sales.
d. the ratio of accounts written off during the year to the ending balance of accounts receivable.
e. the ratio of valuation allowance to accoubts receivable.
These ratios should be compared with corresponding date for the preceding years and with comparable industry
averages and any unexpected fluctuations should be investigated.
E. Valuation
. Test foot the sales journal abd reconcile with postings to the general ledger - to find out if sales figures were brough
forward accurately.
. Voucher debit entries in the Allowance for Doubtful Accounts to the Individual Accounts and Origina Write-off
Authorizations. - So that it can be determined that such write-offs were properly reflected in the accounts and were
authorized.
. Prepare or obtain ab aged accounts receivable schedule -
a. To help identify accounts that should be written off
b. To determine reasonableness of the doubtful accounts expense and the allowance for doubtful accounts
c. To aid the confirmation of accounts receivable.
. Investigate any unusual items, transactions and amounts - To determine the suubstance behindm and treatment of,
items, transactions and amounts.
. Recalculate and review doubtful accounts expense and allowance - For reasonableness of expense and adequacy
allowance.
. Examine cash receipts after the statement of financial position date - To provide evidence of collectibility at the
statement of financial position date.
ACCOUNTS RECEIVABLE AND SALES

. Prepare or obtain a schedule of the Notes Receivable as of the close of the fiscal period. The list should show the
a. name of the makers
b. the name of endorsers
c. date of notes
d. term of notes
e. due dates
f. the amount of the notes
g. interest rates
h. discount rates (if discounted)
i. interest collected in the period
j. interest accrued or prepaid
k. payments made on the principal
l. the balance due
m. any collateral held.
. Reconcile controlling and subsidiary account balances.
. Inspect items on hand. Notes receivable will either be

a. on hand
b. out for collection
c. dicounted
d. pledged as collateral
e. returned to maker if paid after the statement of financial position date and prior to the audit.
. Confirm notes receivable.

. Determine the disposition of past-due notes.
. Verfiy notes genuineness
. Investigate renewed notes
. Determine collectibility
. Trace receipts from discounted notes.
. Obtain approval of notes charged off as uncollectible,
. Review allowance provided for notes,
. Verify interest: income, accrued, and prepaid.
. Separate Other-Than-Customer Note
Source: Applied Auditing 2017 Edition by Asuncion, Ngina and Escala

. Reconciliation of Subsidiary Ledger with General Ledger
. Confirming receivables and reviewing subsequent cash receipts
. Analyzing notes receivable and related interest
. Evaluating adequacy of the allowance for doubtful accounts, including the appropriateness of the methodology used to ca
. Performing accounts receivable and sales cut-off
. Checking the apporpriate valuation of accounts receivables denominated in foreign currencies.
. Investigating any transactions with or related party receivables.
. Analyzing credit balances and unusual items
. Ascertaining whether any receivables have been pledged or assigned
. Performing analytical procedures.
IV. AUDIT WORKING PAPERS AND DOCUMENTATION

Source: Applied Auditing by Baldres, De Leon, Magadia and Sarmiento
The following documentation for receivables includes, but is not limited to, identification of the following:
. The procedures performed (generally the audit program or reference to it) and conclusions reached with respect to the
procedures performed, together with a statement of overall conclusions with respect to receivables.
. The relationship of the nature, timing, and extent of procedures performed to the evakuation of the accounting estimation
routine data, and non-routine data processes, or reference to the documentation of such relationship elsewhere in the au
working papers
. The problems encountered abd bases of resolution.
. To the extent appropriate, the following:

a. Summary of Accounts Receivable
b. Aged composition of accounts receivable at the statement of financial position date and if significantly different, at th
interim date as well.
c.
Rationale for various dates selected for confirming or otherwise verifying accounts receivable (interim or year end),
methods used (e.g. positive and negative confirmations), and sample size (percent of total accounts and amount)
d. Accounts that were sekected for comfirmation or other verification.
e. Confirmation replies, including appropriate documentation of oral confirmations.
f. Analysis of the results of the confirmation ot other verification procedures.
g. Reconciliations between detailed listings and control accounts,
h. The roll-forward of activity in the control accounts from the interim date to the statement of financial position date.
i. The results of investigations of unusual ite,s appearing in control accounts or journal entries.
j. The results of review of the receivables, sales, and inventory cut-offs.
k. Summary of notes receivable and activity during the period.
l. Details of any collateral and guarantees.
m. Summary of interest income accrued and received on notes receivable during the period.
n. Analysis of activity in the allowance for uncollectible accounts.
o. Details regarding collection experience (including the period subsequent to the statement of financial position date),
debt history, and the collectibility of significant individual accounts
p Analysis of activity in the allowance for discounts, returns of merchandise, warranties and similar items, and summa
ofhistorical experience.
q. Bases for concluding whether the allowances are appropriate.
r. Details of receivables from related parties.
s. List of receivables transferred with recourse and details of related loss contingencies.
t. Details of liens, pledges, and other security interests in receivables.
u.
Alternative procedures used when confirmation requests are not sent, and the rationale for non confirming accounts
v. Results of analytical review procedures performed.

Besides preparing LEAD SCHEDULES for receivables and net slaes, the auditors obtain or prepare the following working pape
among others:
. Aged trial balance of trade accounts receivable.

. Analyses of other receivables
. Analysis of notes receivable and related interest
. Summary of results of confirmation of accounts receivable
. Analysis of allowance for doubtful accounts and notes.
.
Comparative analyses of sales transactions by month, by product or terrritory, or relating actual sales to forecasted sales
V. FRAUD ON RECEIVABLES
COMMON REVENUE RELATED FRAUD SCHEMES
Source: Forensic Accounting 4th Edition by Zimbelman and Albrecht
Common Fraud Schemes and Transactions Common Audit Procedures
Record Fictitious Sales •

Perform analytical procedures on sales, sales returns, allowance
doubtful accounts, bad debts and the aging of receivables.
• Review the AR ledger, cash receipts journal, and sales journal f
large or unusual items.
• Select AR balances to confirm and send positive and negative
confirmation requests.
•
Examine evidence of subsequent cash collections from the cust
for thr following any positive confirmations not returned, negative
confirmations returned with significant exceptions, and other acc
balances deemed appropriate.
•
For positive confirmations not returned and for negative confirm
returned with significant exceptions, examine supporting
documentation such as billing and shipping documents.
• Review the sales returns after year-end to determine the effect o
AR balance.
• Test cut-off sales, sales returns, and cash receipts at year-end b
looking at supporting documents before and after year-end.
• Review the reconciliations of the sub-ledger to the general ledge
investigate unusual items.
• Test occurrence of sales by tracing details from the sales journa
supporting documents.
• Ensure proper treatment of all related party sales and AR
• Conduct interview of client personnel.
Recognize revenues too early •

doubtful accounts, bad debts and the aging of accounts receivab
•
AR balance.
Understate allowance for doubtful accounts/ don't write- •

off uncollectibles Perform analytical procedures on sales, sales returns, allowance
•
No record returned goods/discounts from customer •

Select AR balances to confirm and send positive and negative
•
AR balance.
Record returned goods / write-off receivables after the •

end of the period Perform analytical procedures on sales, sales returns, allowance
•
AR balance.
Manipulation of cash received •

•
•
Related Party Transactions •

•
• Compare prices and terms on sales invoices with that of the
company's authorized list and terms.
• Inquire of management and other client personnel about related
receivables.
Sham Sales •
(A phrase used for various types of fictitious sales) Perform analytical procedures on sales, sales returns, allowance
Review the AR ledger, cash receipts journal, and sales journal f
•
•
AR balance.
• Review the reconciliations of the sub-ledger to the general ledge
investigate unusual items.
• Inquire of management and other client personnel about related
receivables.
Bill-and-hold sales •
These are orders for goods that are stored by the seller, doubtful accounts, bad debts and the aging of receivables.
often because the buyer is not ready or able to receive the •
goods at th time of the order. Fraud occurs when these sales Select AR balances to confirm and send positive and negative
are recognized even though the many requirements for their confirmation requests.
recognition (e.g. risk of loss must transfer to the buyer) are •
not. for thr following any positive confirmations not returned, negative
•
Side agreements •
These are sales terms and agreements (e.g. a liberal return doubtful accounts, bad debts and the aging of receivables.
policy) that are made outside the normal reporting channels. •
These agreements lead to fraud when they involve Examine evidence of subsequent cash collections from the cust
amending the terms and conditions of existing sales for thr following any positive confirmations not returned, negative
contracts so that they violate revenue recognition confirmations returned with significant exceptions, and other acc
requirements. balances deemed appropriate.
Consignment Sales •
AR balance.
Test cut-off sales, sales returns, and cash receipts at year-end b
Channel surfing •
Sometimes called channel stuffing. This is a practice that • Select AR balances to confirm and send positive and negative
suppliers use to encourage customers to buy extra inventory confirmation requests.
so as to increase curret-year sales. This practice can inflate •
sales when stated or implied side agreements (e.g. allowing Examine evidence of subsequent cash collections from the cust
customers to return the goods) are not properly disclosed or for thr following any positive confirmations not returned, negative
accounted for. Also, channel stuffing can be deemed confirmations returned with significant exceptions, and other acc
fraudulent when sufficient reserves are not established (e.g. balances deemed appropriate.
for sales expected to be returned). • Review the sales returns after year-end to determine the effect o
AR balance.
Lapping/kiting •
A practice where cash receipts are misapplied to hide Perform analytical procedures on sales, sales returns, allowance
fictitious receivables. For example, if a fictitious receivable is doubtful accounts, bad debts and the aging of receivables.
recorded for Customer X, a payment received from •
Customer A will be used to show that the receivable was Select AR balances to confirm and send positive and negative
valid. A later payment received from another customer may confirmation requests.
be used to write-off the receivable recorded by Customer A, •
etc. for thr following any positive confirmations not returned, negative
Redating •
Also called refreshing transactions. This involves changing doubtful accounts, bad debts and the aging of receivables.
sale date to more current time periods to prevent them from • Review the AR ledger, cash receipts journal, and sales journal f
being deemed uncollectible or bad debts. large or unusual items.
•
Liberal return policy •
This policy allow customers to return products and cancel Perform analytical procedures on sales, sales returns, allowance
sales in future periods. These policies make its difficult to doubtful accounts, bad debts and the aging of receivables.
estimate the amount of revenue that should be recorded in • Select AR balances to confirm and send positive and negative
the current period. confirmation requests.
•
AR balance.
Partial shipments •
This scheme involves recording the full amount of a sale Perform analytical procedures on sales, sales returns, allowance
when only part of the sale was shipped. doubtful accounts, bad debts and the aging of receivables.
•
Improper cut-off •
This occurs when transactions are recorded in the wrong Perform analytical procedures on sales, sales returns, allowance
period. This occurs when a company keeps the accounting doubtful accounts, bad debts and the aging of receivables.
books open for a particular period and records future period •
transactions as if they occurred in the current period. (also Select AR balances to confirm and send positive and negative
referred to as improlerly holding the books open). confirmation requests.
•
Roundtripping •
This involves selling unused assets for a promise to buy or Perform analytical procedures on sales, sales returns, allowance
similar assets back at roughly the same price. In the end, no doubtful accounts, bad debts and the aging of receivables.
economic benefit exists for either company. • Review the AR ledger, cash receipts journal, and sales journal f
Source: CPA Review Manual in Auditing Problems BY Ma. Elenita Balatbat Cab
. Sales on account are understated.
. Sales on account are not recorded.
. Unauthorized writing off of accounts receivable.
. Sales discount, returns and allowances are overfooted.
. Lapping of accounts receivable.
. Sales discounts are granted for payments after the discount period.
. Sales discount computations are overstated.
. Collections on accounts receivable written off are not recorded.
. Credit memoranda are issued for fictitious sales returns and allowances.
6 TYPES OF ACCOUNTS RECEIVABLE FRAUD

(Source: https://blog.apruve.com/6-types-of-accounts-receivable-fraud)
. Lapping
Lapping involves stealing a customer payment and using any additional payments from that customer to cover the theft. F
example, a customer has invoice 1000 due for $1000. A perpetrator steals the $1000 received from the client for invoice
Then invoice 1001 due for $1500 from the same customer is received. $1000 of the $1500 is used to cover invoice 1001.
$500 is put toward the 3rd payment for this customer.
In the above lapping scheme, if the customer decides to leave and pays their final invoice, total invoice billings for this
customer will not match total money received. That scenario will certainly throw a red flag. The fraudster will have to get m
creative to cover up the shortfall in funds. In that case, they may even use a payment from an entirely different customer
cover the deficit.
. Skimming Sales
As with many fraud schemes, lack of segregation of duties is often where things tend to break down. Skimming accounts
receivable sales receipts involves an employee receiving customer cash, recording the payment and then charging an
expense account. They pocket the money for the same amount of the expense charge.
Because the employee has financial access to such a broad range of financial duties, they can conceal their activities eas
Closer tracking of bank account withdrawals against expenses can help in detecting these types of schemes. Segregation
duties will go a long way to preventing such frauds as well.
. Old or Closed Accounts

Older or closed accounts are often not monitored as strictly as active accounts. These might includes accounts where
customers tend to pay slowly. When funds are received, an employee can simply pocket them due to the lack of monitori
these types of accounts.
. Collection Agencies
Without proper oversight, a collection agency can collect customer funds and remit a smaller amount to the company. Th
scheme can work well if the employee in the company is the only point of contact with the collection agency. In fact, the
employee would likely be receiving a kick back from the collection agency to ensure the fraud is not detected.
Since the collection agency is collecting what they can from customers, it can be difficult to know what amount was receiv
periodic audit with the collections agency and verification with their clients involved can determine the accuracy of collect
. Fictitious Sales
Accounts Receivable is not actual money in the bank. An employee can fabricate invoices, which will inflate accounts
receivable.
Sales people who work on a commission will benefit from an increase in accounts receivables, as it will show an increase
sales. To make this work, someone in control of accounts receivables will have to be in on the fraud.
Red flags for this type of fraud are invoices to fake customers or invoices that do not match the type of business a custom
might generate. At some point, these invoices might simply disappear as part of the fraud and go undetected. Internal con
that monitor this type of activity can help with detecting fictitious sales.
. Delays in Deposit
Delays in payment deposits can be a sign of potential fraud. If the controller decides to collect cash payments directly from
customers, this fact can be hidden by writing a receipt of payment and creating a corresponding deposit ticket. While the
account isn't increasing, the paper trail can be enough to cover up the fraud.
This type of fraud means the controller will have to allow for some payments to make it into the account. Otherwise, there
be a significant gap between what the bookkeeping states and what the bank account states.
VI. INTERNAL CONTROLS

. Segregation of shipping , receiving, accounting, billing and collecting functions.
. Credit department should be independent of shipping, billing and accounting.
. Delivery receipts, bills of lading, and sales invoices should be pre-numbered and the numerical sequence
accounted for,
. Sales invoices should be correlated with shipping orders, delivery receipts, or bill of lading.
. COD sales, deliveries on consignments should be safeguarded.
. Miscellaneous receivables should be recognized immediately.
. Employees advances should be authorized by appropriate official.
. Posting in accounts receivable subsidiary ledgers should come from authorized sources only.
. Mathematical accuracy of accounts receivable subsidiary ledgers should be checked and balances reconciled
with general ledger control account.
. Periodic aging of accounts receivable
. Monthly statements should be sent to customers.
. Notes receivables should be authorized and properly accounted for.
s
- 70 POINTS
Cabrera
NO
y collectible within twelve (12)

from the end of the reporting
period?
NO
Report as non-
current assets
Other Receivables
1) Advances to Affiliates
2) Advances to Subsidiaries
3) Claims for tax refunds
4) Deposits to guarantee performance or

payment or to cover possible damages or losses
ent of financial position date or
ment of financial position date or

ccounting principles.
e consistently applied.
accounted for.
d the occurrence of revenue
jasa-Sangcal
h general ledger accounts (clerical
f receivables into appropriate

arty receivables.
a. Elenita Balatbat Cabrera
es in the amounts indicated in the

he statement of financial position.
and accrued has been correctly

eneral ledger.
lies from customers.

ment satisfactory explanation, and
the client's request:
e statement of financial position date.
at the end of the current period.

notes owed to cusch parties:
atement of financial position date.

jasa-Sangcal
ropriety of discounts granted to sales
AR subsidiary ledger.
dger accounts for sales.
ate to determine the date and terms of
at the entries were made in the
ertain the validity and propriety of the
o customers and determining the
ose of discovering orders which have
so that evidence is gathered that
unts receivable.
and with comparable industry
out if sales figures were brought
unts and Origina Write-off

ected in the accounts and were
ance for doubtful accounts

tance behindm and treatment of, such
ness of expense and adequacy of the
vidence of collectibility at the
The list should show the
na and Escala
ss of the methodology used to calculate the allowance.

and Sarmiento
ns reached with respect to the

eceivables.
tion of the accounting estimation,

relationship elsewhere in the audit
and if significantly different, at the
receivable (interim or year end),

of total accounts and amount)
ment of financial position date.
ement of financial position date), bad
es and similar items, and summaries
nale for non confirming accounts.
jasa-Sangcal
epare the following working papers,
actual sales to forecasted sales.

dit Procedures
on sales, sales returns, allowance for

nd the aging of receivables.
eipts journal, and sales journal for
and send positive and negative
nt cash collections from the customer

nfirmations not returned, negative
nificant exceptions, and other account
eturned and for negative confirmations

ons, examine supporting
nd shipping documents.
ear-end to determine the effect on the
, and cash receipts at year-end by

s before and after year-end.
e sub-ledger to the general ledger and
cing details from the sales journal to
elated party sales and AR

nd the aging of accounts receivable.











ales invoices with that of the

erms.
er client personnel about related party




e sub-ledger to the general ledger and
er client personnel about related party





erms.



erms.














erms.
Elenita Balatbat Cabrera
hat customer to cover the theft. For

eived from the client for invoice 1000.
00 is used to cover invoice 1001. Then
e, total invoice billings for this
g. The fraudster will have to get more
m an entirely different customer to
break down. Skimming accounts

ayment and then charging an
ey can conceal their activities easily.

e types of schemes. Segregation of
ight includes accounts where

them due to the lack of monitoring of
aller amount to the company. This

e collection agency. In fact, the
raud is not detected.
to know what amount was received. A

etermine the accuracy of collections.
s, which will inflate accounts
ables, as it will show an increase in

on the fraud.
ch the type of business a customer

d and go undetected. Internal controls
ollect cash payments directly from

ponding deposit ticket. While the bank
nto the account. Otherwise, there will

ates.
merical sequence
d balances reconciled
CONFIRMATION OF ACCOUNTS RECEIVABLE
Nature
Confirmation of customers' accounts involves requesting customers to inform the auditors whether
the balances due them as appearing in the client's records are correct.
Questions Answer
A. Who will send or mail the Confirmation Auditor
Request?
B. Who will receive the customers' replies? Directly the auditor
• It is usually done as of the statement of financial position date.

• It is a generally accepted auditing procedure.
Objective
To determine the genuineness, validity, and accuracy of the receivables and related accounts, to
determine correct accounting, to to verify their fairness for financial statements presentation and to
uncover fraud.
Characteristics of an Effective or Satisfactory Confirmation Procedures

The characteristics include the following:
. The auditor has the freedom to select the customers' accounts to be confirmed.
• Factors considered in selecting accounts for confirmation:
(a) Materiality of the amount
(b) Nature of the account
(c) Adequacy of underlying evidences
(d) Extent of subsequent collections after the statement of financial position date
(e) Adequacy of the system of internal control
• The test should be more extensive when the receivables are material in relation to total
current assets or total assets.
(a) The bigger the number of material balances is the more extensive the test is.
(b) The smaller the number of accounts, each account becomes more significatnt
(c) Less test is applied on accounts with small balances
Routine credit sales versus unusual and questionable accounts

• Accounts receivable originating from routine sales transactions like sales calls for less
audit work than unusual and questionable accounts.
Desired percentage of reply

• The desired percentage of reply will determine the number of accounts to be circularized.
• Factors affecting the desired percentage of reply:
(a) Past confirmation experience
(b) Internal Control
(c) Supporting evidences
(d) Accounting procedures
If these factors are good and adequate, less extensive test is necessary.
Selection of form of confirmation request

• This can either be a positive or negative confirmation request.
. The mailing of confirmation requests is under the control and supervision of the auditor.
• Select the circularization date.
• The circularization at interim date facilitates the completion of the audit at an early date.
• Interim circularization is recommended only when the internal control system is good.
> It assumed that the conclusion on the audit in the interim period holds true to the year-end.
> If the internal control system is poor, the conclusion on the audit in the interim period may not hold true
to the year-end.
Usual procedures
• The confirmation requests are identified by numbers.
• Number of copies:
(a) Positive confirmation - three (3) copies and one (1) file copy
(b) Negative confirmation - one (1) original and one (1) file copy
• Duplicate copies of both positive and negative confirmation requests must be kept in the file.
• The original confirmation request is sent to the customers.
• When no reply is received on positive confirmation after a reasinable time, the second
request is sent, then the third copy if necessary.
• All confirmation requests must be signed by the client's officer.
• Upon completion of confirmation requests, compare the list with the WORKING PAPER
FOR COMFIRMATION (Straight Problem 8):
(a) Cross-checking confirmation numbers, names, address, date and amount.
• Placed in an envelope the verified confirmation request together with enclosed self-
addressed and stamped envelopes with names of the external auditor who will directly
receive the replies.
. Customers' replies or requests returned by the Post office must be received directly by the auditor.
• Upon receipt of customers' replies, the auditor examines the postmark to determine that
replies come from customers' places and that the time of reply is reasonable.
• Reply time too close to date of mailing the the confirmation request:
(a) Consider the distance to the addressee
(b) The letter may have been intercepted and confirmed by the client's staff instead of by the custome
• Summarizing confirmation results:
(a) To be done after a reasonable period of time
(b) The results may confirm balance, report difference, or returned by post office, or no reply.
(c) The results are posted in the Working Paper for Confirmation Results
. Exceptions or expressed customers' complaints must be verified by the auditor and

discussed with appropriate officer of the client.
• This is part of follow-up results of confirmation procedures.
• Refer to the client the following:
(a) customers with reporting differences
(b) those returned by post office
b.1 - verify correct addresses
b.2 - verify subsequent transactions with the customer
b.3 - apply additional audit procedures like detailed examination of related documents
(c) those without reply from customers
Types of Confirmation Request

The two types of confirmation requests are the positive type and the negative type. The differences
between the two are as follows:
Basis
Quality of internal Positive Confirmation Negative Confirmation
. accounting controls over
receivables Weak Strong
. Individual balances of Large Small
customers
. Customer's reaction to Ignored Not ignored
confirmation request
. Nature of accounts being In dispute or old Not in dispute
confirmed
. Nature of substantiating Not adequate Adequate
evidences
. Suspicion of irregularities Yes No
. Requirement to Whether they agreed or not When they do not agree with
customers to reply with the balance shown in the the balance shown in the
client's records. client's records.
. Assumption when The customer's account balance
customers do not reply is confirmed correct.
. Number of customers'
accounts to be confirmed Lesser in number Many in number
. Nature as audit evidence Better evidence than negative
confirmation
Better evidence than negative
confirmation
Positive Confirmation Request

AXIS LINK CORPORATION
4/F D. Maquita Building, N. Reyes Street, Sampaloc
Manila
Dear Sir:
We shall appreciate very much if you will confirm directly to our auditors, who are now examining
our accounting books, the balance of your account with us at P 30,000, as indicated below.
If the amount shown is correct, please sign your name on the space below. If it is not correct, please
list on the other side the details of the differences.
This letter should be returned to our auditor, Bonifacio, Rizal and Company, CPAs at 5/F Mataas na
Gusali, Ayala Avenue, Makati City. A postpaid envelope is enclosed for your convenience.
This is NOT a demand for payment, but simply a request for confirmation of the balance of your
account to assist our auditors in their examination of our books.
Thank you for your kind cooperation.
Yours very truly,

EARTHLINGS CORPORATION
The above is correct.

The above balance is incorrect as noted below:
Date Signature over Printed Name
Negative Confirmation Request

AXIS LINK CORPORATION
4/F D. Maquita Building, N. Reyes Street, Sampaloc
Manila
Dear Sir:
Our records show that your December 31, 202 account balance is P 20,000. In case this balance
disagrees with your records, please respond to our auditors:
BONIFACIO, RIZAL AND COMPANY, CPAs

5/F Mataas na Gusali, Ayala Avenue, Makati City
who are presently auditing our financial statements, Please use the enclosed postage prepaid
envelope for mailing.
THIS IS NOT A REQUEST FOR PAYMENT.
Yours very truly,

EARTHLINGS CORPORATION
Timing of the Confirmation Procedures

When the auditor has not performed the confirmation procedures, the auditor must bear in mind that
he has the burden of justifying the expression of his opinion on financial statements.
When the confirmation procedures are not performed, the auditor must satisfy himself on the
accuracy of receivables by performing alternative procedures as follows:
. Examining subsequent collections and ascertaining if such collections pertains to the
unconfirmed receivables.
. Examining the supporting documents, like customers' orders, delivery receipts or bills of lading,
customers' correspondences, etc.
If the auditors are satisfied on the accuracy of the receivables through alternative procedures, there
is no need to mention in his unqualified auditor's report that he omitted the confirmation of
receivables and the performance of the alternative procedures.
On the contrary, if the auditors are not satisfied on the accuracy of the receivables through
alternative procedures, he may qualify or disclaim opinion on the fairness of the financial
statements depending on the materiality of the amounts involved.
EXISTENCE
COMPLETENESS
ACCURACY
RIGHTS
VALIDITY
the year-end.
m period may not hold true
ept in the file.
y by the auditor.
ead of by the customer.
e, or no reply.
Internal Costrol Questionnaires
ACCOUNTS RECEIVABLE AND SALES TRANSACTIONS
AN
No. QUESTIONS YES
. Are the following functions performed by employees other than the accounts
receivable bookkepers:
A. Handling cash and maintaining cash records?
B. Opening incoming mail?
C. Credit and collection?
D. Review and mailing of statements to customers?
E.
Approval of adjustment credits, and write-up of uncollectible accounts?
. Are the accounts receivable ledgers unavailable to the cashier?
. Are the subsidiary ledgers regularly balanced with the control accounts?
. Are the subsidiary ledgers occasionally balanced with the control accounts
by someone other than the accounts receivable bookkepers?
. Are aged trial balances of accounts receivable regularly prepared and
submitted for executive approval?
. Are statements sent at regular intervals to all customers?
. Are sales invoices serially numbered, and all such numbers accounted for by
accounts receivable bookkeepers?
. Are entries in control accounts based on totals compiled in other
departments?
. Is executive approval required to pay accounts receivable credit balances?
. Are write-offs of uncollectible accounts authorized in writing by appropriate
officials?
. Are accounts receivable, after being written off as uncollectible, carried in a
separate ledger, and collection efforts thereone regularly reviewed by an
executive?
. Are credit memoranda pre-numbered and all numbers accounted for?
. Do credit memoranda include the approval signature of an appropriate
official?
. Do credit memoranda for returned goods carry the number of related
receiving report?
. Are accounts receivable bookkepers rotated from one ledger to another at
reasonable intervals?
. Do internal auditors or other staff personnel periodically confirm receivables
by direct communication with debtors?
. Are receivables from officers and employees carried in a separate ledger and
control account?
. Are goods shipped on consignment recorded in a special inventory account
rather than as accounts receivable?
Reviewed by Prepared by
Date Date
ANSWERS
NO NA REMARKS
Prepared by
ACCOUNTS RECEIVABLE REPRESENTATION LETTER
March 31, 2021
Bonifacio, Rizal and Company, CPAs

5/F Mataas na Gusali, Ayala Avenue
Makati City
Dear Sir:
With respect to you examination of our financial statements, we hereby make the following representations concern
accounts and notes receivable shown in the statement of financial position at December 31, 2020 in the aggregate
P xxx,xxx.
. Trade accounts and trade notes receivable represent valid claims againts customers of the company.
. Non-trade receivables from officers, directors, sharehodlers, and controlled companies are correctly and p
forth in the statement of financial position.
. Consignments are excluded from the receivables.
. The accounts receivable balance contains no charges for merchandise shipped after the statement of fina
position date.
. All assigned receivables are proper;y inidcated in the records.
. All notes receivable discounted are properly indicated in the statement of financial position.
.
The balance of the accountsand notes receivable is not subject to discounts in excess of customary cash
. All known uncollectible notes and accounts receivable have been charged off at the statement of financial
date.
. The allowance for doubtful accounts of P xxx,xxx in our opinion, is adequate to provide for all losses in the
receivables at the statement of financial position date which may result from uncollectibility of the receivab
Yours truly,
EARTHLINGS COMPANY
President
ON LETTER
following representations concerning

cember 31, 2020 in the aggregate amount of
ts customers of the company.

lled companies are correctly and properly set
shipped after the statement of financial
of financial position.
unts in excess of customary cash discount.

ed off at the statement of financial position
quate to provide for all losses in the

from uncollectibility of the receivables.
THLINGS COMPANY
SOURCE
THE WORKING PAPERS PRESENTED HERE CAME FROM

"MANUAL ON AUDIT WORKING PAPERS" by Gloria
Mangoba and Ofelia Urrutia
As far as I know there are few copies of this textbook in

Conanan Bookstore.
Balance per books, 11.30.2020
Add: Sales on account during December 2020
Total
Less: Collections in December 2020

Sales returns and allowances
Balance per books, 12.31.2020
AJE No. 3: To reclassifiy customers' credit balances

for statement purposes
As adjusted, 12.31.2020
∏ Reviewed transactions from 11.30.2020 (con
√ Checked total against sales books; test check

representing sales actually arose from
Ð Checked total against cash receipts books; te
Փ Test-checked credit memos issued during the
₼ Footings/computations verified.
PREPARED BY
Initial GA Date 2.16.2021
LEAD SCHEDULE OR LEAD SHEET
Millenium Link Manufacturing, Inc.

Workingpaper for Accounts Receivable
12.31.2020
1,213,000 ∏
ing December 2020 988,800 √
2,201,800 ₼
897,050 Ð
4,750 Փ 901,800 ₼
1,300,000 ∏
ssifiy customers' credit balances

ement purposes 10,000
1,310,000 ₼
To WBS
nsactions from 11.30.2020 (confirmation date) to 12.31.2020 and found no unuaual transactions or variations.
against sales books; test checked underlying sales invoices during December 2020 and found that the charges
nting sales actually arose from sales.
against cash receipts books; test-checked official receipts issued during December 2020 and found them in order.
credit memos issued during the month and found them in order.
putations verified.
B
REVIEWED BY
Initial JD Date 2.18.2021
AG
Conf. Balance 12/31/2020

No. Customers Debit Credit
Brought forward 898,500 5,000

AR - 4 Golden Gate Enterprise 53,000 ∏
AR - 5 Guacods Trading 45,000 ∏
Guanzon Merchandising 30,000 ∏
Hilario-Aguilar Trading 36,000 ∏
AR - 6 Long Beach Emporium, Inc. 20,000 ∏
Mabuhay Enterprises, Inc, (deposits) 2,400
Metropolitan Enterprises 47,000 ∏
Santiago Austria Sales, Inc. 21,200 ∏
Sison Bros. Co., Inc. (deposits) 2,600
Tamesis Commercial Co. 33,000 ∏
Tamesis Bros. and Co. Trading 42,000 ∏
Washington Trading 34,000 ∏
Young's Dry Goods Store 16,200 ∏
F.E. Zapanta, Inc. 34,100 ∏
1,310,000 ₼ 10,000
Customer's credit balances -10,000 AJE 3
Balance per books, 12.31.2020 1,300,000 ∏
To B
√ Aging distribution checked

Ð Official Receipts inspected.
Reviewed and compared balances at 12.31.2020 with 11.30.2020 balances (confirmation date).
In addition to confirmation at 11.30.2020, six new large accounts were confirmed (see "Conf. No." colum
replies are in separate file.
₼ Footings/computations verified
∏ Checked agains general or subsidiary ledger
P.C., 1.15.2021
PR, 2.16.2021
dwc, 2.18.2021
AGING SCHEDULE OF ACCOUNTS RECEIVABLE

Workingpaper for Accounts Receivable
12.31.2020
/2020 Month Billed Subs. Coll.

Credit December November October Sept./Earlier Up to 2.16.21
540,200 189,300 120,000 49,000 548,600

53,000 √ 19,000 Ð
45,000 √ 10,000 Ð
30,000 √
15,000 √ 5,000 √ 10,000 √ 6,000 √ 26,000 Ð
20,000 √ 10,000 Ð
19,000 √ 15,000 √ 10,000 √ 3,000 √ 23,000 Ð

10,000 11,200 √ 21,200 Ð
5,000 √ 5,000 √ 13,000 √ 10,000 √ 23,000 Ð

20,000 √ 12,000 √ 10,000 √ 20,000 Ð
19,000 √ 15,000 √ 15,000 Ð
16,200 16,200 Ð
₼ 762,400 ₼ 252,500 ₼ 193,000 ₼ 68,000 ₼
732,000 ₼
Based on the sample accountes selected for confirmation and on the accounts selected for v
audit program, the company's accounts receivable are, in our opinion, fairly stated and repre
onfirmation date). debtors indicated. We have not come across any lien or contingent liability arising from dis
med (see "Conf. No." column); receivable.
Company:
Millenium Link Manufacturing, In
Name of Account:
Accounts Receivable - Debit Balan
Dates confirmation sent out:
First request - 12.15.2020
Remarks
P 29,000 old accounts, doubtful (To B4) Confirming balances

Reporting differences (see repl
Portion confirmed
mo loss anticipated as current profits are good. Portion excepted to
Returned by Post-Office
No replies
TOTAL CONFIRMATIONS SEN
TOTAL OF ACCOUNT
PERCENT OF CONFIRMATIO
Have all reported material diffe
Note below details of difference
Bankrupt, collection of full amount os doubtful (To B4)
Represents 56% of outstanding accounts receivable at 12.31.2020
mation and on the accounts selected for verification as outlined in the

are, in our opinion, fairly stated and represent valid claims against the
ien or contingent liability arising from discount on sale of accounts
Fidel Alano, 2.16.2021

DWC, 2.18.2021 PREPARED BY:
Initial:
FC
B1
SUMMARY OF POSITIVE CONFIRMATION RESULTS
SUMMARY RESULTS OF POSITIVE SFP Date:
enium Link Manufacturing, Inc. CONFIRMATION 12.31.2020
me of Account: Account Balance as at:
ounts Receivable - Debit Balance 11.30.2020
es confirmation sent out:
First request - 12.15.2020 Second request - 1.15.2021
No. of Percent of Total
Accounts Amount This Year
nfirming balances 26 152,200 64
porting differences (see reply below) 1
Portion confirmed 39,300 3
Portion excepted to B5 15,200 1
urned by Post-Office 6 164,500 14
7 204,100 18
TAL CONFIRMATIONS SENT 40 1,175,300 100%
TAL OF ACCOUNT 44 B3 1,224,400
RCENT OF CONFIRMATIONS SENT TO TOTAL OF ACCOUNT 96%
ve all reported material differences been adjusted or satisfactorily cleared? Yes (see B5)
e below details of difference not adjusted or satisfactorily cleared: Not Applicable
THE FOLLOWING BALANCE DUE FROM ME (US) IS CORRECT:

Due To: As of: Amount:
Millenium Link Manufacturing, Inc. November 30, 2020 P 54,500.00
F. Espino
Signature: F. ESPINO CONF. NO. 37
Position : ACCOUNTANT
Balance should be P 39,300 only

TAMESIS COMMERCIAL CO.
Karuhatan, Valenzuela City
PREPARED BY: REVIEWED BY:

Date: Initial: Date:
2.10.2021 DMC 2.12.2021
LEAD SCHEDULE OR L
MILLENIUM LINK MANUFA

ccount Balance as at: Accounts Receiv
November 30, 2
Conf. No. Customer

Percent of Total
Last Year Brought forward
60 30 Golden Gate Enterprises
31 + Guanzon Merchandising
5 32 Henares Trading
2 33 Hilario and Sons Trading
13 Izon Merchandising Co.
20 34 + Liwag General Merchandising
100% 35 Metropolitan Enterprises
36 + Santiago Austria Sales, Inc.
95% 37 Tamesis Commercial Co.
38 + Tamesis Bros. and Co. Trading
39 Washington Trading
40 + F.E. Zapanta, Inc.
Total Accounts Receivable, 11/30/2020
Credit balances
Gross debits
+ Confirmation results mailed on 12.15.2020

* Credit balances were not confirmed at the request of the client. Our examination d
orders to be offset when shipments are made and that they arose in the ordinary c
₼ Footings/computations verified
Work done on accounts wehere no replies were received or where requests were returned
. Examined original invoices and customers' acknowledgements of the merchandis
. Compared invoices with customers' purchase orders and with shipping records, an
goods ordered were those shipped and billed to customers
. Traced subsequent collections on the accounts and examined official receipts sup
payments were applied to proper account balances.
Confirmation replies are in a separate file.
PC, 12.11.2020
FT, 2.1.2021
DMC, 2.12.2021
LEAD SCHEDULE OR LEAD SHEET
MILLENIUM LINK MANUFACTURING, INC.

Accounts Receivable
November 30, 2020
Address Amount Results
850,300
102 Calamba, Laguna 36,000 ∏
61 San Fernando, Pampanga 30,000 ∏
210 A. Mabini St., Manila 19,600 ∏
501 Juan Luna, Manila 36,500 ∏
118 Dasmarinas, Manila -3,400 ∏
120 San Marcelino, Manila 16,500 ∏
712 Melecio St., Cabanatuan City 61,000 ∏
Mandaluyong City 11,200 ∏
Karuhatan, Valenzuela City 54,500 ∏
890 Ylaya St., Manila 26,100 ∏
410 Rizal Avenue, Manila 40,600 ∏
EDSA, Quezon City 34,100 ∏
1,213,000
₼
11,400 *
1,224,400 ₼
To B2
uest of the client. Our examination disclosed that these credits represent deposits on unfilled
and that they arose in the ordinary course of business.
ved or where requests were returned by Post Office:

cknowledgements of the merchandise shipments composing the balance of the account.
orders and with shipping records, and verified that the correct items and amount of
s and examined official receipts suporting remittances. Verified that customers'
B3
ALLOWANCE FOR DOUBTFUL ACCOUNTS

Workingpaper for Allowance for Doubtful Accounts
12.31.2020
Balance per working papers, 12.31.2020

802, 12.31.2020 - To increase allowance for doubtful accounts
to approximately 5% of outstanding receivables at 12.31.72 To PL8
Per books, 12.31.2020
Received individual customers' accounts as at 12.31.2020 with the Credit and Collection Manager
on 2.16.2021, giving particular attention to accounts which have been overdue for 90 days or more.
Also received subsequent collections and aging distribution of outstanding balance. At 12.31.2020,
accounts which are overdue for 90 days or more amounted to P 102,100 - (See B1). Collections received
on these accounts up to 2.15.2020 amounted to P 35,138. Possible bad debt losses were determined from
those accounts from which no subsequent collections were received, as follows:
Old accounts, doubtful of collection B1 29,000
Bankrupt, collection of full amount - doubtful B1 34,100
Total 63,100
Based on the foregoing review and on client's experience in collecting its receivables, in my opinion,
the amount of P 65,000 which is 5% of outstanding receivable at 12.31.2020 is adequate to meet
possible losses arising from bad debts.
David M Marino, 2.17.2021

SUPPORTING WORKING PAPER - CONFIRMATION OF AR

Pasig City
December 17, 2020
Tamesis Commercial Co.

49,000 Karuhatan, Valenzuela City
16,000 Gentlemen:
65,000 ∏
To WBS This is in connection with the confirmation request sent to you by our audito
Jose, Villacorta and Company, wherein you reported difference in your balance
outstanding of P 54,000 as at November 30, 2020.
Collection Manager In checking our posting to customers' subsidiary ledgers, we noted that Invo
days or more. No. 3201 dated October 30, 2020 for P 15,200 was erroneously charged to your acc
At 12.31.2020, We wish to inform you that necessary corrections have already been made in our r
ollections received to reduce your balance to P 39,300 as at November 30, 2020.
re determined from
Please accept our apologies for this oversight.
Very truly yours,
Millenium Link Manuf

vables, in my opinion,
Arturo Reyes
ARTURO REYES
Chief Accountant
20
7.20
.1
n 12
uso
B4 m ai l
ed
1
b y
l
gi na .202
i 6
Or 2.1
F C
DMC, 2.20.2021
CONFIRMATION OF AR ACCOUNTS RECEIVABLE CERTIF
turing, Inc. Millenium Link Manufacturing, I

Pasig City
ACCOUNTS RECEIVABLE CERTIFIC
December 17, 2020
Jose, Villacorta and Company,

PO Box 14344
Makati City
Gentlemen:
st sent to you by our auditors,
fference in your balance In connection with your examination of our account as at
hereby make the following statements concerning the accounts r
amounting to P 1,310,000.
edgers, we noted that Invoice
neously charged to your account. . All accounts receivable recorded on the books at th
already been made in our records represented valid claims against customers.
. None of our company's accounts receivable was ple
hypothecated.
. All sales to and including the above date have been
as sales of the year then ended and the memrchand
Very truly yours, excluded from the inventories of that date. The acc
the booksdo not include charges with respect to ma
Millenium Link Manufacturing, Inc. shipped subsequent to the statement of financial p
. The amount of P 65,000 provided as an allowance f
Arturo Reyes is adequate to provide for any loss that may be sust
ARTURO REYES accounts receivable from customers as at the above
Chief Accountant
B5
DMC, 2.22.2021
TS RECEIVABLE CERTIFICATE
um Link Manufacturing, Inc.

Pasig City
NTS RECEIVABLE CERTIFICATE
February 22, 2021
mination of our account as at December 31, 2020, we

nts concerning the accounts receivable as at that date
e recorded on the books at the abovementioned date

ms against customers.
's accounts receivable was pledged or otherwise
ng the above date have been recorded on the books

en ended and the memrchandise sold has been
entories of that date. The accounts receivable shown in
de charges with respect to materials or merchandise
o the statement of financial position date.
00 provided as an allowance for possible doubtful accounts
e for any loss that may be sustained in collecting the
om customers as at the above date.
Very truly yours,
(to be signed by company officer who has

responsibility over accounts receivable)
B6
RAYMAR CORPORATION
Working Paper for Accounts Receivable Confir
December 31, 2020
Per Audit
Subsidiary Adjustment Adjusted CONFIRMAT
Ledger 12.31.2020 Balance Confirming
12.31.2020 DR. (CR.) 12.31.2020 Balance
Juan dela Cruz 9,000.00 T 9,000.00 9,000.00 Ð

Castaneda Electrical Company 29,605.15 T 29,605.15 29,605.15 Ð
Livingston Manufacturing Company 13,200.00 T 13,200.00 Ð
Manalo Florendo -5,000.00 T 5,000.00 -
Sta. Ana Trading Company 8,625.30 T 8,625.30
Gregorio Lapuz 3,050.00 T -3,050.00 -
Evangelista Machines, Inc. 34,022.19 T 34,022.19 34,022.19 Ð
Santos and Sons Bed Shops, Inc. 12,023.96 T 12,023.96 12,023.96 Ð
Joselito Consengco 995.00 T 995.00

Fernando Dimasalang 2,100.00 T 2,100.00
Grande Real Taal Company 22,129.26 T 22,129.26 22,129.26 Ð
Manuel dela Pena 11,120.00 T 11,120.00 11,120.00 Ð
Asuncion Ltd Company 21,401.11 T 21,401.11

Ricardo Limjaco 3,332.00 T 3,332.00
Vicente Gatmaitan (employee) 2,000.00 T -2,000.00 -
Mamnila Trading 16,702.36 T 16,702.36
184,306.33 -50.00 184,256.33 117,900.56

u u u u
100% 64%
u Footings checked
T Traced to and from accounts receivable ledger
Ð Posting from replies of customers and returns by post offices
∏ Reconciled with general ledger balance
√ Examined collections after December 31, 2020
YMAR CORPORATION
or Accounts Receivable Confirmation
December 31, 2020
SUBSEQUENT COLLECTION
CONFIRMATION RESULTS TO MARCH 30, 2021
Reporting Returned by OR
Difference Post Office No Reply Number Date Amount
1458 Jan. 16 29,200.00

13,200.00 Ð 2451 Jan. 18 8,215.90
8,625.30 Ð 3001 Feb. 6 4,625.30
3350 Jan. 10 34,022.19

4025 Feb. 15 2,992.19
4315 Mar. 2 5,033.41
995.00 4260 Mar. 3 381.30
2,100.00 Ð 1113 Feb. 2 2,100.00
2034 Jan. 12 20,000.00
2221 Mar. 15 9,435.20
2560 Mar. 26 1,684.80
21,401.11 4000 Feb. 10 12,222.00
3,332.00 1235 Jan. 11 3,332.00
16,702.36 Ð 4421 Mar. 12 10,301.26

4530 Mar. 22 3,345.96
38,527.66 2,100.00 25,728.11 146,891.51
u u u u
21% 1% 14% 80%

RAYMAR CORPORATIO
Analysis of Notes Receiva
December 31, 2020
Interest
Maker Date of Note Term Maturity Date Rate
Abner, Arnel March 1, 2020 18 months September 1, 2021 14.40%

Aladin, Roel April 30, 2020 12 months April 30, 2021 18.00%
Bautista, Leah May 31, 2020 18 months November 30, 2021 18.00%
Bernas, Nieves August 1, 2020 24 months August 1, 2022 18.00%
Carlos, Henry July 1, 2020 36 months July 1, 2023 18.00%
Donato and Company October 1, 2020 4 months February 1, 2021 15.00%
Gibson, Ronald October 15, 2020 Demand Demand 18.00%
Jayco, Jeanine November 1, 2020 12 months November 1, 2021 15.00%
Madison, Inc. December 15, 2020 90 days March 14, 2021 18.00%
AJE 11
AJE 12
*Computed on 360 days a year
u Footings checked
C Computed
INS Inspected promissory notes
D Discussed with cluent bad debts provisions and write-off
RAYMAR CORPORATION
Analysis of Notes Receivable
December 31, 2020
Face of Interest Interest Unearned Allowance

Note Income Receivable Interest for BD
10,500 INS 1,260 C 1,260 C

11,000 INS 1,320 C 1,320 C 5,500 D
22,000 INS 2,310 C 3,630 C
3,000 INS 225 C 855 C
5,000 INS 450 C 450 C
10,000 INS 375 C 375 C
24,500 INS 919 C 919 C
8,000 INS 200 C 200 C 4,000 D
26,000 INS 208 C 208 C
120,000
-5,000
-11,000
104,000 7,267 4,732 4,485 9,500
u u u u u
AJE 13 AJE 14 AJE 15
Remarks
doubtful of collecion
interest paid in advance
interest paid in advance
maker bankrupt
doubtful of collection
STRAIGHT PROBLEMS
Accounts Receivable
Debit Credit
Beginning balance xxx xxx Collections
Credit Sales xxx xxx Sales Discounts
xxx Returns and Allowances
xxx Write-offs
Total balances xxx xxx Total balances
Account balance xxx
Allowance for DA
Debit Credit
Write-off xxx xxx Beginning balance
xxx Provision
xxx Recovery
xxx Account balance
Problem 1
Computation of Accounts Receivable Balance from Related Transactions
During your audit of Honey Bee Corporation for the calendar year ended December 31, 2021, you gathered the following
transactions relating to its Accounts Receivable:
A. Credit sales, P 38,400,000.

B. Cash received from collection of current receivable totaled P 31,360,000, net of sales discount of P 640,000 which were
allowed for prompt payment.
C. Customers’ worthless accounts and were written off, P 160,000.
D. Recovery of accounts previously written off in 2019, P 40,000.
E. The current year provision for doubtful accounts at year was P 184,000.
F. Accounts receivable of P 5,600,000 have been pledged to a local bank on a loan of P 3,200,000. Collections of P
1,200,000 were made on these receivables (not included in the collections previously given) and applied as partial
payment to the loan.
The net realizable value of Accounts Receivable at December 31, 2020 was P 3,528,000 while the related Allowance for Doubtf
Accounts balance was P 72,000.
Required:
. What is the accounts receivable balance as of December 31, 2021?
. What is the allowance for doubtful accounts balance as of December 31, 2021?
. What is the net realizable value of accounts receivable as of December 31, 2021?
. If receivables are hypothecated against borrowings, the amount of receivables involved should be
A. Disclosed in the statements or notes
B. Excluded from the total receivables, with disclosure
C. Excluded from the total receivables, with no disclosure
D. Excluded from the total receivables and a gain or loss is recognized between the face value and the amount of
borrowings
SOLUTION:
Beginning balance, January 1, 2021(came from December 31, 2020)

(NRV of P 3,528,000 + ADA of P 72,000)
Total balances
Account balances at December 31, 2021
Net Realizable Value of AR at December 31, 2021
ALTERNATIVE SOLUTION PER NUMBER
. Computation of accounts receivable balance as of December 31, 2021
Accounts Receivable, December 31, 2020

Add: Sales on accounts
Bad debts recoveries
Total
Less: Current receivables collected, before cash discounts
(P 31,360,000 + P 640,000)
Accounts written off
Collections made on AR pledged as collateral
USING THE T-ACCOUNT APPROACH

Sales on accounts
Current receivables collected, before cash discounts
(P 31,360,000 + P 640,000)
Total balances
. Computation of allowance for doubtful accounts balance as of December 31, 2021
Allowance for doubtful accounts, 12/31/2020

Add: Bad debt recoveries
Provision for doubtful accounts
Total
Less: Accounts written off

Bad debt recoveries
Total balances
Accounts receivable, 12/31/2021 (See Number 1)

Less: Allowance for doubtful accounts, 12/31/2021 (See Number 2)
Net realizable value, 12/31/2021
borrowings
Explanation:
Receivables hypothecated or pledged against borrowings should be disclosed.
LEMS
Related management assertions:

COMPLETENESS
EXISTENCE
ACCURACY
PRESENTATION AND DISCLOSURE
2021, you gathered the following
ales discount of P 640,000 which were
of P 3,200,000. Collections of P
usly given) and applied as partial
00 while the related Allowance for Doubtful
volved should be
en the face value and the amount of
Accounts Receivable Allowance for D/A

Debit Credit Debit Credit
3,600,000 72,000
38,400,000
ales discount of P 640,000 which were 32,000,000
160,000 160,000
40,000 40,000 40,000
184,000
of P 3,200,000. Collections of P
usly given) and applied as partial 1,200,000
42,040,000 33,400,000 160,000 296,000
8,640,000 136,000
NO. 1 No. 2
8,504,000
3,600,000
38,400,000
40,000 38,440,000
42,040,000
32,000,000
160,000
40,000
1,200,000 33,400,000
8,640,000
Accounts Receivable
Debit Credit
3,600,000
38,400,000
40,000
32,000,000
160,000
40,000
1,200,000
42,040,000 33,400,000
8,640,000
72,000
40,000
184,000 224,000
296,000
160,000
136,000
Allowance for DA
Debit Credit
72,000
40,000
184,000
160,000
160,000 296,000
136,000
8,640,000
136,000
8,504,000
volved should be
en the face value and the amount of

Accounts Receivable
Debit Credit
Beginning ba xxx xxx Collections
xxx Write-offs
Total balanc xxx xxx Total balances
Account bala xxx
Allowance for DA
Debit Credit
xxx Provision
xxx Recovery
xxx Account balance

Sales Discounts
Returns and Allowances
Total balances
Beginning balance
Total balances
Account balance
STRAIGHT PROBLEMS
Problem 2
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
Allowance for DA
Debit Credit
xxx Provision
xxx Recovery
xxx Account balance
Accounts Receivable and Related Accounts

Presented below are unrelated transactions. Answer the questions relating to each situation
Case 1: John John:

Aloha Corporation presented to you the following information during its first year of operations: Since this is the first
will be no inventory,
Purchases of merchandise during the year:
Cash basis 600,000
On credit basis 300,000
Unsold inventory at year-end:
FIFO method 246,000
LIFO method 230,000
Collection from customers 300,000
All goods are sold at 30% above cost.
Required:
Determine the accounts receivable balance at the end of the company's first year of operations.
SOLUTION:
Cash basis 600,000
On credit basis 300,000 900,000
Less: Unsold inventory at year-end:
FIFO method 246,000
Cost of goods sold at year-end 654,000
Multiply by sales rate based on cost (100% cost + 30% gross profit) 130%
Total sales during the year (Debit - AR; Credit - Sales) 850,200
Less: Collection from customers during the year 300,000
Accounts Receivable balance at year-end 550,200
Case 2:
Sayonara Company is engaged in selling variety of imported goods. At December 31, 2020, it reported the following in its
statement of financial position:
Accounts Receivable 659,250

Less: Allowance for Doubtful Accounts 40,050 These are the Januar
Accounts Receivable, net 619,200
During the year, the entity earned sales revenue of P 161,310,750 and collected cash of P 158,421,150 from various customers.
It is estimated that doubtful accounts for the year was 1% of sales revenue. During the year, the entity wrote off uncollectible
accounts receivable totalling P 1,631,850.
John John:
Required:
AR xxx
Compute the net realizable value of accounts receivable at December 31, 2021 ADA (xxx)
NRV xxx
SOLUTION:
AR ADA
January 1, 2021 balances 659,250 40,050
Transactions during 2021:
Revenue from sales 161,310,750
Collection fo accounts -158,421,150
Provision for Doubtful accounts expense
(P 161,310,750 x 1% of sales) 1,613,108
Accounts written off -1,631,850 -1,631,850
December 31, 2021 balances 1,917,000 21,308
Case 3:
Presented below are the amounts on the 2020 and 2021 financial statements of Acacia Corporation:
Current Year Last year
2021 2020
Accounts Receivable ? 1,410,000
Allowance for Doubtful Accounts 60,000 30,000
Net Sales 7,800,000 7,200,000
Cost of Sales 5,700,000 5,256,000
Acacia Corporation's acccounts receivable turnover for 2021 is 6.5 times.
Required:
Compute the accounts receivable balance at December 31, 2021.
SOLUTION: John John:

AR turnover = Net Sales / Average Accounts Receivable Average AR is at gross and
AR turnover = Net Sales / [AR, beginning + AR, ending) /2 ] not at net.
6.5 = P 7,800,000 / [(P 1,410,000 + X) / 2]
6.5 [(P 1,410,000 + X) / 2] = P 7,800,000
(P 9,165,000 + 6.5X) / 2 = P 7,800,000
(P 9,165,000 + 6.5X) = P 7,800,000 X 2 (this is cross multiplication)
(P 9,165,000 + 6.5X) = P 15,600,000
6.5X = P 15,600,000 - P 9,165,000
6.5X = P 6,435,000
X = P 6,435,000 / 6.5
X = P 990,000
OR
Net Sales at 12/31/2021 (CY)

AR Turnover =
Average Accounts Receivable
John John:
(AR last year + AR current year)
2
7,800,000
6.5 =
(P 1,410,000 + X ) / 2
6.5 (P 1,410,000 + X)
= 7,800,000
2
9,165,000 + 6.5x
= 7,800,000
2
9,165,000 + 6.5X = 7,800,000 x 2
9,165,000 + 6.5X = 15,600,000
6.5X = 15,600,000 - 9,165,000
6.5X = 6,435,000
X = 6,435,000 / 6.5
X = 990,000 (AR at December 31, 2021)
Case 4:
The policy of Batobalani , Inc. is to debit bad debts expense for 3% of all new sales. The following are the company's sales and
allowance for doubtful accounts for the past four years:
Year Sales ADA, year-end

2018 6,000,000 90,000 beginning balance of 1/1/201
2021 4,840,000 150,000
Required:
Compute the amount of the accounts written off in 2019, 2020, and 2021?
SOLUTION:
YEAR
2019 2020
Allowance for Doubtful accounts, January 1 90,000 112,000
Add: Provision during the year
Year 2019 - P 5,900,000 sales x 3% 177,000
Year 2020 - P 6,240,000 sales x 3% 187,200
Year 2021 - P 4,840,000 sales x 3%
Total 267,000 299,200
Less: Allowance for Doubtful accounts, December 31 (GIVEN) 112,000 120,000
Accounts written-off during the year 155,000 179,200
Allowance for DA
Debit Credit
xxx Provision
xxx Recovery
John John: xxx Account balance

This is the requirement of
CASE 4.
COMPLETENESS
EXISTENCE
ACCURACY
John John:
Since this is the first year of operations, there
will be no inventory, beginning.
Follow the format of cost of sales:

Inventory, beginning xxx
Add: Purchases xxx Both cash and credit purchases
Cost of goods available for sale xxx
Inventory, ending xxx
Cost of sales xxx Compute this at selling price to determine total sales.
If problem is silent, all sales are on credit sales.
If you have sales already, deduct the collection during the year,
AR total then, you can compute now the AR, ending balance
AR balance
d the following in its
These are the January 1, 2021 (beginning balances)
0 from various customers.

wrote off uncollectible These are the transactions during the year 2021
n:
xxx
(xxx)
xxx
NRV Sales
619,200
161,310,750
1,895,693
e the company's sales and
eginning balance of 1/1/2019

YEAR
2021
120,000
145,200
265,200 higher in amount (unadjusted credit balance of ADA)
150,000 lower in amount (adjusted credit balance of ADA)
115,200 Excess credit balance - write off during the year
cash and credit purchases
pute this at selling price to determine total sales.
blem is silent, all sales are on credit sales.
have sales already, deduct the collection during the year,
hen, you can compute now the AR, ending balance
STRAIGHT PROBLEMS
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx focusing on composition of AR balance (details)
Problem 3
Reclassifying Journal Entry for Receivables
An examination of the accounting records for the Luxurious Corporation indicates that all receivables are being recorded in a
single account entitles “Receivable”. An analysis of the account at December 31, 2021 reveals the following:
Accounts receivable (trade) 155,000

Accounts receivable (officers) 36,000
Ordinary Shares Subscription Receivable (current) 120,000
Advances to Employees 18,000
Notes Receivable (trade), due in 3 years 60,000
Deposit to guarantee contract performance 50,000
Utility deposit 5,000
Total 444,000
Required:
1. Prepare a compound journal entry to separate the preceding items into their proper accounts.
. How would each of the preceding items normally be reflected in Luxurious’ statement of financial position as at December
31, 2021?
SOLUTION:
1. Compound journal entry to separate the preceding items into their proper accounts.
Date Account Names Debit

2021
Dec. 31 Trade Accounts Receivable 155,000
Advances to Officers 36,000
Subscription Receivable - Ordinary Shares 120,000
Trade Notes Receivable 60,000
Guarantee Deposit on Contract 50,000
Utility Deposit 5,000
Receivables
. Presentation in the Statement of Financial Position as at December 31, 2021.
Current Assets:
John John:
AS ONE LINE ITEM P
OTHER RECEIVABLE
ASSET
Trade and Other Receivables Note 1 329,000 John John:
AS ONE LINE ITEM P
Non-current Assets: OTHER RECEIVABLE
ASSET
Trade Notes Receivable (due in 3 years) 60,000
Note 1 - Trade and Other Receivables:

Trade Accounts Receivable 155,000 Trade Receivable
Advances to Officers 36,000 Other Receivables
Advances to Employees 18,000 Other Receivables
Subscription Receivable - Ordinary Shares 120,000 Other Receivables
Total 329,000
COMPLETENESS
EXISTENCE
ACCURACY
are being recorded in a

llowing: RECEIVABLE
Debit Credit
155,000
36,000
120,000
18,000
60,000
50,000
5,000
444,000
l position as at December
Credit RECEIVABLE Trade Accounts Rec. Trade Notes Rec.

Debit Credit Debit Credit Debit Credit
155,000 155,000 155,000 60,000
36,000 36,000
120,000 120,000
18,000 18,000
60,000 60,000
50,000 50,000 Advances to Officers Guarantee Dep. On C.
5,000 5,000 Debit Credit Debit Credit
444,000 444,000 444,000 36,000 50,000
Subs. Rec. - Ord. Sh Utility Deposit

John John:
AS ONE LINE ITEM PER PAS 1 - TRADE AND
OTHER RECEIVABLES (TAOR) AS CURRENT
ASSET
John John: Debit Credit Debit Credit
AS ONE LINE ITEM PER PAS 1 - TRADE AND 120,000 5,000
OTHER RECEIVABLES (TAOR) AS CURRENT
ASSET
Advances to Employees
Debit Credit
18,000
rade Receivable
ther Receivables
ther Receivables
ther Receivables
STRAIGHT PROBLEMS
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
Problem 4
Computation of Trade and Other Receivable Balance
The accounts receivable balance of Blue Heart Corporation as of December 31, 2021 was P 2,865,000. An analysis of this
account showed the following:
Worthless accounts receivable 37,500

Advances to Suppliers 150,000
Advances to affiliated companies 375,000
Customers’ accounts with negative balance arising from sales return -225,000
Accrued interest income on bonds 150,000
Other trade accounts receivable – unassigned 750,000
Ordinary Shares Subscriptions Receivable - due in 30 days 825,000
Trade accounts receivable - assigned (Finance company’s equity
in assigned accounts is P150,000) 375,000
Trade installment receivable due 1 – 18 months, including unearned
finance charges of P30,000 330,000
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are held (no entries were
made on receipts of checks) 75,000
TOTAL 2,865,000
Required:
1. What is the trade accounts receivable balance as of December 31, 2021?
. What is the total current trade and other receivables (net) as of December 31, 2021?
. How much of the foregoing will be presennted under the noncurrent asset section of the statement of financial position
as at December 31, 2021?
SOLUTION:
Current Receivables
Trade Rec.
Worthless accounts receivable 37,500 -
Other trade accounts receivable – unassigned 750,000 750,000
in assigned accounts is P150,000) 375,000 375,000
finance charges of P30,000 (P 330,000 - P 30,000) 330,000 300,000
Trade receivables from officers due currently 22,500 22,500
made on receipts of checks) 75,000 75,000
Total Trade Accounts Receivable as of December 31, 2021 1,522,500
No. 1
Total Current Trade and Other Receivables as of December 31, 2021 2,647,500
No. 2
Total noncurrent receivable as of 12/31/2021
ALTERNATIVE SOLUTION PER NUMBER
1. Computation of the trade accounts receivable balance as of December 31, 2021

Trade
Trade accounts
installmentreceivable
receivable- assigned
due 1 – 18 months 375,000
net of unearned finance charges of P30,000 300,000

Trade accounts on which post-dated checks are held 75,000
Total trade accounts receivable as at December 31, 2021 1,522,500
. Total current trade and other receivables (net) as of December 31, 2021
Trade receivables (See no. 1)

Other Receivables:
Accrued Interest income on bonds 150,000
Ordinary Shares Subscriptions receivable - due in 30 days 825,000
Total current trade and other receivables at December 31, 2021
. How much of the foregoing will be presenbted under the noncurrent asset section of the statement of financial position as
at December 31, 2021?
Advances to Affiliated Companies 375,000
Notes
Advances to Affiliated Companies are normally presented under noncurrent assets.
GHT PROBLEMS
000. An analysis of this
This represents details of the AR balance of P 2,865,000
ment of financial position
Current Receivables Non-current Receiv. Current

Other Rec. Trade Rec. Other Rec. Liability Related Account Names
- - -
150,000 Advances to Suppliers
375,000 Advances to Affiliates
225,000 Customer's Credit Balances
150,000 Accrued Interest Receivable
Trade Accounts Receivable
825,000 Subscription Receivable - Ordinary Shares
Trade Installment Receivable


1,125,000 0 375,000 225,000
John John:
Installment Receivable 330,000
2,647,500 Less: Unearned Finance Charges 30,000
No. 2 Carrying Value of Installment Rec. 300,000
375,000
No. 3
1,522,500
1,125,000
2,647,500
ent of financial position as

Accounts Receivable
Debit
Beginning ba xxx
Credit Sales xxx
Total balanc xxx
Account bala xxx

Accounts Receivable
Credit
xxx Collections
xxx Sales Discounts
xxx Write-offs
xxx Total balances
STRAIGHT PROBLEMS
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
Problem 5
Computation of Accounts Receivable Shortages
The following information from Jumbo Company’s first year of operations is to be used in treating the accuracy of Accounts
Receivable. The December 31, 2021 balance is P 360,000 (per accounting books).
A. Collection from customers, P 720,000.

B. Merchandise purchased, P 980,000
C. Ending merchandise inventory, P 235,000.
D. Goods sell at 50% above cost.
E. All sales are on account.
Required:
. Compute the balance that Accounts Receivable should show.
. Determine the amount of any shortage or overage.
SOLUTION:
Notes
Merchandise purchase (Purchases) 980,000
Less: Ending merchandise inventory 235,000
Cost of sales 745,000
Multiply by sales rate based on cost (100% cost + 50% profit) 150%
Sales Revenue (All on credit or on account) 1,117,500 Debit to Accounts Receivabl
Less: Collection from customers 720,000 Credit to Accounts Receivab
Req. 1 Accounts Receivable balance, 12/31/2021, per audit 397,500 Per audit or per verification
Less: Accounts Receivable balance, 12/31/2021, books 360,000
Req. 2 Accounts Receivable shortage, 12/31/2021 37,500 Subject to further audit
POSSIBILITIES:
. No segregation of duties and functions
. Cash is collected from AR and recorded in accounting books but the cash is pocketed. (larceny)
Notes:
While cash larceny involves the theft of cash that has been recorded on the
employer's books, skimming refers to the theft of money that has not been
captured on the employer's books of accounts or accounting system.
(Source: https://corporatefinanceinstitute.com/resources)
John John:
accuracy of Accounts First year of operations, therefore,
there is no merchandise inventory,
beginning.
Notes Follow the format of cost of sales:

Inventory, beginning xxx
Add: Purchases xxx
Cost of goods available for sale xxx
Inventory, ending xxx
ebit to Accounts Receivable Cost of sales xxx
redit to Accounts Receivable
er audit or per verification
ubject to further audit
cketed. (larceny)
Accounts Receivable
Debit Credit
xxx Write-offs
Account bala xxx
Both cash and credit purchases
Compute this at selling price to determine total sales.

If problem is silent, all sales are on credit sales.
If you have sales already, deduct the collection during the year,
then, you can compute now the AR, ending balance
Sales Discounts
Total balances
STRAIGHT PROBLEMS
Problem 6
Aging of Accounts Receivable
Presented below is the Accounts Receivable Subsidiary Ledger of Martian Corporation, a customer of Planetarium Company,
from January 1 to June 5, 2021:
Customer - Martian Corporation

Credit Limit - P 20,000
Terms - 2/10, n/30
Reference
Date Particulars Doc. No. Debit
2021
Jan. 01 Balance forwarded
07 Sales INV 767 5,000
12 Cash OR 1307
20 Sales INV 800 1,200
28 Sales INV 965 1,060
- Cash OR 1518
Feb. 15 Sales INV 970 1,220

18 Sales INV 1001 1,400
22 DM for INV No. 800 DM 217 72
05 Cash OR 1689
27 Sales INV 1113 836
- Freight DM 223 120
28 Cash OR 1718
Mar. 02 Sales INV 1206 1,560

15 Cash OR 1790
28 Sales INV 1491 2,594
29 Cash OR 1868
Apr. 03 Sales INV 1627 1,636

14 Cash OR 1880
19 Sales INV 1798 1,422
23 CM for INV No. 1206 CM 121
26 Cash OR 1905
30 Sales INV 2001 420
May 15 Sales INV 2010 642

17 Sales INV 2177 992
20 Cash OR 2096
Jun. 05 Cash OR 2107
Required:
Determine the age of accounts receivable of Customer Martian Corporation as of May 31, 2021 using the following basis:
A. First-in, first-out basis
B. Specific invoice basis
SOLUTION:
A.
Age of accounts receivable of Martian Corporation as at May 31, 2021 using First-in, first-out basis (FIFO Basis)
Date Transactions Reference Amount

May 15 Sales 642 INV 2010 642
May 17 Sales 1,634 INV 2177 992
April 30 Sales 2,054 INV 2001 420
April 19 Sales 3,476 INV 1798 1,422
April 03 Sales 5,112 INV 1627 1,636
March 28 Sales INV 1491 110
Total 5,222 5,222
Notes:
March 28 Sales is the difference of P 5,222 AR balance and all invoices from April to May, 2021.
Reference
2021
Mar. 02 Sales INV 1206 1,560
15 Cash OR 1790
28 Sales INV 1491 2,594
29 Cash OR 1868
Apr. 03 Sales INV 1627 1,636

14 Cash OR 1880
19 Sales INV 1798 1,422
26 Cash OR 1905
30 Sales INV 2001 420

17 Sales INV 2177 992
20 Cash OR 2096
B. Age of accounts receivable of Martian Corporation as at May 31, 2021 using specific invoice basis
Date Transactions Reference Amount

March 28 Sales INV 1491 2,594
April 3 Sales INV 1627 1,636
Total 5,222
Reference
2021
07 Sales INV 767 5,000
12 Cash OR 1307
20 Sales INV 800 1,200
28 Sales INV 965 1,060
- Cash OR 1518

18 Sales INV 1001 1,400
22 DM for INV No. 800 DM 217 72
05 Cash OR 1689
27 Sales INV 1113 836
28 Cash OR 1718
Mar. 02 Sales INV 1206 1,560

15 Cash OR 1790
28 Sales INV 1491 2,594
29 Cash OR 1868
Apr. 03 Sales INV 1627 1,636

14 Cash OR 1880
19 Sales INV 1798 1,422
26 Cash OR 1905
30 Sales INV 2001 420

17 Sales INV 2177 992
20 Cash OR 2096
LEMS
a customer of Planetarium Company,
Credit Balance
9,200
14,200
5,000 9,200
10,400
11,460
9,200 2,260
3,480
4,880
4,952
2,332 2,620
3,456
3,576
1,400 2,176
3,736
1,220 2,516
5,110
956 4,154
5,790
1,470 4,320
5,742
90 5,652
1,422 4,230
4,650
5,292
6,284
1,062 5,222
1,636 3,586
31, 2021 using the following basis:
First-in, first-out basis (FIFO Basis)
Not yet due > 30 days

642 Terms - 2/10, n/30 (May 15 to May 31 = 16 days)
420 Terms - 2/10, n/30 (April 30 to May 31 = 31 days - 30 days = 1 day past due)
1,422 Terms - 2/10, n/30 (April 19 to May 31 = 42 days - 30 days = 12 days past due)
110 Terms - 2/10, n/30 (March 28 to May 31 = 64 days - 30 days = 34 days past due)
1,634 3,588
John John:
originally P 2,594
P 5,222 AR balance on 5/31 - P 642 - P 992 - P 420 - P 1,422 - P 1,636 = P 110
m April to May, 2021.
Credit Balance
3,736
1,220 2,516
5,110
956 4,154
5,790
1,470 4,320
5,742
90 5,652
1,422 4,230
4,650
5,292
6,284
1,062 5,222
specific invoice basis
Not yet due > 30 days

2,594 Terms - 2/10, n/30 (March 28 to May 31 = 64 days - 30 days = 34 days past due)
992 4,230
Credit Balance
9,200
14,200
5,000 9,200 February 7 sales
10,400 (P 1,200 + P 72 DM on 2/22 = P 1,272)
11,460
9,200 2,260 January 1 beginning balance
3,480
4,880
4,952
John John:
2,332 2,620
P 1,272 on 1/20 + P 1,060 on 1/28
3,456
3,576
3,736
5,110 NOT YET PAID
956 4,154 February 27 sales + freight
5,790 NOT YET PAID

1,470 4,320 John John:
5,742 P 1,560 sales of 3/2 - P 90 late CM of 4/23
90 5,652
1,422 4,230 April 14 sales
4,650
5,292
6,284 NOT YET PAID
1,062 5,222 P 420 sales on 4/30 + P 642 sales on 3/15
Accounts Receivable
Debit Credit
xxx Write-offs
Account bala xxx
Sales
Debit Credit
xxx Cash Sales
xxx Credit Sales
xxx Account balance
30 days = 1 day past due)
30 days = 12 days past due)
- 30 days = 34 days past due)
P 1,422 - P 1,636 = P 110
- 30 days = 34 days past due)

Sales Discounts
Total balances
Credit Sales
Account balance
STRAIGHT PROBLEMS
Problem 7
The Accounts Receivable control account balance of CHANDELIER COMPANY was P 430,600 as of December 31, 2021. The
subsidiary ledger accounts of the company are summarized below. Credit terms are 60 days net.
Customer Nilo Co Account No.
Date Transactions Reference Debit Credit

2021
May 31 Credit sales INV 2653 10,000
Jul. 01 Collection OR 8001 6,000
Jul. 07 Credit sales INV 2865 10,000
Sep. 01 Collection OR 9022 6,000
Sep. 25 Credit sales INV 2935 16,000
Nov. 01 Collection OR 9883 6,000
Dec. 10 Credit sales INV 3312 6,000
Customer Halley Mao Account No.

2021
Jan. 01 2-months, 6% note PN 25-Y21 240,000
Mar. 01 Collection OR 7220 242,400
Dec. 01 2-months, 6% note PN 70-Y21 200,000
Customer Dina Macailag Account No.

2021
Feb. 03 Credit sales INV 2365 20,000
Aug. 03 Credit sales INV. 2810 20,000
Customer Keena Wawa Account No.

2021
Feb 10 Credit sales INV 2400 60,000
Apr. 09 Collection OR 7350 60,000
Nov. 25 Credit sales INV 3154 4,440
Customer Ver Doogo Account No.

2021
Aug. 16 Credit sales INV 3020 8,880
Sep. 30 Credit sales - Open INV 2990 15,000
Oct. 15 Collection OR 9780 18,880
Oct. 18 Credit sales INV 3022 12,000
Dec. 20 Collection (invoice date 10/18) OR 9966 12,000
The Allowance for Doubtful Accounts, before the audit, has a credit balance of P 10,000. The Allowance for Doubtful Accounts is
to be adjusted to a balance determined as follows:
Accounts not due 0.5 %

Accounts 1 to 60 days past due 2%
Accounts 61 – 120 days past due 5%
Accounts over 120 days past due 50 %
The provision is to be based only on the trade accounts. Except where payments are earmarked, the oldest items are paid
first.
Required:
From the information presented:
. Prepare audit working papers for aging the accounts receivable. In your schedule, show also the disposition and any
remarks which you as the auditor, would note. USE THE SOLUTION GUIDE PROVIDED.
. Show your adjustments necessary for the provision for doubtful items and also any other necessary adjustments.
SOLUTION:
. Audit working papers for aging the accounts receivable.
John John:
CHANDELIER COMPANY This will com
Aging Schedule of Accounts Receivable
AS of December 31, 2021
Balances
Act. No. Customers' Name 12/31/2021 Not yet Due
101 Nilo Co 24,000 6,000
120 Halley Mao 197,600
130 Dina Macailag 40,000
140 Keena Wawa 110,000 4,440
150 Ver Doogo 15,000
Total unadjusted balances 386,600 10,440
AJE 1 Less: Reclassified to Notes Receivable 197,600
Total adjusted balances of Accounts Receivable 189,000
Doubtful Accounts Rate 0.50%

Allowance for Doubtful Accounts, adjusted 13,883 52
Allowance for Doubtful Accounts, unadjusted 10,000
AJE 2 Doubtful Accounts Expense 3,883
Allowance for DA
Debit
. Adjusting Journal Entries at December 31, 2021

2021 (AJE No. 1)
Dec. 31 Notes Receivable 200,000
Accounts Receivable
Interest Income
To reclassify notes receivable from accounts receivable
(AJE No. 2)
31 Doubtful Accounts Expense 3,883
Allowance for Doubtful Accounts
Provision for doubtful account for the current year 2021.
(AJE No. 3)
31 Interest Receivable 1,000
Interest Income
Accrued interest for six months.
(P 200,000 x 6% x 1/12)
December 31, 2021. The
John John:
P 4,000 from May 31 + P 2,000 from July 7
101-2021
John John:
Balances P 6,000 from July 7
July 7 balance = P 10,000 - P 2,000 (9/1) - P 6,000 (11/1) = P 2,000
(From July 7 to December 31 = 177 days - 60 days = 117 days past due
10,000
4,000
14,000 John John:
8,000 P 16,000 (From Sept 25 to Dec 31 = 92 days - 60 days = 32 days past due
24,000
18,000 John John:
24,000 (P 6,000 = Dec. 10 to Dec. 31 = 21 days - Not yet due)
John John:
120-2021 P 2,000 (July 7 to December 31 = 177 days - 60 days = 117 days past due)
P 16,000 (Sep 25 to Dec 31 = 97 days - 60 days = 37 days past due)
Balances P 6,000 (Dec 10 to Dec 31 = 21 days = not yet due or current)
240,000
John John:
-2,400
Interest = P 240,000 x 6% x 2/12 = P 2,400
197,600 Maturity Value collected = P 240,000 + P 2,400 = P 242,400
Cash 242,400 Entry made is:
Interest Inc. 2,400 Cash 242,400
130-2021 Notes Rec. 240,000 Accounts Rec. 242,400
Balances John John:

P 20,000 (Feb. 3 to Dec. 31 = 331 days - 60 days = 271 days pats due)
20,000
40,000 John John:
P 20,000 (Aug. 3 to Dec. 31 = 150 days - 60 days = 90 days past due)
140-2021
Balances
60,000
0 John John:
80,000 P 105,560 (Sep 6 to Dec 31 = 116 days - 60 days = 56 days past due)
0
105,560 John John:
110,000 P 4,440 (Nov. 25 to Dec 31 = 36 days = not yet due)
150-2021
Balances
10,000
18,880
33,880 John John:
15,000 P 15,000 (Sep 30 to Dec 31 = 92 days - 60 days = 32 days past due)
27,000
15,000
ce for Doubtful Accounts is
oldest items are paid
o the disposition and any
ssary adjustments.
John John:
Y This will come from the ARSL of the client.
ceivable
1
Past Due Accounts (Days)

1 to 60 61 to 120 Over 120 Remarks
16,000 2,000 Pay P 3,000 monthly
Reclassify to NR - AJE 1
20,000 20,000 No collection was made
105,560
15,000 Investigate the payments.
136,560 22,000 20,000
2.00% 5.00% 50.00%

2,731 1,100 10,000
Allowance for DA
Credit
10,000 Unadjusted balannce (given)
3,883 Provision for DAE (the difference)
13,883 Adjusted ADA (per aging)

Credit
197,600
2,400
3,883
1,000
0
due
st due
ast due)
ue)
00
242,400
)
STRAIGHT PROBLEMS
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
Problem 8
Results of Receivable Confirmation
You obtained from your client, SLC Corporation, the following schedule of accounts receivable as of October 31, 2021:
Act. No. Conf. No. Name of Customers Balance

2018-20 001 Melba dela Cruz 18,000
2018-35 002 Ronald Magno 12,000
2018-45 003 Ana Marie Querol 10,000
2018-80 004 Aiko Villavicencio 10,000
2018-85 005 Cleofe Santiago 10,000
2019-05 006 Aezelle Villavicencio 16,000
2019-20 007 Jesse Caling 24,000
2019-25 008 Arthur Galicio 8,000
2020-33 009 Remuel Bernardo 14,000
2020-40 010 Benjamin Cabudbod 30,000
2020-42 011 Rhoda Marano 2,000
2021-12 012 Shirley Layug 22,000
2021-25 013 Jenielyn Mariano 4,000
2021-38 014 Anjelo Cruz 8,000
2021-50 015 Gieron Adriano 12,000
200,000
You traced the items in this schedule to individual account balances in the subsidiary ledger, checked the footing and ascertained
that addresses were complete and adequate. You also reconciled the schedule balance with the controlling account in the
general ledger ad found them to be in agreement.
On November 8, 2021, you mailed out confirmation request to all customers above with the exception of Rhoda Maraño
which you verified personally since she is working with the company as secretary.
By November 30, 2021, the following replies had been arrived:

. Aiko Villavicencio, received November 15, confirms balance of P 10,000.
. Ana Marie Querol, returned by Post Office “Addressee Unknown.”
. Jesse Caling, received November 20, remarks “Balance is now paid.”
. Benjamin Cabudbud, received November 25, confirms P 20,000, remarks “We returned P 10,000 worth of
merchandise on November 12”.
. Gieron Adriano, returned by post office, “No such person”.
. Anjelo Cruz received November 26, confirms only P 6,000 remarks “You overcharged us P 2,000, we did not order
lipstick.”
You verified that P 10,000 of merchandise was actually returned by Benjamin Cabudbud on November 12. This was covered by
the company credit memo number 1615. You also verified an error in billing Anjelo Cruz for P 2,000. This error was corrected by
the company on November 10.
In accordance with instructions from your senior, you verified that the following were paid in November:
. Aiko Villavicencio, paid November 15, OR No. 4567.
. Jesse Caling, paid November 18, OR No. 5125.
. Ana Marie Querol, paid November 26, OR No. 5978.
. Aezelle Villavicencio, paid November 24, OR No. 5467.
. Rhoda Maraño, paid November 16, OR No. 4789
On December 2 you mailed the second requests for confirmations to all those who did not reply to the first requests, and by
December 15 you received the following replies:
. Cleofe Santiago, received December 7, P 10,000 OK
. Arthur Galicio, received December 8, remarks “This is not yet due, you allowed me 90 days credit.”
. Shirley Layug, December 10, Balance of P 22,000 confirmed.
Required:
Working papers compiling results of confirmation using the following column headings:
Account Number Confirmation Results Subsequent collection to Nov. 30

Name of Customers (1) Confirming balance (1) Date
Confirmation Number (2) Reporting differences (2) OR number
Address (3) Returned by Post Office (3) Amount
Per Client, October 31, Dr. Cr. (4) No Reply Remarks
SOLUTION:
SLC CO
Working Paper for Acco
Octob
PER CLIENT
As of October 31, 2021
Act. No. Name of Customers Conf. No Address Debit Credit
2018-20 Melba dela Cruz 001 18,000
2018-35 Ronald Magno 002 12,000
2018-45 Ana Marie Querol 003 10,000
2018-80 Aiko Villavicencio 004 10,000
2018-85 Cleofe Santiago 005 10,000
2019-05 Aezelle Villavicencio 006 16,000
2019-20 Jesse Caling 007 24,000
2019-25 Arthur Galicio 008 8,000
2020-33 Remuel Bernardo 009 14,000
2020-40 Benjamin Cabudbud 010 30,000
2020-42 Rhoda Marano 011 2,000
2021-12 Shirley Layug 012 22,000
2021-25 Jenielyn Mariano 013 4,000
2021-38 Anjelo Cruz 014 8,000
2021-50 Gieron Adriano 015 12,000
200,000
100%
f October 31, 2021:
EXISTENCE
COMPLETENESS
ACCURACY
RIGHTS
VALIDITY
the footing and ascertained

olling account in the These are the usual audit procedures in confirming AR.
tion of Rhoda Maraño
10,000 worth of
P 2,000, we did not order

r 12. This was covered by
his error was corrected by
r:
he first requests, and by
ys credit.”
SLC CORPORATION
Working Paper for Accounts Receivable Confirmation
October 31, 2021
CONFIRMATION RESULTS SUBSEQUENT COLLECTIONS

Confirming Reporting Returned by Up to November 30, 2021
Balance Differences Post Off. NO REPLY Date OR No. Amount
18,000
12,000
10,000 11/26/2021 5978 10,000
10,000 11/15/2021 4567 10,000
10,000
16,000 11/24/2021 5467 16,000
24,000 11/18/2021 5125 24,000
8,000
14,000
20,000 10,000
2,000 11/16/2021 4789 2,000
22,000
4,000
6,000 2,000
12,000
78,000 36,000 22,000 64,000 62,000
39% 18% 11% 32% 31%
REMARKS
P 10,000 returned on 11/12 - CM 1615
Overbilling confirmed; corrected on 11/10.

STRAIGHT PROBLEMS
Accounts Receivable
Debit Credit
Credit Sales xxx xxx Sales Discounts John John:
xxx Returns and Allowances Are credit s
xxx Write-offs accounting
Total balances xxx xxx Total balances This will he
AR reported
Account balance xxx
Problem 9
Sales Cut-off Test
Hero Auto Parts sells new parts to auto dealers. Company policy requires that a pre-numbered shipping document be issued for
each sale. At the time of pick-up or shipment, the shipping clerk writes the date on the shipping document. The last shipment
made in the year ended December 31, 2021 was recorded on document 6330. Shipments are billed in the order that the billing
clerk receives the shipping documents.
For late December 2021 and early January 2022, shipping documents are billed on sales invocies as follows:
Shipping
Document No. Sales Invoice No.
6326 5332
Dec. 2021
6327 5326
Sales/AR
6328 5327
of 2021
6329 5330
6330 5331 The last shipment made in 2021
6331 5328
Jan. 2022
6332 5329
Sales/AR
6333 5333
of 2022
6334 5335
6335 5334
The December 2021 and January 2022 sales journals have the following information included:
DECEMBER, 2021 JANUARY, 2022

Day SI No. Amount
John John: Day SI No. Amount
John John
Entry is: Entry is:
30 5326 145,222 1 5332 528,262
AR XXX AR
30 5329 382,860 1 5331 21,278
Sales XXX Sales
31 5327 83,966 1 5333 170,412
31 5328 124,044 2 5335 250,100
31 5330 9,548 2 5334 129,316
Required:
. Compute the overstatement (understatementy) of Sales account balance for the year ended December 31, 2021.
.
Prepare the necessary adjusting journal entry to correct the financial statements for the year ended December 31, 2021.
. Cut-off tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent
year provide assurance about management's assertion of
A. Rights and oblisgation
B. Completeness
C. Existence
D. Valuation and allocation
. Tracing shipping documents to prenumbered sales invoices provides evidence that

A. No duplicate shipments or billings occurred
B. Shipments to customers were properly invoiced
C. All goods ordered by customers were shipped.
D. All prenumbered sales invoices were accounted for.
. An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and
invoices to support management's financial statement assertion of
A. Existence
B. Rights and obligations
C. Valuation and allocation
D. Completeness
SOLUTION:
.
Computation of the overstatement (understatement) Sales account balance for the year ended December 31, 2021.
Shipping
Document No. Sales Invoice No. Date of Recording
6326 Shipped in 2021 5332 January 1, 2022
6327 Shipped in 2021 5326 December 30, 2021
6330 Last shipment in 2021 5331 January 1, 2022
NET UNDERSTATEMENT (adjustment)
ALTERNATIVE WAY OF ANALYSIS
SALES JOURNAL - DECEMBER, 2021

Day SI No. Amount Shipped in
30 5326 145,222 Shipped in 2021 - correctly recorded in 2021
30 5329 382,860 Shipped in 2022 - AR and Sales in 2021 overstated
SALES JOURNAL - JANUARY, 2022

Day SI No. Amount
1 5332 528,262 Shipped in 2021 - not recorded in 2021
NET UNDERSTATEMENT
.
The necessary adjusting journal entry to correct the financial statements for the year ended December 31, 2021.

2021
Dec. 31 Accounts Receivable 42,636
Sales
To correct the understatement of sales during
the year 2021.
B. Completeness
C. Existence

B. Shipments to customers were properly invoiced (billed)
. An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents
and invoices to support management's financial statement assertion of
A. Existence
D. Completeness
CUT-OFF
COMPLETENESS
John John:
Are credit sales recorded in the proper
accounting period? (SALES CUT-OFF TEST)
This will help to determine if credit sales and

AR reported is complete or not.
ng document be issued for

ment. The last shipment
the order that the billing
ollows:
John John:
Entry is:
AR XXX
Sales XXX
cember 31, 2021.
ded December 31, 2021.

orded in the subsequent
f shipping documents and
nded December 31, 2021.
Year 2021 AJE

AR Sales
528,262 528,262 2021 is Understated because recorded in 2022
Correctly recorded in 2021
21,278 21,278 2021 is Understated because recorded in 2022
-124,044 -124,044 2021 is Overstated because this is sale of year 2022
-382,860 -382,860 2021 is Overstated because this is sale of year 2022
42,636 42,636
COMPLETENESS
Year 2021 AJE

AR
-382,860
-124,044
528,262
21,278
42,636
ed December 31, 2021.
Credit
42,636
of shipping documents
STRAIGHT PROBLEMS
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
Problem 10
Various Recorded Transactions Affecting Accounts Receivable and Related Accounts
During your audit of Hawk Company for the year 2021, the following accounting records are presented to you by the accounting
manager:
SALES JOURNAL
Acct. Rec.
Date Sold To Inv. No. DR No. Debit
2021
Dec. 02 Alpha Company 5551 6053 200,000
05 Beta Supplies Corporation 5552 6058 250,000
Not recorded (Romeo Services Co.) 5553
10 Charlie Manufacturing Company 5554 6063 300,000
13 Delta Services, Inc. 5555 6070 150,000
18 Echo Corporation 5556 6085 420,000
21 Foxtrot Link, Inc. 5557 6091 370,000
23 Golf Leisure Park, Inc. 5558 6101 235,000
27 Hotel Magnifico Corporation 5559 6115 360,000
31 Total per record 2,285,000 John Jo
In Sale
Total per audit (check footing) 2,285,000 sequen
Difference 0
CASH RECEIPTS JOURNAL

Cash
Date Received From OR No. Inv. No. Debit
2021
Dec. 01 Yankee Trading Company 6101 5545 240,000
03 Zulu Corporation 6102 5540 98,000
07 Romeo Services Company 6103 5553 120,000
12 Alpha Company 6104 5551 174,600
19 Oscar Dining Place, Inc. 6106 3705 50,000
26 Lima Trading Company 6108 5320 80,000
29 Whiskey Beverages Company 6109 5250 350,000
Total per record 1,172,600
Total per audit (check footing) 1,412,600
Difference -240,000
Further audit revealed the following:

AJE 1 . Collection from Yankee Trading Company on December 1, 2021 was paid by a check but returned by the bank due to ins
fund. As of December 31, 2021, the account is still outstanding. (NSF Check)
AJE 2 . Collection from Zulu Corporation on December 3, 2021 was paid within the discount period. Based on Invoice No. 5540, t
should be 3%. Zulu agreed to offset the difference to future purchase transactions.
AJE 3 . Credit sales on December 10, 2021 to Charlie Manufacturing Company is for 320,000 based on Invoice No. 5554 but the
of goods were returned on the same date due to inferior quality. A credit memo was also issued on December 10 rega
return (It means sales return was correctly recorded).
No error . The collection from Alpha Company on December 12, 2021 is net of sales returns of P 20,000 on December 13 due to inf
term of the sales is 3/10, n/30.
No error . The collection from Beta Supplies Corporation on December 16, 2021 has a credit term of 3/10, n/30.
AJE 4 . The collection from Oscar Dining Place, Inc. on December 19, 2021 was a collection of accounts written off in year 2020 b
2021. This is the only entry made upon recovery of such account.
No error .
The cash receipt from Delta Services, Inc. on December 22, 2021 is a partial collection of account with a credit term of 3/1
AJE 5 . Credit sales to Golf Leisure Park, Inc. with Invoice No. 5558 is erroneously extended resulting to understatement of sal
(Extension is the multiplication in Invoice like qty. x Unit Price)
AJE 6 .
The collection from Lima Trading Company was not recorded in sales journal. Its related Delivery Receipt was dated Sep
The account balances of the following accounts are as follows:

A. Accounts Receivable at November 30, 2021 - P 750,000
B. Sales Discount from January 1 to November 30, 2021 - P 23,600.
C. Sales Revenue from January 1 to November 30, 2021 - P 21,120,000
Required:
. Compute the unadjusted balances at December 31, 2021 of the following accounts:
A. Accounts Receivable
B. Sales Discount
C. Sales Revenue
. Prepare the necessary adjusting journal entries at December 31, 2021.
. Compute the adjusted balances at December 31, 2021 of the following accounts:
B. Sales Discount
C. Sales Revenue
SOLUTION:
. Computation of unadjusted balances at December 1, 2021
Accounts Receivable
Debit
Balances at November 30, 2021 (beginning balances) 750,000
Balances per Sales Journal, December 31, 2021 (credit sales) 2,285,000
Balances per Cash Receipts Journal, December 31, 2021
Total 3,035,000
Balances, December 31, 2021, unadjusted (ending balances) 1,935,000

. The necessary adjusting journal entries at December 31, 2021
Date Account Names

2021 (AJE NO.1)
Dec. 31 Accounts Receivable - Yankee Trading Company
Cash
NSF Check.
(AJE NO.2)
31 Sales Discount [(3% - 2%) x P 100,000]
Customer's Credit Balances - Zulu Corporation
Understatement of sales discount to customers.
(AJE NO.3)
31 Accounts Receivable - Charlie Manufacturing Company
Sales Revenue
Understatement of sales - Sales Invoice NO. 5554
(AJE NO.4)
31 Accounts Receivable - Oscar Dining Place, Inc.
Re-establishment of accounts previously written off.
(AJE NO.5)
31 Accounts Receivable - Golf Leisure Park, Inc.
Sales Revenue
(AJE NO.6)
31 Accounts Receivable - Lima Trading Company
Accounts Receivable - Lima Trading Company
Understatement of sales in September 11, 2021
(AJE NO.7)
31 Accounts Receivable -Romeo Services Company
Sales Revenue
Unrecorded Sales in December, 2021 with SI No. 5553
. Computation of adjusted balances at December 1, 2021
Accounts Receivable
Debit
Balances at December 31, 2021, unadjusted 1,935,000
Adjustments:
. Yankee Trading Company 240,000
. Zulu Corporation
. Charlie Manufacturing Company 20,000
. Oscar Dining Place, Inc. 50,000
. Golf Leisure Park, Inc. 5,000
. Lima Trading Company 80,000
. Romeo Services Company 120,000
. Understated footing of cash receipts journal
2,450,000
Balances, December 31, 2021, unadjusted 2,210,000
OBLEMS
COMPLETENESS
RIGHTS
ACCURACY
VALIDITY
s are presented to you by the accounting department
Audit procedures - Sales Invoice:

Sales Rev. 1) Check the unit selling price.
Credit NOTES 2) Check the extension (Qty. x Unit Price)
3) Check footing (total of item in terms of Peso)
200,000
250,000 4) Check the related Sales Order for proper processing
300,000 AJE 3 - Understated Sales by P 20,000 in accordance with company's policies.

150,000 5) Compare the sales invoice total to Sales journal entry
420,000 6) Compare the amount and information in SI versus DR
370,000
235,000 AJE 5 - Understated Sales by P 5,000
360,000
2,285,000 John John:
In Sales Journal, the SI must be reported
2,285,000 sequentially. INV no. 555s is missing.
Audit procedures - Sales Invoice:

Sales Disc. Acct. Rec. Sales Rev. 1) Check the information in the OR lik
Debit Credit Credit Notes amount paid in words and in figure
payment (the Sales Invoice being p
240,000 AJE 1 - Customer's PDC 2) Compare the amount in OR to Cash
2,000 100,000 AJE 2 - Understated Sales Discount by P 1,000 3) Check the computation of the disco
120,000 AJE 7 - Not recorded in sales journal 4) Check the named payee in custome
5,400 180,000 Correctly recorded named to the client and not pay to
250,000 Correctly recorded - beyond the discount period
50,000 AJE 4 - No entry to reestablish recovery of AR
50,000 Correctly recorded
80,000 AJE 6 - Correction for AR in SJ and CRJ
350,000
7,400 1,100,000 80,000
7,400 1,340,000 80,000
0 -240,000 0
heck but returned by the bank due to insufficiency of
unt period. Based on Invoice No. 5540, the cash discount

s.
,000 based on Invoice No. 5554 but the P 20,000 worth
was also issued on December 10 regarding this
John John:
There must be two journal entries upon recovery of
s of P 20,000 on December 13 due to inferior quality. The
accounts previously written off:
1) Re-establishment of AR
it term of 3/10, n/30.
2) Collection of AR
tion of accounts written off in year 2020 but recovered in
John John:
If partial collection was made, if problem is silent, no
ection of account with a credit term of 3/10, n/30.
discount to be given. Generally, the cash discount is given
ded resulting to understatement of sales by P 5,000. to encourage early FULL PAYMENT BY CUSTOMERS.
related Delivery Receipt was dated September 11, 2021.
Accounts Receivable Sales Discount Sales Revenue

Credit Debit Credit Debit Credit
23,600 21,120,000
2,285,000
1,100,000 7,400 80,000
1,100,000
31,000 23,405,000
Debit Credit
240,000
240000
1,000
1,000
20,000
20,000
50,000
50,000
5,000
5,000
80,000
This AJE may possibly be made in order to
80,000
reflect in AR Subsidiary Ledger
John John:
120,000 In your original notes, the credit is Sales.
120,000 This is corrected now.
Accounts Receivable Sales Discount Sales Revenue

31,000 23,405,000
1,000
20,000
5,000
80,000
120,000
240,000
240,000
32,000 23,550,000
n terms of Peso)
er for proper processing
otal to Sales journal entry

ormation in SI versus DR
udit procedures - Sales Invoice:

) Check the information in the OR like name of customer.
amount paid in words and in figures, the reference of
payment (the Sales Invoice being paid)
) Compare the amount in OR to Cash Receipts Journal.
) Check the computation of the discount.
) Check the named payee in customers' checks )should
named to the client and not pay to cash)
STRAIGHT PROBLEMS
Allowance for DA
Debit Credit
xxx Provision (requires AJE)
xxx Recovery
xxx Account balance/Ending Balance
Problem 11
Analysis of Allowance for Doubtful Accounts ( Change of DAE Basis from Sales to AR)
From inception of operations to December 31, 2021, BLUE POWDER CORPORATION provided for uncollectible accounts
the allowance method: provisions were made monthly at 2% of credit sales; bad debts written off were charged to the allow
recoveries of bad debts previously written off were credited to the allowance account; and, no year-end adjustments to the a
were made. Blue Powder’s usual credit terms are net 30 days.
The balance in the Allowance for Doubtful Accounts was P 130,000 at January 1, 2021. During 2021 credit sales totaled
interim provisions for doubtful accounts were made at 2% of credit sales, P 90,000 of bad debts written off, and recoverie
previously written off amounted to P 15,000. Blue Soda installed a computer facility in November 2021 and an aging of acc
was prepared for the first time as of December 31, 2021.
A summary of the aging is as follows:
Classification by month of
sale Balance in each category
November to December 1,140,000
July to October 600,000
January to June 400,000
Prior to January 1, 2021 130,000
2,270,000
Based on the review of the collectability of the account balances in the “prior to January 1, 2021” aging category, additional re
60,000 were written off as of December 31, 2021. Effective with the year ended December 31, 2021, Blue Powder adopted a
method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts
Required:
. Prepare a schedule analyzing the changes in the Allowance for Doubtful Accounts for the year ended December
supporting computations in good form.
. Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as of December 3

2021
Dec 31
SOLUTION:
.
A schedule analyzing the changes in the Allowance for Doubtful Accounts for the year ended December 31, 202
computations in good form.
Allowance for Doubtful Accounts, January 1, 2021

Transactions during the year 2021:
• Interim provision for doubtful accounts at 2% of credit sales (P 9,000,000 x 2%)
• Accounts written off during the year
• Recovery of accounts previously written off
Balances
Less: Additional transactions in 2021 based on review of collectability of accounts balances:
• Additional accounts written off during the year from accounts balances “prior to 2020”
Allowance for Doubtful Accounts, December 31, 2020, unadjusted (based on sales)
ADD: PROVISION FOR DOUBTFUL ACCOUNTS AT DECEMBER 31, 2021 (See No. 2)
Allowance for Doubtful Accounts, December 31, 2021, adjusted (based on AR)
. The journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as of December

2021
Dec 31 Doubtful Accounts Expense 60,300
Supporting computation for doubtful accounts at December 31, 2021:
sale Computation
November to December P 1,140,000 x 2%
July to October P 600,000 x 10%
January to June P 400,000 x 25%
Prior to January 1, 2021 (P 130,000 - P 60,000 write-off) x 75%
Required Allowance for doubtful accounts, 12/31/2021
Less: Unadjusted Allowance for Doubtful accounts, 12/31/2020 (See No. 1)
Additional provision for Doubtful Accounts during 2021
PROBLEMS
VALUATION (at NRV)

VALIDITY
ACCURACY
ON provided for uncollectible accounts receivable under

bts written off were charged to the allowance account;
nd, no year-end adjustments to the allowance account
021. During 2021 credit sales totaled P 9,000,000,

bad debts written off, and recoveries of accounts
in November 2021 and an aging of accounts receivable
Estimated %
Uncollectible
2%
10% John John:
25% as corrected
75% before correction, given
was P 52,500
y 1, 2021” aging category, additional receivables totaling P

ber 31, 2021, Blue Powder adopted a new accounting
he year-end aging analysis of accounts receivable.
counts for the year ended December 31, 2021. Show
ul Accounts balance as of December 31, 2021.
Credit
or the year ended December 31, 2021 with supporting

Allowance for D/A
Debit Credit
130,000 130,000
180,000 180,000
-90,000 90,000
15,000 15,000
235,000
60,000 60,000
175,000 150,000 325,000 175,000 Unadjusted balance
60,300 60,300 (P 235,000 adjusted - P 175,000 unadjusted)
235,300 150,000 385,300
235,300
Accounts balance as of December 31, 2021.
Credit
60,300
ADA,
ADJUSTED
22,800
60,000
100,000
52,500
235,300
175,000
60,300 DAE
00 unadjusted)
STRAIGHT PROBLEMS
Allowance for DA
Debit Credit
xxx Provision
xxx Recovery
xxx Account balance
Problem 12
Change from Direct Write-off to Allowance Method of Recording Bad Debts
From inception of operations in 2016, Polo Company carried no allowance for doubtful accounts. Uncollectible receivables we
expensed as written off and recoveries were credited to income as collected. On March 1, 2020 (after the 2019 financial
statements were issued) management recognized that Polo’s accounting policy with respect to doubtful accounts was not correct
determined that an allowance for doubtful accounts was necessary. A policy was established to maintain an allowance for do
accounts based on Polo’s historical bad debt loss percentage applied to year-end accounts receivable. The historical bad
loss percentage is to be recomputed each year based on the relationship of net write-offs to credit sales for all available past
up to a maximum of five years.
Information from Polo’s records for five years is as follows:
Year Credit Sales Accounts Written-off Recoveries

Inception date 2016 1,500,000 15,000 0
2017 2,250,000 38,000 2,700
2018 2,950,000 52,000 2,500
2019 3,300,000 65,000 4,800
Current Year 2020 4,000,000 83,000 5,000
Accounts receivable balances were P 1,250,000 and P 1,400,000 at December 31, 2019 and December 31, 2020.
Required:
. Prepare the journal entry, with appropriate explanation, to set up the Allowance for Doubtful Accounts as January 1, 2020.
Disregard income taxes. Show supporting composition in good form.
. Prepare a schedule analyzing the changes in the account “Allowance for Doubtful Accounts” for the year ended December 3
2020. Show supporting computations in good form.
SOLUTION:
. The journal entry, with appropriate explanation, to set up the Allowance for Doubtful Accounts as January 1, 2020.
Disregard income taxes with supporting composition in good form.
Date Account Names Debit Credit

2021
Dec 31
. A schedule analyzing the changes in the account “Allowance for Doubtful Accounts” for the year ended December
2020 with supporting computations in good form.
SOLUTION:
Disregard income taxes with supporting composition in good form.
Analysis of existing practice: Direct Write-off Method

Dr. Cr.
Write-off of accounts:
Bad Debts Expense xxx
Accounts Receivable xxx
Recovery of accounts written off:

Cash xxx
Miscellaneous Income xxx
New Practice - Allowance Method

(Based on Accounts Receivable)
Date Account Names Debit Credit John John
2020 The debit i
Dec 31 Retained Earnings 20,000 establish th
Allowance for Doubtful Accounts 20,000 books of 20
Setting up of 1/1/2020 ADA BALANCE laready ded
income is
(P 1,250,000 AR 12/31/2019 x 1.6%)
expense, it
RE entry is
Year No. Credit Sales Accounts Written-off Recoveries

Inception 2016 4 1,500,000 15,000 0
2017 3 2,250,000 38,000 2,700
2018 2 2,950,000 52,000 2,500
Cut-off 2019 1 3,300,000 65,000 4,800
10,000,000 170,000 10,000
Total accounts written - off 170,000

Less: Total recoveries 10,000
Actual Bad Debts Expense for four (4) years 160,000 Net write-off
Divide by Total Credit Sales (this is prior years using DWO - simplest way) 10,000,000
Bad Debts Rate 1.60% for year 2019
2020 with supporting computations in good form.
SOLUTION:

2020
Allowance for Doubtful Accounts 81,800
Supporting computation:
Allowance for Doubtful Accounts, 1/1/2020 (See number 1) 20,000
Total Accounts written off in 2020 -83,000
Total recoveries in 2020 5,000
Allowance for Doubtful Accounts, 12/31/2020, unadjusted (Debit balance) -58,000
Provision for Doubtful Accounts Expense for 2020 81,800
Required Allowance for Doubtful Accounts, 12/31/2020 (adjusted ADA) - credit bal. 23,800
(P 1,400,000 as of 12/31/2020 x 1.7% rate for 2020)
Year No. Credit Sales Accounts Written-off Recoveries

2016 5 1,500,000 15,000 0
2017 4 2,250,000 38,000 2,700
2018 3 2,950,000 52,000 2,500
2019 2 3,300,000 65,000 4,800
Cut-off 2020 1 4,000,000 83,000 5,000
14,000,000 253,000 15,000

Actual Bad Debts Expense for five (5) years 238,000 Net write-off
Divide by Total Credit Sales 14,000,000
Bad Debts Rate 1.70% for year 2020
VALUATION (at NRV)
VALIDITY
ACCURACY
Notes:
ncollectible receivables were If using the allowance method, DA % is necessary to be determined.
(after the 2019 financial The client must establish policies on how to determine the DA%.
ul accounts was not correct and Usually, it is based on past experience (but how many years of
ntain an allowance for doubtful
ceivable. The historical bad debt experience - this must be stated in policies)
sales for all available past years Therefore, DA % may change every year.
Net write -off = Write off - Recoveries
John John:
we will establish the December 31,
2019 ADA
John John:
counts as January 1, 2020. Beginning They shift from DWO method to Allowance
balance
method. Jan 1, 2020 is the first setting up
the year ended December 31, Ending of ADA before any adjustments for the
balance yeat 2020.
ounts as January 1, 2020.
the year ended December 31,

ounts as January 1, 2020.
John John:
The debit is Retained Earnings and not DAE because we
establish the ADA during 2020. Therefore, the accounting
books of 2019 is already closed. In short, the DAE of 2019 is
laready deducted from net income of 2019 in which this net
income is closed to Retained Earnings of 2019. Since DAE is
expense, its effect in RE is decrease. This is the reason why
RE entry is debit.
Year 2019 transactions
the year ended December 31,
Allowance for DA
Debit Credit
20,000
83,000
5,000
83,000 25,000 -58,000 Unadjusted Balance (Debit)
81,800 PROVISION = Sum of P 23,800 credit adjusted ADA and P 58,000 debit unadjusted ADA
83,000 106,800
23,800 Adjusted balances
Allowance for DA
Debit Credit
John John:
workback procedure
unadjusted 58,000 81,800 DAE
(P 23,800 credit balance + P 53,800 debit balance)
23,800 adjusted
Year 2020 transactions
sted ADA and P 58,000 debit unadjusted ADA
n John:
back procedure
3,800 credit balance + P 53,800 debit balance)
STRAIGHT PROBLEMS
Problem 13
Detection of Lapping Procedures
During your audit of Accounts Receivable for the accounting period 2021, you observed something unusual in the December,
2021 Accounts Receivable general ledger presented to you by the accountant of Bulacan Corporation.
ACCOUNTS RECEIVABLE
Date Transactions Debit Credit
2021
Dec. 01 Balance forwarded
05 Collection from A. VIllamar (OR 250) 4,000
07 Sales on credit to J. dela Cruz 15,000
10 Collection from J. dela Cruz (OR 251) 5,000
14 Collection from J. Julian (OR 252) 8,000
18 Sales on credit to E. Leoncio 7,000
22 Sales on credit to G. Adriano 12,000
27 Sales on credit to J. Enriquez 9,000
29 Collection from G. Adriano (OR 254) 3,000
The subsidiary ledgers of customers with transactions during December, 2021 are as follows:
A. VILLAMAR
2021
05 Collection 3,000
10 Collection 1,000
J. DELA CRUZ
2021
Dec. 07 Credit sales 15,000
10 Collection 3,000
14 Collection 1,000
23 Collection 1,000
E. LEONCIO
2021
J. JULIAN
2021
14 Collection 6,000
23 Collection 2,000
29 Collection 1,000
G. ADRIANO
2021
29 Collection 1,000
J. ENRIQUEZ
2021
Further audit revealed that the following Official Receipts contain the following amounts which did not tally with the deposit
slips the next day when the collection will be deposited to client’s depository bank:
Date OR No. Received From Amount

2021
Dec. 05 250 A. Villamar 4,000
10 251 J. dela Cvruz 5,000
14 252 J. Julian 8,000
23 253 J. Julian 4,000
29 254 G. Adriano 3,000
Required:
Prepare the lapping schedule
SOLUTION:
Actual Cash Receipts GL - Actg. Books Entries

Date Source Amount Dr. - Cash Cr. Act. Rec.
2021
Dec. 05 A. Villamar 4,000 4,000 4,000
10 J. dela Cruz 5,000 5,000 5,000
14 J. Julian 8,000 8,000 8,000

23 J. Julian 4,000 4,000 4,000
29 G. Adriano 3,000 3,000 3,000

TOTAL 24,000 24,000 24,000
LESS: ACTUAL CASH RECEIPTS
CASH SHORTAGE
REQUIRED ADJUSTING JOURNAL ENTRY:

2021
Dec 31 Receivable from Cashier 5,000
Cash 5,000
nusual in the December,
n. LAPPING
It will materialize if there is weakness in internal control.
GL No. 105 Example: no segregation of duties/function.
Balance
Detailed example:
35,000 The cashier is also the bookkeeper (GJ, GL, ARSL)
31,000
46,000 In lapping, there is a postponement or delay in
41,000 recording the collection in ARSL because of cash
33,000 theft upon collection by the cashier/bookeeper.
40,000
52,000
48,000
57,000
54,000
Act. No. 5-20

Balance
15,000
12,000 Lapping of P 1,000
11,000 From J. dela Cruz
Act. No. 5-25

Balance
15,000
11,000 From J. Julian
10,000 From J. Julian
Act. No. 5-35

Balance
7,000
Act. No. 5-48

Balance
13,000
4,000 From G. Adriano
Act. No. 5-52
Balance
12,000
Act. No. 5-55

Balance
9,000
tally with the deposit
Entries in ARSL CASH SHORTAGE

Date Amount Balance Covered by
Dec. 05 3,000 1,000

Dec. 10 1,000 0 Collection from J.dela Cruz
Dec. 10 3,000 2,000 Collection from J. Julian

Dec. 23 1,000 0 Collection from J. Julian
Dec. 14 6,000 2,000

Dec. 23 2,000 4,000
Dec. 29 1,000 3,000 From G. Adriano
Dec. 29 1,000 2,000

19,000
24,000
-5,000
STRAIGHT PROBLEMS
NOTES RECEIVABLE
Debit Credit
Beginning balance xxx
Receipt of PN from maker xxx xxx Collection of PN from maker
xxx Discounting of PN without rec
xxx Reclassification of NR
Total xxx xxx
John John:
Ending Balance There are various reas
to reclassify.
Problem 14
Classification of Notes Receivable
You are auditing the notes receivable account of Casablanca Corporation for the calendar year 2021. During your audit, the Gene
for Notes Receivable is presented to you as shown below:
NOTES RECEIVABLE (as stated, this is TRADE NR)

Date Transactions Debit
2021
Sept. 1 Camiguin, 21% due in 3 months 8,000
1 Discounted Camiguin note
Oct. 1 Guimaras Company, 24% due in 2 months 30,000
Nov. 1 Zamboanga Company, 24% due in 13 months 60,000
30 Cagayan Company, no interest, due in one year 50,000
30 Discounted Cagayan Company's note
Dec. 1 Tarlac Company, 18% due in 5 months 90,000
1 Luz V. Minda, president, 12% due in 3 months
(For cash loan given to Luz V. Minda) 120,000
All notes are trade notes receivables unless otherwise stated.
The Camiguin note was paid on December 1, 2021 as per notification received from the bank.
The Guimaras note was dishonored on the due date but the legal department has assured management of its full
collectibility. (It means - Interest continues to accrue after maturity)
The company, with your concurrence will not use the notes receivable discounted account but will merely disclose on the note
financial statements the amount of notes receivable discounted but still outstanding.
Required:
. At what amount on the current asset section of the statement of financial position dated December 31, 2021 will the notes
trade be carried?
. Based on the ledger account presented, what amount of interest income should be accrued at December 31, 2021?
SOLUTION:
. At what amount on the current asset section of the statement of financial position dated December 31, 2021 will the
receivable - trade be carried?
Zamboanga Company. 24% due in 11 months 60,000
Tarlac Company, 18%, due in 4 months 90,000
Total Notes Receivable - Trade, December 31, 2021 150,000
Supporting analysis:
Notes Receivable
2021
1 Guimaras note was dishonored - RECLASSIFY TO AR
1 Reclassify to Advances to Officers
31 Accrual of interest - Zamboaga Company
31 Accrual of interest - Tarlac Company
31 Total balances 358,000
Account Balance
31 Balances 358,000
Guimaras P 30,000 x 24% x 3/12 (continues to accrue from Oct 1 to Dec. 31)
Luz V. Minda, president P 120,000 x 12% x 1/12 (1 month accrual)
Zamboanga Company P 60,000 x 24% x 2/12
Tarlac Company P 90,000 x 18% x 1/12
Total amount of interest income that shoould be accrued at December 31, 2021
John John:
(A) Without recourse (partial entry):
ollection of PN from maker Cash xxx
iscounting of PN without recourse NR xxx
eclassification of NR
(B) With recourse (partial entry):
John John: Cash xxx
There are various reasons NR Discounted xxx (contingent liab.)
to reclassify.
SFP:
NR (At face amount) xxx Asset
Less: NR Discounted (at FA) xxx Liability
NR (net) xxx
During your audit, the General Ledger
NOTES RECEIVABLE
Credit Debit Credit VALIDITY
ACCURACY
8,000 EXISTENCE
8,000 8,000 RIGHTS
30,000 PRESENTATION AND DISCLOSURE
60,000 (a) Collateral
50,000 (b) Pledged
50,000 50,000 (c) Discounted
90,000 (d) On hand of collecting agency
120,000
358,000 58,000
300,000
John John:
In this case, only the principal is reclassified to AR.
AR (ONLY PRINCIPAL) XXX
NR (at principal) xxx
ment of its full
Interest will continue to accrue.
Interest Receivable xxx
merely disclose on the notes to the Interest Income xxx
mber 31, 2021 will the notes receivable - TAKE NOTE:

If notes receivable is interest bearing,
December 31, 2021? determine if interest income is received
in advance (Unearned Interest Income but
identify the method used if income method
December 31, 2021 will the notes or liability method), or to be received
at maturity date (accrued interest income).
ACCRUED INCOME,
December 31, 2021
Notes Receivable Accounts Receivable Int. Rec. Int. Inc.
8,000 Discounted without recourse
Current - Oustanding at 12/31/2021 (11 months remaining from
50,000 Discounted without recourse

Current - Oustanding at 12/31/2021 (4 months remaining from 1
30,000 30,000 1,800 1,800 P 30,000 x 24% x 3/12 (continues to accrue from Oct 1 to Dec. 31)
1,200 1,200 P 120,000 x 12% x 1/12 (1 month accrual) - NONTRADE NOTES R

120,000
2,400 2,400 P 60,000 x 24% x 2/12
1,350 1,350 P 90,000 x 18% x 1/12
208,000
150,000 6,750
358,000 No 2
ed at December 31, 2021?
1,800
1,200
2,400
1,350
6,750
AND DISCLOSURE
collecting agency
out recourse
ding at 12/31/2021 (11 months remaining from 12/31/2021)
out recourse
ding at 12/31/2021 (4 months remaining from 12/31/2021)
3/12 (continues to accrue from Oct 1 to Dec. 31)
x 1/12 (1 month accrual) - NONTRADE NOTES REC.

STRAIGHT PROBLEMS
Problem 15
Working Paper for Notes Receivable
During the course of the audit of the financial statements of Cyprus Corporation (C-Corp.) for the year ended December 31, 2021
PN Maker Rate Principal Term

1 Alaska Company 16% 100,000 4-months
2 Hakuna Matata 16% 250,000 90 days
3 Norway Investment Corp. 16% 300,000 60 days
4 R. Julio, C-Corp. president - 80,000 90 days
5 Sweden Company 16% 60,000 120 days
In addition to the above, a draft payable 30 days after date for P 450,000 by the Brazil Company on the Denmark Company in fav
Company, endorsed to Cyprus Company, on December 2, 2021 and accepted on December 4, 2021.
When discounting its own note, it is the company's policy to debit Interest Expense for the discount and to credit Interes
Required:
From the information presented, prepare the following:
. Working papers for the Notes Receivable as of December 31, 2021 using the following columns:
(All answers must be rounded off to the nearest peso)
Maker Interest: Remarks

Date of note Interest rate
Due Date Amount
Received
Accrued
Earned
. Prepare all the necessary audit adjustments, including entries for interest accrued and prepaid
. How will you present Notes Receivable to statement of financial position at December 31, 2021?
SOLUTION:
. Working papers for the Notes Receivable as of December 31, 2021
CYPRUS CORPORAT
Notes Receivable
December 31, 2021
NOTES RECEIVABLE - TRADE

DATE
Maker of Note Due/Maturity Date Interest Rate
4-months Alaska Company 11/30/2021 03/30/2022 16%
90-days Hakuna Matata 11/01/2021 01/30/2022 16%
60-days Norway Investment Corp. 05/03/2021 2/7/2021 16%
90-days R. Julio, C-Corp. president 01/04/2021 4/4/2021 -
120-days Sweden Company 09/14/2021 12/1/2022 16%

30-days Brazil Company 12/02/2021 2/1/2022 -
Balance per ledger, unadjusted
Adjustments:
AJE 1 To reclassify as Subscription Receivable
AJE 2 To reclassify as past due account
AJE 3 To reclassify as note due from president of C-Corp.
Balance per ledger, adjusted
A. Alaska Company:
Interest Received = P 100,000 x 16% x 4/12 = P 5,333
Interest Earned = P 5,333 / 4 months = P 1,333
B. Hakuna Matata:
Interest Earned = P 250,000 x 16% x 60/360 = P 6,667
C. Norway Investment Corporation:

Interest Accrued/earned = P 300,000 x 16% x 60/360 = P 8,000.
D. Sweden Company:
Interest accrued/earned = P 60,000 x 16% x 108/360 = P 2,880
. The necessary audit adjustments, including entries for interest accrued and prepaid

2021 (AJE 1)
Dec 31 Subscription Receivable - Hakuna Matata 250,000
Reclassifying Journal Entries
Notes Receivable
(AJE 2)
31 Accounts Receivable - Norway Investment Corporation 308,000
Notes Receivable
Interest Income
(AJE 3)
31 Advances to Officers - R. Julio 80,000
Notes Receivable
(AJE 4)
31 Prepaid Interest - Alaska Co. (P 105,333 MV x 16% x 3/12) 4,213
Interest Expense
Critical To record prepaid interest for January to March, 2021
part of the
problem (AJE 5)
31 Interest Income (P 100,000 x 16% x 3/12) 4,000
Unearned Interest Income - Alaska Company
(AJE 6)
31 Interest Receivable - Sweden Company 2,880
Interest Income
(AJE 7)
31 Interest Receivable - Hakuna Matata 6,667
Interest Income
. Presentation of Notes Receivable to statement of financial position at December 31, 2021
This is presented as part of Trade and Other Receivables in the Statement of Financial Position with related notes as follow
Notes Receivable - trade 610,000

Less: Notes Receivable Discounted 100,000
Notes Receivable - trade (net) 510,000
The Note Receivable of Alaska Company of P 100,000 was discounted with recourse on November 30, 2021 at a
discount rate of 16%. Term is 4-months.
The Note Receivable of Sweden Company of P 60,000 with a term of 120-days and interest rate of 16% is held by ba
as collateral for a loan.
A draft payable 30 days after date for P 450,000 by the Brazil Company on the Denmark Company in favor of the Gre
endorsed to Cyprus Company, on December 2, 2021 and accepted on December 4, 2021.
OBLEMS
or the year ended December 31, 2021, you examined the notes receivable represented by the following:
Discounting of Notes
Date of PN Date Rate Nature of Transaction and Other Remarks
11/30/2021 11/30/2021 16%
11/01/2021 - - 2,500 preference shares subscription at P 100 each
05/03/2021 - - Dishonored at maturity; Collection doubtful
01/04/2021 - - Note not renewed; president confirmed
09/14/2021 - - Note is held by bank as collateral
mpany on the Denmark Company in favor of the Greece

er 4, 2021.
for the discount and to credit Interest Income for the revenue.
John John:
INTEREST INCOME
CYPRUS CORPORATION collected in advance
Notes Receivable
December 31, 2021 John John:
INTEREST INCOME collectible at maturity date but
computation of income is only up to FS date.
INTEREST - 12/31/2021
Amount Received Accrued Earned REMARKS
100,000 5,333 1,333 Discounted on 11/30/2021 at 16% (AJE 5)
John John:
250,000 6,667 6,667 Subscription Receivable on 2,500 Preference Shares;
discounted on date
Subscription Receivable (AJE 1)/(AJE 7) Therefore, the disc
300,000 8,000 8,000 Dishonored at maturity; collection is doubtful; Accounts months also.
Receivable (AJE 2)
80,000 Maker is the C-Corp President; not paid at maturity; not
renewed; confirmed; Advances to Officers (AJE 3)
60,000 2,880 2,880 Note held by bank as collateral; (AJE 6); Disclosure
450,000 Accepted by C-Corp. on 12/04/2021; Disclosure
1,240,000
-250,000
-300,000
-80,000
610,000 5,333 17,547 18,880
Credit
Hakuna Matata
250,000
Norway Investment Corporation

300,000
8,000
R. Julio, Company President

80,000
Alaska Company - From 12/31/2021 to 3/30/2022 (3 months)

4,213 Per policy, expense method is used when notes is discounted

4,000 Income method is used upon discounting
Sweden Company - From 12/31/2021 to 3/30/2022 (3 months)

2,880
Hakuna Matata - From 12/31/2021 to 3/30/2022 (3 months)

6,667
ial Position with related notes as follows: John John:
Alaska Company P 100,000 (Discounted NR)
Sweden Company 60,000
Brazil Company 450,000
Total P 610,000
recourse on November 30, 2021 at a
s and interest rate of 16% is held by bank
e Denmark Company in favor of the Greece Company,

ember 4, 2021.
Discounting of NR:
1) Interest income = PRT (up to maturity date) / (Received in advance)
This can be recorded using either:
(a) Income Method (Interest Income)
ther Remarks (b) Liability method (Unearned Interest Income)
2) Maturity Value (MV) = Principal + Interest income (in Number 1)

3) Interest income actually earned = PRT (up to discounting date)
4) Discount (Interest Expense) (D = MV x DR x DP) [Paid in advance)

= MV (Principal) x Discount Rate (Interest Rate) x Discount Period (Time)
Note: Discount Period is from Discounting Date to Maturity Date of PN
5) Proceeds = MV - D
Notes: In discounting of NR, interest expense is deducted in advance.
How the interest expense paid in advance is recorded?
(a) Asset method (Prepaid Interest)
(b) Expense method (Interest Expense)
John John:
discounted on date of receipt of note.
Therefore, the discount should be at 4
months also.
MODULE 3.02
ANSWER KEY
STRAIGHT PROBLEMS
Problem 1
Computation of Accounts Receivable Balance from Related Transactions
(Adapted from )
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
Allowance for DA
Debit Credit
xxx Provision
xxx Recovery
xxx Account balance
During your audit of Honey Bee Corporation for the calendar year ended December 31, 2021, you gathered the following
transactions relating to its Accounts Receivable:

The net realizable value of Accounts Receivable at December 31, 2020 was P 3,528,000 while the related Allowance for Doubtful
Accounts balance was P 72,000.
Required:
. What is the accounts receivable balance as of December 31, 2021?
. What is the allowance for doubtful accounts balance as of December 31, 2021?
borrowings
SOLUTION:
. Computation of accounts receivable balance as of December 31, 2021

Add: Sales on accounts 38,400,000
Bad debts recoveries 40,000
Total
Less: Current receivables collected, before cash discounts
(P 31,360,000 + P 640,000) 32,000,000
Accounts written off 160,000
Collections made on AR pledged as collateral 1,200,000

Accounts Receivable
Debit
Accounts Receivable, December 31, 2020 3,600,000
Sales on accounts 38,400,000
Current receivables collected, before cash discounts
(P 31,360,000 + P 640,000)
Total balances 42,040,000
Accounts Receivable, December 31, 2021 8,640,000
. Computation of allowance for doubtful accounts balance as of December 31, 2021

Add: Bad debt recoveries 40,000
Provision for doubtful accounts 184,000
Total
Less: Accounts written off

Allowance for DA
Debit
Bad debt recoveries
Accounts written off 160,000
Total balances 160,000
Accounts receivable, 12/31/2021 (See Number 1)

Less: Allowance for doubtful accounts, 12/31/2021 (See Number 2)
Net realizable value, 12/31/2021
borrowings
Explanation:
Receivables hypothecated or pledged against borrowings should be disclosed.
Problem 2
Accounts Receivable and Related Accounts
(Adapted from )
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
Presented below are unrelated transactions. Abswer the questions relating to each situation
Case 1:
Aloha Corporation presented to you the following information during its first year of operations:

Cash basis 600,000
On credit basis 300,000
Unsold inventory at year-end:
FIFO method 246,000
LIFO method 230,000
Collection from customers 300,000
All goods are sold at 30% above cost.
Required:
Determine the accounts receivable balance at the end of the company's first year of operations.
SOLUTION:
Cash basis 600,000
On credit basis 300,000 900,000
Less: Unsold inventory at year-end:
FIFO method 246,000
Cost of goods sold at year-end 654,000
Multiply by sales rate based on cost 130%
Total sales during the year 850,200
Less: Collection from customers during the year 300,000
Accounts Receivable balance at year-end 550,200
Case 2:
Sayonara Company is engaged in selling variety of imported goods. At December 31, 2020, it reported the following in its
statement of financial position:
Accounts Receivable 659,250 6,592,500

Less: Allowance for Doubtful Accounts 40,050 400,500
Accounts Receivable, net 619,200
During the year, the entity earned sales revenue of P 161,310,750 and collected cash of P 158,421,150 from various customers.
It is estimated that doubtful accounts for the year was 1% of sales revenue. During the year, the entity wrote off uncollectible
accounts receivable totalling P 1,631,850.
Required:
Compute the net realizable value of accounts receivable at December 31, 2021
SOLUTION:
AR ADA
January 1, 2021 balances 659,250 40,050
Transactions during 2021:
Revenue from sales 161,310,750
Collection fo accounts -158,421,150
Provision for Doubtful accounts expense
(P 161,310,750 x 1%) 1,613,108
Accounts written off -1,631,850 -1,631,850
December 31, 2021 balances 1,917,000 21,308
Case 3:
Presented below are the amounts on the 2020 and 2021 financial statements of Acacia Corporation:
2021 2020
Accounts Receivable ? 1,410,000
Allowance for Doubtful Accounts 60,000 30,000
Net Sales 7,800,000 7,200,000
Cost of Sales 5,700,000 5,256,000
Acacia Corporation's acccounts receivable trunover for 2021 is 6.5 times.

Required:
Compute the accounts receivable balance at December 31, 2021.
SOLUTION:
AR turnover = Net Sales / Average Accounts Receivable (net)
AR turnover = Net Sales / [AR, beginning + AR, ending) /2 ]
6.5 = P 7,800,000 / [(P 1,410,000 + X) / 2]
6.5 [(P 1,410,000 + X) / 2] = P 7,800,000
(P 9,165,000 + 6.5X) / 2 = P 7,800,000
(P 9,165,000 + 6.5X) = P 7,800,000 X 2
(P 9,165,000 + 6.5X) = P 15,600,000
6.5X = P 15,600,000 - P 9,165,000
6.5X = P 6,435,000
X = P 6,435,000 / 6.5
X = P 990,000
Case 4:
The policy of Batobalani , Inc. is to debit bad debts expense for 3% of all new sales. The following are the company's sales and
allowance for doubtful accounts for the past four years:
Year Sales ADA, year-end

2018 6,000,000 90,000
2019 5,900,000 112,000
2020 6,240,000 120,000
2021 4,840,000 150,000
Required:
Compute the amount of the accounts written off in 2019, 20220, and 2021?
SOLUTION:
YEAR
2019 2020
Allowance for Doubtful accounts, January 1 90,000 112,000
Add: Provision during the year
Year 2019 - P 5,900,000 sales x 3% 177,000
Year 2020 - P 6,240,000 sales x 3% 187,200
Year 2021 - P 4,840,000 sales x 3%
Total 267,000 299,200
Less: Allowance for Doubtful accounts, December 31 112,000 120,000
Accounts written-off during the year 155,000 179,200
Problem 3
Reclassifying Journal Entry for Receivables
(Adapted from )
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
An examination of the accounting records for the Luxurious Corporation indicates that all receivables are being recorded in a
single account entitles “Receivable”. An analysis of the account at December 31, 2021 reveals the following:
Accounts receivable (trade) 155,000

Accounts receivable (officers) 36,000
Ordinary Shares Subscription Receivable (current) 120,000
Notes Receivable (trade), due in 3 years 60,000
Deposit to guarantee contract performance 50,000
Utility deposit 5,000
Total 444,000
Required:
1. Prepare a compound journal entry to separate the preceding items into their proper accounts.
. How would each of the preceding items normally be reflected in Luxurious’ statement of financial position as at December
31, 2021?
SOLUTION:
1. Compound journal entry to separate the preceding items into their proper accounts.

2021
Dec. 31 Trade Accounts Receivable 155,000
Trade Notes Receivable 60,000
Receivables
. Presentation in the Statement of Financial Position as at December 31, 2021.
Current Assets:
Trade and Other Receivables Note 1 329,000
Non-current Assets:
Trade Notes Receivable (due in 3 years) 60,000
Note 1 - Trade and Other Receivables:

Trade Accounts Receivable 155,000
Total 329,000
Problem 4
Computation of Trade and Other Receivable Balance
(Adapted from )
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
The accounts receivable balance of Blue Heart Corporation as of December 31, 2021 was P 2,865,000. An analysis of this
account showed the following:
Worthless accounts receivable 37,500

in assigned accounts is P150,000) 375,000
finance charges of P30,000 330,000
made on receipts of checks) 75,000
TOTAL 2,865,000
Required:
1. What is the trade accounts receivable balance as of December 31, 2021?
. What is the total current trade and other receivables (net) as of December 31, 2021?
SOLUTION:
1. Computation of the trade accounts receivable balance as of December 31, 2021

Trade
Trade accounts
installmentreceivable
receivable- assigned
due 1 – 18 months 375,000
net of unearned finance charges of P30,000 300,000

Trade accounts on which post-dated checks are held 75,000
Total trade accounts receivable as at December 31, 2021 1,522,500
. Total current trade and other receivables (net) as of December 31, 2021
Trade receivables (See no. 1)
Other Receivables:
Accrued Interest income on bonds 150,000
Ordinary Shares Subscriptions receivable - due in 30 days 825,000
Total current trade and other receivables at December 31, 2021
Advances to Affiliated Companies 375,000
Notes
Advances to Affiliated Companies are normally presented under noncurrent assets.
Problem 5
Computation of Accounts Receivable Shortages
(Adapted from )
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
The following information from Jumbo Company’s first year of operations is to be used in treating the accuracy of Accounts
Receivable. The December 31, 2021 balance is P 360,000.
A. Collection from customers, P 720,000.

B. Merchandise purchased, P 980,000
C. Ending merchandise inventory, P 235,000.
D. Goods sell at 50% above cost.
E. All sales are on account.
Required:
. Compute the balance that Accounts Receivable should show.
. Determine the amount of any shortage or overage.
SOLUTION:
Notes
Merchandise purchase (Purchases) 980,000
Less: Ending merchandise inventory 235,000
Cost of sales 745,000
Sales Revenue (All on credit or on account) 1,117,500 Debit to Accounts Receivable
Less: Collection from customers 720,000 Credit to Accounts Receivabl
Req. 1 Accounts Receivable balance, 12/31/2021, per audit 397,500 Per audit or per verification
Less: Accounts Receivable balance, 12/31/2021, books 360,000
Req. 2 Accounts Receivable shortage, 12/31/2021 37,500 Subject to further audit
Problem 6
(Adapted from Basic Auditing Practice Volume 2)
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
Presented below is the Accounts Receivable Subsidiary Ledger of Martian Corporation, a customer of Planetarium Company,
from January 1 to June 5, 2021:
Customer - Martian Corporation

Credit Limit - P 20,000
Terms - 2/10, n/30
Reference
Date Particulars Doc. No. Debit Credit
2021
07 Sales INV 767 5,000
12 Cash OR 1307 5,000
20 Sales INV 800 1,200
28 Sales INV 965 1,060
- Cash OR 1518 9,200

18 Sales INV 1001 1,400
22 DM for INV No. 800 DM 217 72
05 Cash OR 1689 2,332
27 Sales INV 1113 836
28 Cash OR 1718 1,400
Mar. 02 Sales INV 1206 1,560

15 Cash OR 1790 1,220
28 Sales INV 1491 2,594
29 Cash OR 1868 956
Apr. 03 Sales INV 1627 1,636

14 Cash OR 1880 1,470
19 Sales INV 1798 1,422
23 CM for INV No. 1206 CM 121 90
26 Cash OR 1905 1,422
30 Sales INV 2001 420

17 Sales INV 2177 992
20 Cash OR 2096 1,062
Jun. 05 Cash OR 2107 1,636
Required:
Determine the age of accounts receivable of Customer Martian Corporation as of May 31, 2021 using the following basis:
A. First-in, first-out basis
B. Specific invoice basis
SOLUTION:
A.
Age of accounts receivable of Martian Corporation as at May 31, 2021 using First-in, first-out basis (FIFO Basis)
Date Transactions Reference Amount Not yet due

May 15 Sales INV 2010 642 642
May 17 Sales INV 2177 992 992
April 30 Sales INV 2001 420
March 28 Sales INV 1491 110
Total 5,222 1,634
Notes:
March 28 Sales is the difference of P 5,222 AR balance and all invoices from April to May, 2021.
Reference
2021
Mar. 02 Sales INV 1206 1,560
15 Cash OR 1790 1,220
28 Sales INV 1491 2,594
29 Cash OR 1868 956
Apr. 03 Sales INV 1627 1,636

14 Cash OR 1880 1,470
19 Sales INV 1798 1,422
23 CM for INV No. 1206 CM 121 90
26 Cash OR 1905 1,422
30 Sales INV 2001 420

17 Sales INV 2177 992
20 Cash OR 2096 1,062
B.
Age of accounts receivable of Martian Corporation as at May 31, 2021 using specific invoice basis
Date Transactions Reference Amount Not yet due

March 28 Sales INV 1491 2,594
May 17 Sales INV 2177 992 992
Total 5,222 992
Reference
2021
07 Sales INV 767 5,000
12 Cash OR 1307 5,000
20 Sales INV 800 1,200
28 Sales INV 965 1,060
- Cash OR 1518 9,200

18 Sales INV 1001 1,400
22 DM for INV No. 800 DM 217 72
05 Cash OR 1689 2,332
27 Sales INV 1113 836
28 Cash OR 1718 1,400
Mar. 02 Sales INV 1206 1,560

15 Cash OR 1790 1,220
28 Sales INV 1491 2,594
29 Cash OR 1868 956
Apr. 03 Sales INV 1627 1,636

14 Cash OR 1880 1,470
19 Sales INV 1798 1,422
23 CM for INV No. 1206 CM 121 90
26 Cash OR 1905 1,422
30 Sales INV 2001 420

17 Sales INV 2177 992
20 Cash OR 2096 1,062
Problem 7
(Adapted from )
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx

The Accounts Receivable control account balance of CHANDELIER COMPANY was P 430,600 as of December 31, 2021. The
subsidiary ledger accounts of the company are summarized below. Credit terms are 60 days net.
Customer Nilo Co Account No.

2021
Sep. 01 Collection OR 9022 6,000
Nov. 01 Collection OR 9883 6,000
Dec. 10 Credit sales INV 3312 6,000
Customer Halley Mao Account No.

2021
Jan. 01 2-months, 6% note PN 25-Y21 240,000
Mar. 01 Collection OR 7220 242,400
Dec. 01 2-months, 6% note PN 70-Y21 200,000
Customer Dina Macailag Account No.

2021
Feb. 03 Credit sales INV 2365 20,000
Aug. 03 Collection OR 8655 20,000
Customer Keena Wawa Account No.

2021
Feb 10 Credit sales INV 2400 60,000
Apr. 09 Collection OR 7350 60,000
Nov. 25 Credit sales INV 3154 4,440
Customer Ver Doogo Account No.

2021
Aug. 16 Credit sales INV 3020 8,880
Sep. 30 Credit sales - Open INV 2990 15,000
Oct. 15 Collection OR 9780 18,880
Oct. 18 Credit sales INV 3022 12,000
Dec. 20 Collection (invoice date 10/18) OR 9966 12,000
The Allowance for Doubtful Accounts, before the audit, has a credit balance of P 10,000. The Allowance for Doubtful Accounts is
to be adjusted to a balance determined as follows:
Accounts not due 0.5 %

Accounts 1 to 60 days past due 2%
Accounts 61 – 120 days past due 5%
Accounts over 120 days past due 50 %
The provision is to be based only on the trade accounts. Except where payments are earmarked, the oldest items are paid first.
Required:
From the information presented:
.
Prepare audit working papers for aging the accounts receivable. In your schedule, show also the disposition and any
remarks which you as the auditor, would note. USE THE SOLUTION GUIDE PROVIDED.
. Show your adjustments necessary for the provision for doubtful items and also any other necessary adjustments.
SOLUTION:
. Audit working papers for aging the accounts receivable.
CHANDELIER COMPANY
Aging Schedule of Accounts Receivable
AS of December 31, 2021
Balances
Act. No. Customers' Name 12/32/2021 Not yet Due
101 Nilo Co 24,000 6,000
120 Halley Mao 197,600
130 Dina Macailag 40,000
140 Keena Wawa 110,000 4,440
150 Ver Doogo 15,000
Total unadjusted balances 386,600 10,440
AJE 1 Less: Reclassified to Notes Receivable 197,600
Total adjusted balances 189,000
Doubtful Accounts Rate 0.50%

Allowance for Doubtful Accounts, adjusted 13,883 52
Allowance for Doubtful Accounts, unadjusted 10,000
AJE 2 Doubtful Accounts Expense 3,883
. Adjusting Journal Entries at December 31, 2021

2021 (AJE No. 1)
Dec. 31 Notes Receivable 200,000
Accounts Receivable
Interest Income
To reclassify notes receivable from accounts
receivable.
(AJE No. 2)
31 Doubtful Accounts Expense 3,883
Allowance for Doubtful Accounts Expense
Provision for doubtful accounts for the current
year 2021.
(AJE No. 3)
31 Interest Receivable 500
Interest Income
Accrual of interest income on notes receivable
for the current year (P 100,000 x 6% x 30/360)
Problem 8
Results of Receivable Confirmation
(Adapted from )
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
You obtained from your client, SLC Corporation, the following schedule of accounts receivable as of October 31, 2021:
Act. No. Conf. No. Name of Customers Balance

2018-20 001 Melba dela Cruz 18,000
2018-35 002 Ronald Magno 12,000
2018-45 003 Ana Marie Querol 10,000
2018-80 004 Aiko Villavicencio 10,000
2018-85 005 Cleofe Santiago 10,000
2019-05 006 Aezelle Villavicencio 16,000
2019-20 007 Jesse Caling 24,000
2019-25 008 Arthur Galicio 8,000
2020-33 009 Remuel Bernardo 14,000
2020-40 010 Benjamin Cabudbod 30,000
2020-42 011 Rhoda Marano 2,000
2021-12 012 Shirley Layug 22,000
2021-25 013 Jenielyn Mariano 4,000
2021-38 014 Anjelo Cruz 8,000
2021-50 015 Gieron Adriano 12,000
200,000
On November 8, 2021, you mailed out confirmation request to all customers above with the exception of Rhoda Maraño which
you verified personally since she is working with the company as secretary.
By November 30, 2021, the following replies had been arrived:

. Aiko Villavicencio, received November 15, confirms balance of P 10,000.
. Ana Marie Querol, returned by Post Office “Addressee Unknown.”
. Jesse Caling, received November 20, remarks “Balance is now paid.”
. Benjamin Cabudbud, received November 25, confirms P 20,000, remarks “We returned P 10,000 worth of
merchandise on November 12”.
. Gieron Adriano, returned by post office, “No such person”.
. Anjelo Cruz received November 26, confirms only P 6,000 remarks “You overcharged us P 2,000, we did not order
lipstick.”
You verified that P 10,000 of merchandise was actually returned by Benjamin Cabudbud on November 12. This was covered by
the company credit memo number 1615. You also verified an error in billing Anjelo Cruz for P 2,000. This error was corrected by
the company on November 10.
In accordance with instructions from your senior, you verified that the following were paid in November:
. Aiko Villavicencio, paid November 15, OR No. 4567.
. Jesse Caling, paid November 18, OR No. 5125.
. Ana Marie Querol, paid November 26, OR No. 5978.
. Aezelle Villavicencio, paid November 24, OR No. 5467.
. Rhoda Maraño, paid November 16, OR No. 4789
On December 2 you mailed the second requests for confirmations to all those who did not reply to the first requests, and by
December 15 you received the following replies:
. Cleofe Santiago, received December 7, P 10,000 OK
. Arthur Galicio, received December 8, remarks “This is not yet due, you allowed me 90 days credit.”
. Shirley Layug, December 10, Balance of P 22,000 confirmed.
Required:
Working papers compiling results of confirmation using the following column headings:
Account Number Confirmation Results Subsequent collection to Nov. 30

Name of Customers (1) Confirming balance (1) Date
Confirmation Number (2) Reporting differences (2) OR number
Address (3) Returned by Post Office (3) Amount
Per Client, October 31, Dr. Cr. (4) No Reply Remarks
SOLUTION:
SLC COR
Working Paper for Accou
Octobe
PER CLIENT
As of October 31, 2021
Act. No. Name of Customers Conf. No Address Debit Credit
2018-20 Melba dela Cruz 001 18,000
2018-35 Ronald Magno 002 12,000
2018-45 Ana Marie Querol 003 10,000
2018-80 Aiko Villavicencio 004 10,000
2018-85 Cleofe Santiago 005 10,000
2019-05 Aezelle Villavicencio 006 16,000
2019-20 Jesse Caling 007 24,000
2019-25 Arthur Galicio 008 8,000
2020-33 Remuel Bernardo 009 14,000
2020-40 Benjamin Cabudbod 010 30,000
2020-42 Rhoda Marano 011 2,000
2021-12 Shirley Layug 012 22,000
2021-25 Jenielyn Mariano 013 4,000
2021-38 Anjelo Cruz 014 8,000
2021-50 Gieron Adriano 015 12,000
200,000
100%
Problem 9
Sales Cut-off Test
(Adapted from )
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
Hero Auto Parts sells bew parts to auto dealers. Company policy requires that a pre-numbered shippig document be issued for
each sale. At the time of pick-up or shipment, the shipping clerk writes the dateon the shipping document. The last shipment
made in the year ended December 31, 2021 was recorded on document 6330. Shipments are billed in the order that the billing
clerk receives the shipping documents.
For late December 2021 and early January 2022, shipping documents are billed on sales invocies as follows:
Shipping
Document No. Sales Invoice No.
6326 5332
6327 5326
6328 5327
6329 5330
6330 5331
6331 5328
6332 5329
6333 5333
6334 5335
6335 5334
The December 2021 and January 2022 sales journals have the following information included:
DECEMBER, 2021 JANUARY, 2022

Day SI No. Amount Day SI No. Amount
30 5326 145,222 1 5332 528,262
30 5329 382,860 1 5331 21,278
31 5327 83,966 1 5333 170,412
31 5328 124,044 2 5335 250,100
31 5330 9,548 2 5334 129,316
Required:
. Compute the overstatement (understatementy) Sales account balance for the year ended December 31, 2021.
.
Prepare the necessary adjusting journal entry to correct the financial statements for the year ended December 31, 2021.
B. Completeness
C. Existence

A. Existence
D. Completeness
SOLUTION:
. Computation of the overstatement (understatementy) Sales account balance for the year ended December 31,
2021.
Shipping
Document No. Sales Invoice No. Date of Recording
6330 Last shipment in 2021 5331 January 1, 2022
NET UNDERSTATEMENT
ALTERNATIVE WAY OF ANALYSIS
SALES JOURNAL - DECEMBER, 2021

Day SI No. Amount Shipped in
SALES JOURNAL - JANUARY, 2022

Day SI No. Amount
NET UNDERSTATEMENT
.
The necessary adjusting journal entry to correct the financial statements for the year ended December 31, 2021.

2021
Dec. 31 Accounts Receivable 42,636
Sales
To correct the understatement of sales during
the year 2021.
B. Completeness
C. Existence

A. Existence
D. Completeness
Problem 10
Various Recorded Transactions Affecting Accounts Receivable and Related Accounts
(Adapted from )
Accounts Receivable
Debit Credit
xxx Write-offs
Account balance xxx
During your audit of Hawk Company for the year 2021, the following accounting records are presented to you by the accounting d
manager:
SALES JOURNAL
Acct. Rec. Sales Rev.
Date Sold To Inv. No. DR No. Debit Credit
2021
Dec. 02 Alpha Company 5551 6053 200,000 200,000
05 Beta Supplies Corporation 5552 6058 250,000 250,000
10 Charlie Manufacturing Company 5554 6063 300,000 300,000
13 Delta Services, Inc. 5555 6070 150,000 150,000
18 Echo Corporation 5556 6085 420,000 420,000
21 Foxtrot Link, Inc. 5557 6091 370,000 370,000
23 Golf Leaisure Park, Inc. 5558 6101 235,000 235,000
27 Hotel Magnifico Corporation 5559 6115 360,000 360,000
31 Total 2,285,000 2,285,000
CASH RECEIPTS JOURNAL

Cash Sales Disc.
Date Received From OR No. Inv. No. Debit Debit
2021
Dec. 01 Yankee Trading Company 6101 5545 240,000
03 Zulu Corporation 6102 5540 98,000 2,000
07 Romeo Services Company 6103 5553 120,000
12 Alpha Company 6104 5551 174,600 5,400
19 Oscar Dining Place, Inc. 6106 3705 50,000
26 Lima Trading Company 6108 5320 80,000
29 Whiskey Beverages Company 6109 5250 350,000
1,172,600 7,400
Further audit revealed the following:

. Collection from Yankee Trading Company on December 1, 2021 was paid by a check but returned by the bank due to insuff
fund. As of December 31, 2021, the account is still outstanding.
. Collection from Zulu Corporation on December 3, 2021 was paid within the discount period. Based on Invoice No. 5540, the
should be 3%. Zulu agreed to offset the difference to future purchase transactions.
.
Credit sales on December 10, 2021 to Charlie Manufacturing Company is for 320,000 based on Invoice No. 5554 but the P
of goods were returned on the same date due to inferior quality. A credit memo was also issued on December 10 regarding
Credit sales on December 10, 2021 to Charlie Manufacturing Company is for 320,000 based on Invoice No. 5554 but the P
of goods were returned on the same date due to inferior quality. A credit memo was also issued on December 10 regarding
. The collection from Alpha Company on December 12, 2021 is net of sales returns of P 20,000 on December 13 due to infer
term of the sales is 3/10, n/30.
. The collection from Beta Supplies Corporation on December 16, 2021 has a credit term of 3/10, n/30.
. The collection from Oscar Dining Place, Inc. on December 19, 2021 was a collection of accounts written off in year 2020 bu
2021. This is the only entry made upon recovery of such account.
.
The cash receipt from Delta Services, Inc. on December 22, 2021 is a partial collection of account with a credit term of 3/10
. Credit sales to Golf Leaisure Park, Inc. with Invoice No. 5558 is erroneously extended resulting to understatement of sales b
.
The collection from Lima Trading Company was not recorded in sales journal. Its related Delivery Receipt was dated Septem
The account balances of the following accounts are as follows:

A. Accounts Receivable at November 30, 2021 - P 750,000
B. Sales Discount from January 1 to November 30, 2021 - P 23,600.
C. Sales Revenue from January 1 to November 30, 2021 - P 21,120,000
Required:
. Compute the unadjusted balances at December 1, 2021 of the following accounts:
B. Sales Discount
C. Sales Revenue
. Compute the adjusted balances at December 31, 2021 of the following accounts:
B. Sales Discount
C. Sales Revenue
SOLUTION:
. Computation of unadjusted balances at December 1, 2021
Accounts Receivable
Debit Credit
Balances at November 30, 2021 750,000
Balances per Sales Journal, December 31, 2021 2,285,000
Balances per Cash Receipts Journal, December 31, 2021 1,100,000
Total 3,035,000 1,100,000
. The necessary adjusting journal entries at December 31, 2021
Date Account Names

2021 (AJE NO.1)
Dec. 31 Accounts Receivable - Yankee Trading Company
Cash
NSF Check.
(AJE NO.2)
31 Sales Discount [(3% - 2%) x P 100,000]
Customer's Credit Balances - Zulu Corporation
Understatement of sales discount to customers.
(AJE NO.3)
31 Accounts Receivable - Charlie Manufacturing Company
Sales Revenue
(AJE NO.4)
31 Accounts Receivable - Oscar Dining Place, Inc.
Re-establishment of accounts previously written off.
(AJE NO.5)
31 Accounts Receivable - Golf Leisure Park, Inc.
Sales Revenue
(AJE NO.6)
31 Accounts Receivable - Lima Trading Company
Accounts Receivable - Lima Trading Company
Understatement of sales in September 11, 2021
(AJE NO.7)
31 Accounts Receivable -Romeo Services Company
Sales Revenue
Unrecorded Sales in December, 2021 with SI No. 5553
. Computation of adjusted balances at December 1, 2021
Accounts Receivable
Debit Credit
Balances at December 31, 2021, unadjusted 1,935,000
Adjustments:
. Yankee Trading Company 240,000
. Zulu Corporation
. Charlie Manufacturing Company 20,000
. Oscar Dining Place, Inc. 50,000
. Gold Leisure Park, Inc. 5,000
. Lima Trading Company 80,000 80,000
. Romeo Services Company 120,000
08 Understated footing of cash receipts journal 240,000
2,450,000 240,000
Problem 11
Analysis of Allowance for Doubtful Accounts
(Adapted from )
Allowance for DA
Debit Credit
xxx Provision
xxx Recovery
xxx Account balance
From inception of operations to December 31, 2021, BLUE POWDER CORPORATION provided for uncollectible accounts receiv
allowance method: provisions were made monthly at 2% of credit sales; bad debts written off were charged to the allowance acco
recoveries of bad debts previously written off were credited to the allowance account; and, no year-end adjustments to the allowan
were made. Blue Powder’s usual credit terms are net 30 days.
The balance in the Allowance for Doubtful Accounts was P 130,000 at January 1, 2021. During 2021 credit sales totaled P 9,000,0
provisions for doubtful accounts were made at 2% of credit sales, P 90,000 of bad debts written off, and recoveries of accounts pr
written off amounted to P 15,000. Blue Soda installed a computer facility in November 2021 and an aging of accounts receivable w
for the first time as of December 31, 2021.
A summary of the aging is as follows:
Classification by month of Estimated %

sale Balance in each category Uncollectible
November to December 1,140,000 2%
July to October 600,000 10%
January to June 400,000 25%
Prior to January 1, 2021 52,500 75%
2,192,500
Based on the review of the collectability of the account balances in the “prior to January 1, 2021” aging category, additional receiv
P 60,000 were written off as of December 31, 2021. Effective with the year ended December 31, 2021, Blue Powder adopted a ne
method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts rec
Required:
. Prepare a schedule analyzing the changes in the Allowance for Doubtful Accounts for the year ended December 31, 2021. S
.
Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as of December 31, 2
SOLUTION:
. A schedule analyzing the changes in the Allowance for Doubtful Accounts for the year ended December 31, 2021 w
Allowance for Doubtful Accounts, January 1, 2021

Transactions during the year 2021:
• Interim provision for doubtful accounts at 2% of credit sales (P 9,000,000 x 2%)
• Accounts written off during the year
• Recovery of accounts previously written off
Balances
Less: Additional transactions in 2021 based on review of collectability of accounts balances:
• Additional accounts written off during the year from accounts balances “prior to 2020”
Allowance for Doubtful Accounts, December 31, 2020, unadjusted
ADD: PROVISION FOR DOUBTFUL ACCOUNTS AT DECEMBER 31, 2021 (See No. 2)
Allowance for Doubtful Accounts, December 31, 2021, unadjusted
.
The journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as of December 31, 2

2021
Supporting computation for doubtful accounts at December 31, 2021:
sale Computation Provision
November to December P 1,140,000 x 2% 22,800
July to October P 600,000 x 10% 60,000
January to June P 400,000 x 25% 100,000
Prior to January 1, 2021 (P 130,000 - P 60,000 write-off) x 75% 52,500
Required Allowance for doubtful accounts, 12/31/2021 235,300
Less: Unadjusted Allowance for Doubtful accounts, 12/31/2020 175,000
Additional provision for Doubtful Accounts during 2021 60,300
Problem 12
Change from Direct Write-off to Allowance Method of Recording Bad Debts
(Adapted from )
Allowance for DA
Debit Credit
xxx Provision
xxx Recovery
xxx Account balance
From inception of operations in 2016, Polo Company carried no allowance for doubtful accounts. Uncollectible receivables were e
written off and recoveries were credited to income as collected. On March 1, 2020 (after the 2019 financial statements were issue
management recognized that Polo’s accounting policy with respect to doubtful accounts was not correct and determined that an a
doubtful accounts was necessary. A policy was established to maintain an allowance for doubtful accounts based on Polo’s histor
loss percentage applied to year-end accounts receivable. The historical bad debt loss percentage is to be recomputed each year b
relationship of net write-offs to credit sales for all available past years up to a maximum of five years.
Information from Polo’s records for five years is as follows:

2016 1,500,000 15,000 0
2017 2,250,000 38,000 2,700
2018 2,950,000 52,000 2,500
2019 3,300,000 65,000 4,800
2020 4,000,000 83,000 5,000
Accounts receivable balances were P 1,250,000 and P 1,400,000 at December 31, 2019 and December 31, 2020.
Required:
. Prepare the journal entry, with appropriate explanation, to set up the Allowance for Doubtful Accounts as January 1, 2020. D
income taxes. Show supporting composition in good form.
. Prepare a schedule analyzing the changes in the account “Allowance for Doubtful Accounts” for the year ended December 3
Show supporting computations in good form.
SOLUTION:
income taxes with supporting composition in good form.
Analysis of existing practice:

Dr. Cr.
Write-off of accounts:
Bad Debts Expense xxx
Accounts Receivable xxx
Recovery of accounts written off:

Cash xxx
Miscellaneous Income xxx

2021
Dec 31 Retained Earnings 20,000
Setting up of 1/1/2020 ADA BALANCE
(P 1,250,000 ADA, 12/31/2019 x 1.6%)

2016 1,500,000 15,000 0
2017 2,250,000 38,000 2,700
2018 2,950,000 52,000 2,500
2019 3,300,000 65,000 4,800
10,000,000 170,000 10,000

Actual Bad Debts Expense for four (4) years 160,000
Bad Debts Rate 1.60%
SOLUTION:

2021
Allowance for Doubtful Accounts, 1/1/2020 (See number 1) 20,000
Total Accounts written off in 2020 -83,000
Total recoveries in 2020 5,000
Allowance for Doubtful Accounts, 12/31/2020, unadjusted -58,000
Less: Required Allowance for Doubtful Accounts, 12/31/2020
(P 1,400,000 x 1.7% rate for 2020) -23,800
Provision for Doubtful Accounts Expense for 2020 -81,800

2016 1,500,000 15,000 0
2017 2,250,000 38,000 2,700
2018 2,950,000 52,000 2,500
2019 3,300,000 65,000 4,800
2020 4,000,000 83,000 5,000
14,000,000 253,000 15,000

Actual Bad Debts Expense for four (4) years 238,000
Bad Debts Rate 1.70%
Allowance for DA
Debit Credit
Write-off 83,000 20,000 January 1, 2020
5,000 Recovery
Total balances 83,000 25,000 Total balances
Account balance 58,000
Problem 13
Detection of Lapping Procedures
(Adapted from CPA Reviewer in Auditing Practice)
During your audit Accounts Receivable for the accounting period 2021, you observed something unusual in the December, 2021
Accounts Receivable general ledger presented to you by the accountant of Bulacan Corporation.
ACCOUNTS RECEIVABLE
2021
05 Collection from A. VIllamar (OR 250) 4,000
07 Sales on credit to J. dela Cruz 15,000
10 Collection from J. dela Cruz (OR 251) 5,000
18 Sales on credit to E. Leoncio 7,000
22 Sales on credit to G. Adriano 12,000
27 Sales on credit to J. Enriquez 9,000
29 Collection from G. Adriano (OR 254) 3,000
The subsidiary ledgers of customers with transactions during December, 20 are as follows:
A. VILLAMAR
2021
05 Collection 3,000
10 Collection 1,000
J. DELA CRUZ
2021
10 Collection 3,000
14 Collection 1,000
23 Collection 1,000
E. LEONCIO
2021
J. JULIAN
2021
14 Collection 6,000
23 Collection 2,000
29 Collection 1,000
G. ADRIANO
2021
29 Collection 1,000
J. ENRIQUEZ
2021
Further audit revealed that the following Official Receipts contain the following amounts which did not tally with the deposit slips
the next day when the collection will be deposited to client’s depository bank:
Date OR No. Received From Amount

2021
Dec. 05 250 A. Villamar 4,000
10 251 J. dela Cvruz 5,000
14 252 J. Julian 8,000
23 253 J. Julian 4,000
29 254 G. Adriano 3,000
Required:
Prepare the lapping schedule
SOLUTION:
Preparation of a Lapping Schedule.
Actual Cash Receipts GL - Actg. Books Entries

Date Source Amount Dr. - Cash Cr. Act. Rec.
2021
Dec. 05 A. Villamar 4,000 4,000 4,000
10 J. dela Cruz 5,000 5,000 5,000
14 J. Julian 8,000 8,000 8,000

23 J. Julian 4,000 4,000 4,000
29 G. Adriano 3,000 3,000 3,000

TOTAL 24,000 24,000 24,000
LESS: ACTUAL CASH RECEIPTS
CASH SHORTAGE
REQUIRED ADJUSTING JOURNAL ENTRY:

2021
Dec 31 Receivable from Cashier 5,000
Cash 5,000
Problem 14
Classification of Notes Receivable
(Adapted from CPA Reviewer in Auditing Practice)
You are auditing the notes receivable account of Casablanca Corporation for the calendar year 2021. During your audit, the Gene
Notes Receivable is presented to you as shown below:
NOTES RECEIVABLE
2021
All notes are trade notes receivables unless otherwise stated.

The Camiguin note was paid on December 1, 2021 as per notification received from the bank.
The Guimaras note was dishonored on the due date but the legal department has assured management of its full collectibility.
(Interest continues to accrue after maturity)
The company, with your concurrence will not use the notes receivable discounted account but will merely disclose on the notes to
statements the amount of notes receivable discounted but still outstanding.
Required:
. At what amount on the current asset section of the statement of financial position dated December 31, 2021 will the notes re
trade be carried?
.
Based on the ledger account presented, what amount of interest income should be accrued at December 31, 2021?
SOLUTION:
. At what amount on the current asset section of the statement of financial position dated December 31, 2021 will the
receivable - trade be carried?
Zamboanga Company. 24% due in 11 months 60,000

Tarlac Company, 15 due in 4 months 90,000
Total Notes Receivable - Trade, December 31, 2021 150,000
Supporting analysis:
Notes Receivable
2021
1 Guimaras note was dishonored
1 Reclassify to Advances to Officers
31 Accrual of interest - Zamboaga Company
31 Accrual of interest - Tarlac Company
31 Total balances 358,000
Account Balance
31 Balances 358,000
Guimaras P 30,000 x 24% x 3/12 (continues to accrue from Oct 1 to Dec. 31)
Luz V. Minda, president P 120,000 x 12% x 1/12 (1 month accrual)
Zamboanga Company P 60,000 x 24% x 2/12
Tarlac Company P 90,000 x 18% x 1/12
Total amount of interest income that shoould be accrued at December 31, 2021
Problem 15
Working Paper for Notes Receivable
(Adapted from CPA Reviewer in Auditing Problems)
During the course of the audit of the financial statements of Cyprus Corporation (C-Corp.) for the year ended December 31, 2021,
PN Maker Rate Principal Term Date of PN

1 Alaska Company 16% 100,000 4-months 11/30/2021
2 Hakuna Matata 16% 250,000 90 days 11/01/2021
3 Norway Investment Corp. 16% 300,000 60 days 05/03/2021
4 R. Julio, C-Corp. president - 80,000 90 days 01/04/2021
5 Sweden Company 16% 60,000 120 days 09/14/2021
In addition to the above, a draft payable 30 days after date for P 450,000 by the Brazil Company on the Denmark Company in fav
Greece Company, endorsed to Cyprus Company, on December 2, 2021 and accepted on December 4, 2021.
When discounting its own note, it is the company's policy to debit Interest Expense for the discount and to credit Interest Income f
Required:
From the information presented, prepare the following:
. Working papers for the Notes Receivable as of December 31, 2021 using the follwing columns:
(All answers must be rounded off to the nearest peso)
Maker Interest: Remarks

Date of note Interest rate
Due Date Amount
Received
Accrued
Earned
. Prepare all the necessary audit adjustments, including entries for interest accrued and prepaid
. How will you present Notes Receivable to statement of financial position at December 31, 2021?
SOLUTION:
. Working papers for the Notes Receivable as of December 31, 2021
CYPRUS CORPORATION
Notes Receivable
December 31, 2021
DATE
Maker of Note Due Interest Rate Amount
4-months Alaska Company 11/30/2021 03/30/2022 16% 100,000
90-days Hakuna Matata 11/01/2021 01/30/2022 16% 250,000
60-days Norway Investment Corp. 05/03/2021 2/7/2021 16% 300,000
90-days R. Julio, C-Corp. president 01/04/2021 4/4/2021 - 80,000
120-days Sweden Company 09/14/2021 12/1/2022 16% 60,000

30-days Brazil Company 12/02/2021 2/1/2022 - 450,000
Balance per ledger, unadjusted 1,240,000
Adjustments:
AJE 1 To reclassify as Subscription Receivable -250,000
AJE 2 To reclassify as past due account -300,000
AJE 3 To reclassify as note due from president of C-Corp. -80,000
Balance per ledger, adjusted 610,000
A. Alaska Company:
Interest Received = P 100,000 x 16% x 4/12 = P 5,333
Interest Earned = P 5,333 / 4 months = P 1,333
B. Hakuna Matata:
Interest Earned = P 250,000 x 16% x 60/360 = P 6,667
C. Norway Investment Corporation:

Interest Accrued/earned = P 300,000 x 16% x 60/360 = P 8,000.
D. Sweden Company:
Interest accrued/earned = P 60,000 x 16% x 108/360 = P 2,880
. The necessary audit adjustments, including entries for interest accrued and prepaid

2021 (AJE 1)
Dec 31 Subscription Receivable - Hakuna Matata 250,000
Notes Receivable 250,000
(AJE 2)
31 Accounts Receivable - Norway Investment Corporation 308,000
Interest Income 8,000
(AJE 3)
31 Advances to Officers - R. Julio 80,000
(AJE 4)
31 Prepaid Interest - Alaska Co. (P 105,333 MV x 16% x 3/12) 4,213
Interest Expense 4,213
(AJE 5)
31 Interest Income (P 100,000 x 16% x 3/12) 4,000
Unearned Interest Income - Alaska Company 4,000
(AJE 6)
31 Interest Receivable - Sweden Company 2,880
(AJE 7)
31 Interest Receivable - Hakuna Matata 6,667
. Presentation of Notes Receivable to statement of financial position at December 31, 2021
This is presented as part of Trade and Other Receivables in the Statement of Financial Position with related notes as follow
John John:
Alaska Company
Sweden Company
Brazil Company
Total
John John:
Notes Receivable - trade 610,000 Alaska Company
Less: Notes Receivable Discounted 100,000 Sweden Company
Notes Receivable - trade (net) 510,000 Brazil Company
Total
The Note Receivable of P 100,000 was discounted on November 30, 2021 at a discount rate of 16%.
The Note Receivable of P 60,000 with a term of 120-days and interest rate of 16% is held by bank as collateral for a l
A draft payable 30 days after date for P 450,000 by the Brazil Company on the Denmark Company in favor of the Gre
Company, endorsed to Cyprus Company, on December 2, 2021 and accepted on December 4, 2021.
Problem 16
Audit of Receivables - Comprehensive Problems
(Adapted from CPA Reviewer in Auditing Problems)
You are a senior accountant on the staff of Jose and Jose, CPAs. You are in-charge of the annual audit of Capable Corporation fo
year 2020.
Your Working Balance Sheet (WBS) shows the following accounts, among others:
Cash 256,000
Allowance for Doubtful Accounts -70,000
Other Receivables 160,000
Inventories 490,000
Prepaid Expenses 40,000
Long-term Investments 120,000
Property, Plant and Equipment (net) 830,000
Other Assets 50,000
The Working Income Statement includes the following accounts:
Net Sales 3,600,000

Cost of Sales 2,340,000
Operating Expenses 729,000
Other Income 65,000
Other Expenses 40,000
Your audit notes follow:

A. CASH
The following items were noted:
. Included in cash are customers’ NSF Checks totaling P 3,000.
.
The December 31, 2020 outstanding checks include Check No. 6320 for P 15,000 payable to Howard and Company,
December 27, 2020. Howard and Company is a customer as well as a supplier. Instead of picking up this check, How
Company offset the amount against its payable to the company. The same amount in Accounts Receivable is still out
company’s books.
B. NOTES RECEIVABLE
This consisted of the following:
. Customers’ notes not due, P 150,000.
. Customers’ notes past due (accrued interest of P 2,000 included in Other Receivables), P 10,000.
C. ACCOUNTS RECEIVABLE
A reconciliation shows:
Per subsidiary ledger:
Accounts with debit balances 695,000
Less: Accounts with credit balances 30,000
Balance 665,000
Less: Unlocated difference 3,000
Per general ledger 662,000
Audit Notes:
.
Hearty Stores, P 24,000 – This represents goods shipped out on consignment and billed at 150% of cost. As of Dece
2020, 1/3 had been sold. Remittance from consignee was received January 5, 2021, less 20% commission and P 3,0
applicable to the entire consignment shipment which was paid by the consignee for the account of the consignor.
. Domino Trade Corporation, P 50,000 – This represents cash advanced by Capable Corporation with indefinite repaym
Domino is a wholly owned subsidiary.
. Test of Subsidiary Ledger – On a test basis, entries in the subsidiary ledger accounts were vouched and supporting d
traced to ledger entries. Following were among the accounts examined:
Crown Enterprises
Date Folio Debit Credit
2017
Feb. 04 SJ 5,000
2020
Nov. 18 SF 5,000
Worldwide Supply Corporation

2020
Jun. 10 SF 10,000
Jul. 08 SJ 6,000
Aug. 25 SJ 8,000
Sep. 20 CRJ 18,000
Nov. 07 SJ 7,000
Dec. 01 SJ 12,000
Manila Corporation
2020
Sep. 4 SJ 6,000
Oct. 28 SJ 2,500
Nov. 05 CRJ 8,330
. Worldwide Supply Corporation, P 28,000 – The customer is disputing this amount.

. Credit Terms – For all customers, 2/10, n/30.
. Credit balances in customers’ accounts – Following is a breakdown:
Customers Amount Comments

Famous Marketing 2,000 Should have been credited to Famas Marketin
has a debit balance of P 5,000 on December
Exultet Exporters 4,000 Allowance due to mistake in prici
Caloocan Supply, Inc. 3,000 Return of defective merchandise
Budapest Compamy 5,000 Allowance for defective merchandise.
Aldana and Company 6,000 Collected P 6,000 on August 1, 2020. This ac
previously written off as uncollectible on Dece
2019
Collected P 6,000 on August 1, 2020. This ac
2019
Green Field Marketing 10,000 Advance on goods delivered in January 2021
D. OTHER RECEIVABLES
Included in this account are the following:
. Cash advance to Reginald San Pedro, Vice President, P 12,000 given on September 1, 2020, payable in four equal s
installments starting February 28, 2021.
. Luzviminda Shipping Company, P 20,000. This represents a claim for shipping damages filed March 1, 2020, which h
denied by Luzviminda Shipping. A suit for breach of contract has been filed against Luzvimida and is now pending in
counsel believes that a favorable decision is probable.
Required:
. Compute the adjusted balances of the following accounts at December 31, 2020:
A. Notes Receivable
B. Accounts Receivable
C. Allowance for Doubtful Accounts
D. Other Receivables
. What amount of Trade and Other Receivables would be reported in the Statement of Financial Position of Capable Corpora
December 31, 2020?
SOLUTION:
. The necessary adjusting journal entries at December 31, 2020.

NOTE A - CASH
2020 (AJE 1)
Dec 31 Accounts Receivable 3,000
Cash 3,000
NSF Check of customers.
(AJE 2)
31 Cash 15,000
Offsetting of accounts receivable
to Accounts Payable.
NOTE B - NOTES RECEIVABLE

(AJE 3)
31 Accounts receivable 12,000
Notes Receivab;e 10,000
Other Receivable 2,000
Customers' notes past due.
NOTE C - ACCOUNTS RECEIVABLE

(AJE 4)
31 Sales (P 24,000 x 2/3) 16,000
Accounts Receivable - Hearty Stores 16,000
Reversing entry for consignment
recorded as sales.
(AJE 5)
31 Inventories [(P 24,000 x 2/3 / 150%] 10,667
Cost of Sales 10,667
Reversing the cost of consigned
goods recorded as sales.
(AJE 6)
31 Operating expenses - Commission 1,600
(P 24,000 x 1/3 x 20%)
Consignee's commission deducted
from accounts receivable.
(AJE 7)
31 Cost of Sales (P 3,000 x 1/3) 1,000
Inventories (P 3,000 x 2/3) 2,000
Allocation of freight on consignment
deducted from Accounts Receivable.
(AJE 8)
31 Long-term Investments 50,000
Cash advances to affiliates -
Domino Trade Corporation
(AJE 9)
31 Allowance for Doubtful Accounts 5,000
Accounts Receivable - Crown Ent. 5,000
Write off of accounts dated
February 4, 2017.
(AJE 10)
31 Net Sales (P 8,500 x 2%) 170
Accounts Receivable - Manila Corp. 170
Correcting the non-recognition
of sales discounts.
(AJE 11)
31 Accounts Receivable - Exultet Exporters 4,000
Customers' Credit Balances 4,000
Allowance due to mistake in
pricing.
(AJE 12)
31 Accounts Receivable - Caloocan Supply, Inc. 3,000
Return of defective merchandise.
(AJE 13)
31 Accounts Receivable - Budapest Company 5,000
Allowance for defective merchandise
(AJE 14)
31 Accounts receivable - Aldana and Company 6,000
Previously written off and collected
but not re-established upon collection.
(AJE 15)
31 Accounts Receivable - Green Field Marketing 10,000
Advance payment on goods
delivered in January 2021.
NOTE D - OTHER RECEIVABLES

(AJE 16)
31 Other Assets (P 12,000 x 1/2 - semi-annual) 6,000
Reclassifying the advances to
officers - noncurrent.
. Computation of the adjusted balances at December 31, 2020:
Notes Accounts
Explanation Receivable Receivable
Unadjusted balances, December 31, 2020 160,000 662,000

Adjustments:
AJE 1 NSF Check of customers. 3,000
2 Offestting of A/R to A/P -15,000
3 Customers' notes past due. -10,000 12,000
4 Consignment recorded as sales -16,000
6 Consignee's commission charged to AR -1,600
7 Consignment freight allocation -3,000
8 Cash advances to affiliates -50,000
9 Accounts written off on 02/04/2017 -5,000
10 Sales discount not recorded -170
11 Allowance due to pricing mistake 4,000
12 Return of defective merchandise 3,000
13 Allowance for defective merchandise 5,000
14 Re-establishment of accounts written-off 6,000
15 Unrecorded Advance payment on goods 10,000
16 Reclassying the advances to officers
Adjusted balances, December 31, 2020 150,000 614,230
. The amount of Trade and Other Receivables that would be reported in the Statement of Financial Position of
2020
Trade Receivables:
Other Receivables
Total Trade and Other Receivables
MULTIPLE CHOICE PROBLEMS - RECEIVABLES (DO-IT-YOURSELF)
MCQ PROBLEM 1
The unadjusted trial balance as at December 31, 2021 showed accounts receivable - trade with a debit balance of P 462,000.
Investigation revealed that it includes amounts due from officers - P 50,000; claim pending against freight company - P 6,000;
and refund on insurance policy - P 3,000.
According to subsidiary ledger which have been thoroughly checked and rechecked, the trade accounts totalled P 400,000,
composed of current accounts P 250,000; two-month accounts - P 80,000; and accounts three months or more - P 70,000.
Responsible official have acknowledged definite uncollectibility of three -month accounts with balance totalling P 15,000; they
have expressed doubt with respect to an additional P 16,000 worth of accounts in the same category; and they consider all other
accounts collectible.
Question 1:
At what net realizable amount should accounts receivable - trade be carried in the statement of financial position dated
December 31, 2021?
A. P 369,000
B. P 385,000
C. P 372,000
D. P 431,000
SOLUTION:
Trade receivables per subsidiary ledgers 400,000
Less: Accounts definitely uncollectible 15,000
Balance of trade receivables 385,000
Less: allowance for doubtful accounts 16,000
Net realizable value 369,000
MCQ PROBLEM 2
The accounbts receivable - trade showed a debit balance of P 50,000 on the December 31, 2021 trial balance, while the
allowance for doubtful accounts was reported in the same trial balance at a credit of P 3,000. Analysis of accounts receivable
reveals that with two exceptions, all appeared collectible as December 31, 2021. The two exceptions are:
a.
The Makiling Company had falledn into receivership and was expected to realize only P 0.40 on the peso. The December
31, 2021 balance was P 5,000. On February 14, 2022, P 4,000 was receovered from Makiling Company. P 3,000
allowance for doubtful accounts was set up to meet the expected loss on the Makiling account.
b.
The Aca Association had not paid anything on their balance of P 3,000 and this account was written off since Mr. Nanding,
the [president of associatio had informed your client in december 2021 that it appeared ipossible that current obligations
could ever be met and that mortgage holders would probably absord all assets proceeds in the event of liquidation.
However, on March 2, 2022, ten days before issuance of your report, P 1,500 was received from the association as final
settlement.
Question 2:
At what net reaoizable value should the trade accounts receivable appear on the statement of financial position?
A. P 47,500
B. P 48,500
C. P 47,000
D. P 50,000
SOLUTION:
Accounbts receivable per trial balance 50,000
Less: Loss on Makiling account (P 5,000 - P 4,000) 1,000
Balance 49,000
Less: Recovery on Aca account which was previously written-off 1,500
Net realizable value 47,500
MCQ PROBLEM 3
At the end of its first year of operations, Xander Corporation made available to you the following information:
Accounts Payable at year-end 400,000

Payments made for merchandise purchases 2,000,000
Unsold inventory at year-end 600,000
Collections from various customers 1,700,000
All items of merchandise were marked to sell at 30% above cost.
Question 3:
Assuming all accounts receivable are deemed collectible, what would be the Accounts Receivable balance at year-end?
A. P 640,000
B. P 900,000
C. P 1,420,000
D. P 1,680,000
SOLUTION:
Add: Payments made for merchandise purchases 2,000,000
Total purchases of merchandise during the year 2,400,000
Less: Inventory, at year-end 600,000
Cost of sales during the year 1,800,000
Sales during the year 2,340,000
Less: Collections from various customers 1,700,000
Accounts Receivable balance at year end 640,000
MCQ PROBLEM 4
Your examination of the notes receivable for the year-ended December 31, 2021 showed, among others, a 90-day note dated
November 1, 2021, face value P 20,000 with interest at 9%. The note was from a stockholders in payment of his subscription to
shares of the company's ordinary shares.
Question 4:
An adjustment should be made as of December 31, 2021 to take up
A. Accrued interest expense of P 300
B. Accrued interest income of P 450
C. Accrued interest income of P 300
D. No adjustment is necessary
SOLUTION:
P 20,000 x 9% x 2/12= P 300
Journal Entry:
Accrued Interest Income 300
Interest Income 300
MCQ PROBLEM 5
You are engaged to examine the accounts of Bonifacio Company as of December 31, 2020 and your audit
disclosed the following:
Question 5:
The cash you counted on December 31, 2020 included two customers’ checks amounting to P 50,000 both dated
January 2021. These checks were recorded in the books in December and were accepted for deposit by the bank
on due dates. The adjusting entry is:
Debit Entry Credit Entry
A. Cash in Bank 50,000 Cash on hand 50,000
B. Accounts Receivable 50,000 Cash 50,000
C. Cash on Hand 50,000 Accounts Receivable 50,000
D. Sales 50,000 Accounts Receivable 50,000
Question 6: checks amounting to P 45,000 were returned during December 2020 with the notation “NSF”. Of these
Customers’
checks P 30,000 had been redeposited and cleared the bank during the month. No entries were made for the return
or redeposit. The adjusting entry is:
A. Cash 30,000 Accounts Receivable 30,000
C. Cash 15,000 Accounts Receivable 15,000
D. Accounts Receivable 15,000 Cash 15,000
Question 7:
Goods costing P 200,000 were excluded from the ending inventory. The selling price of these goods was P
300,000. The goods were shipped by your client on December 29, 2020, FOB Shipping point. The transaction was
not recorded in 2020. The adjusting entry is:
A. Cost of Sales 150,000 Inventory 150,000
B. Inventory 250,000 Cost of Sales 250,000
C. Accounts Receivable 250,000 Sales 250,000
Question 8:
Merchandise costing P 150,000 were still included in ending inventory although these were already invoiced and
recorded as sales to customers on December 31, 2020. The sales invoices totaling P 250,000 were no longer
recorded when the goods were delivered on January 5, 2021. The adjusting entry is:
B. Accounts Receivable 250,000 Sales 250,000
C. Sales 250,000 Accounts Receivable 250,000
D. Inventory 150,000 Cost of Sales 150,000
MCQ PROBLEM 6
Reviewing the accounts receivables of Sunrays Company as at December 31, 2020, you obtained the following
information:
• Sunrays estimates the required allowance for uncollectible accounts using the year-end aging of
accounts receivable.
• Allowance for uncollectible accounts, January 1, 2020, P 65,000.
• Provision made during the year 2020 for uncollectible accounts (2% of credit sales of P 6,000,000), P
120,000.
• Uncollectible accounts written off on October 31, 2020, P 80,000
• Estimated uncollectible accounts per aging on December 31, 2020, P 115,000.
Question 9:
After the year-end adjustments the doubtful accounts expense of Sunrays for the year 2020 should be:
A. P 130,000
B. P 105,000
C. P 115,000
D. P 120,000
SOLUTION:
Allowance for doubtful accounts, December 31, 2020, adjusted
(Per aging of Accounts Receivable) 115,000
Less: Allowance for doubtful accounts, December 31, 2020, unadjusted
Allowance for doubtful accounts, January 1, 2020 65,000
Provision during 2020 based on sales (JE Jo. 1) 120,000
Accounts written off -80,000 105,000
Doubtful accounts expense for 2020 (JE No. 2) 10,000
JE No. 1:
Doubtful Accounts Expense 120,000
Allowance for Doubtful Accounts Expense 120,000
JE No. 2:
Doubtful Accounts Expense 10,000
Allowance for Doubtful Accounts Expense 10,000
Therefore, total Doubtful Accounts Expense for the year 2020 is P 130,000 (P 120,000 + P 10,000)
MCQ PROBLEM 7
Mabini Corporation decided that the allowance for doubtful accounts should be adjusted to equal the estimated
amount required based on aging the accounts as of December 31, 2020. The following data were gathered:

Provision for doubtful accounts during 2020 (2% of P 3,000,000 sales) 60,000
Accounts written off in 2020 75,000
Estimated doubtful accounts per aging of accounts receivable on 12/31/2020 80,000
Question 10:
The adjusting entry should be:
A. Doubtful Accounts Expense 15,000 Allow. for Doubtful Accounts 15,000
B. Allow. for Doubtful Accounts 45,000 Accounts Receivable 45,000
C. Allow. for Doubtful Accounts 25,000 Doubtful Accounts Expense 25,000
D. None of the above
SOLUTION:
Allowance for doubtful accounts, December 31, 2020, adjusted
(Per aging of Accounts Receivable) 80,000
Less: Allowance for doubtful accounts, December 31, 2020, unadjusted
Provision during 2020 based on sales 60,000
Accounts written off -75,000 105,000
Doubtful accounts expense for 2020 -25,000
MCQ PROBLEM 8
The following information is available for the Rural Corporation’s first year of operation:
Payment for merchandise purchases 5,000,000

Merchandise inventory at the end of the year 700,000
Accounts Payable balance at year end 500,000
Collections from customer during the year 4,900,000
All merchandise were marked to sell at 20% above cost.
Question 11:
What should be the ending balance in Accounts Receivable, assuming all accounts Receivable are deemed
collectible?
A. P 1,700,000
B. P 1,100,000
C. P 860,000
D. P 260,000
SOLUTION:
Add: Payment for merchandise purchases 5,000,000
Total purchases during the year 5,500,000
Less: Merchandise inventory at the end of the year 700,000
Cost of sales during the year 4,800,000
Multiply by 100% + 20% cost rate 120%
Total sales during the year 5,760,000
Less: Collections from customer during the year 4,900,000
Accounts Receivable ending balance 860,000
MCQ PROBLEM 9
Presented below is the aging of accounts receivable at December 31, 2020 of BMX Tower Corporation.
Balance Days Past Due

Customers Due Current 1 to 30 31 to 60 Over 60
John Rodwin Bautista 23,000 23,000
Russel Malabanan 105,000 62,000 20,000 13,000 10,000
Adrian Chavez 87,500 23,000 14,500 10,000 40,000
Allyana Gatuz 93,500 53,000 20,500 10,000 10,000
J. Victorino Company 40,000 40,000
Paolo Constantino 31,000 15,000 16,000
Sophia Jose 1,000 1,000
Kenzo Jose 64,000 20,000 18,000 16,000 10,000
JM Corporation 60,000 60,000
505,000 234,000 89,000 72,000 110,000
The Accounts Receivable control accounts reported a balance of P 505,000.
Audit comments for possible adjustments:

. John Rodwin Bautista Merchandise found defective returned by customer on November 10, 2020 for
credit. But the credit memo was issued by BMX only on January 3, 2021.
. Russel Malabanan Account is good but usually pays late.
. Adrian Chavez Merchandise worth P 40,000 destroyed in transit on June 4, 2020. The carrier
was billed on July 1, 2020. (See J. Victorino Company and JM Corporation)
. Allyana Gatuz Customer billed twice in error for P 10,000. Balance is collectible.
. J. Victorino Company Collected in full on January 15, 2021.
. Paolo Constantino Paid in full on December 29, 2020. Not recorded but deposited on 1/3/2021.
. Sophia Jose Received accounts confirmation from customer for P 11,000. Investigation
revealed an erroneous credit for P 10,000. (See Kenzo Jose)
. Kenzo Jose Neglected to post P 10,000 credit to customer’s account.
. JM Corporation Customer wants to know reason for receipt of P 40,000 credit memo.
Question 12:
Based on the foregoing information, what should be the adjusted balance of the Accounts Receivable – Trade at
December 31, 2020?
A. P 474,000
B. P 441,000
C. P 464,000
D. P 481,000
SOLUTION:
Accounts Receivable control balance, December 31, 2020, unadjusted 505,000
Adjustments:
. John Rodwin Bautista – Sales Return, delayed Credit Memo -23,000
. Adrian Chavez – Damaged merchandise; credited to JM Corporation) -40,000
. Allyana Gatuz – Billed twice -10,000
. Paolo Constantino– Collection not recorded -31,000
. Sophia Jose – Erroneous credit posting which is for Kenzo Jose 10,000
. Kenzo Jose – Payment credit to Sophia Jose -10,000
. JM Corporation – Credit for Adrian Chavez erroneously posted to JM 40,000
Accounts Receivable control balance, 12/31/2020, adjusted 441,000
MCQ PROBLEM 10
During your audit of the Planetoids Corporation for the calendar year 2020 you find the following account:
NOTES RECEIVABLE
2020
Sep 1 Charlie, 21%, due in 3 months 8,000
1 Discounted Charlie note 8,000
Oct 1 Howard Company, 24%, due in two months 30,000
Nov 1 Vittorio, 24%, due in 13 months 60,000
30 Chino Company, no interest, due in one year 50,000
30 Discounted Chino Company’s note 50,000
Dec 1 Tango, 18%, due in 5 months 90,000
1 Lou Co, President, 12%, due in three months
(For cash loan given to Lou Co) 120,000
All notes are trade notes receivable unless otherwise specified. The Charlie note was paid on December 1, 2020,
as per notification received from the bank. The Howard Company note was dishonored on the due date but the
legal department has assured management of its full collectability.
The company, with your concurrence will not use the notes receivable discounted account but will merely note on
the face of the statement of financial position the amount of the notes receivable discounted but still outstanding.
Question 13:
At what amount on the current assets section of the statement of financial position dated December 31, 2020 will
the notes receivable trade be carried?
A. P 90,000
B. P 270,000
C. P 150,000
D. P 180,000
SOLUTION:
Date Transactions Debit Credit Trade NR
2020
Nov 1 Vittorio, 24%, due in 13 months 60,000 60,000
Dec 1 Tango, 18%, due in 5 months 90,000 90,000
Total Trade Notes Receivable 150,000
Question 14:
A. P 6,150
B. P 27,150
C. P 27,750
D. P 6,750
SOLUTION:
Howard Company (P 30,000 x 24% x 3/12) 1,800
Vittorio (P 60,000 x 24% x 2/12) 2,400
Tango (P 90,000 x 18% x 1/12) 1,350
Lou Co (P 120,000 x 12% x 1/12) 1,200
Accrued interest income at 12/31/2020 6,750
MCQ PROBLEM 11
On December 31, 2020, the statement of financial position fo Mindoro Corporation contained the following current
assets:
Cash 160,000
Inventories 140,000
An examination of the accounts revealed that accounts receivable were composed of the following items:
Customers' accounts 81500

Employees' accounts - current 4000
Equity in P 20,000 of uncollected accounts
receivable assigned under guaranty 8000
Selling price of merchandise sent by Mindoro
Corporation on consignment at 125% of cost
and not sold by consignee 12500
Allowance for uncollectible accounts 6000
Question 15:
What should be the adjusted amount of current assets as of December 31, 2020?
A. P 375,500
B. P 376,000
C. P 396,000
D. P 397,500
SOLUTION:
Cash 160,000
Accounts Receivable
Customers' accounts 81,500
Employees' accounts - current 4,000
receivable assigned under guaranty 8,000
Allowance for uncollectible accounts -6,000 87,500
Inventories
Unadjusted balances 140,000
Unsold goods on consignment
(P 12,500 / 125%) 10,000 150,000
Adjusted amount of current assets at 12/31/2020 397,500
ALTERNATIVE SOLUTION:
Total current assets at 12/31/2020, unadjusted 400,000
Less: Gross profit on unsold consigned goods
(P 12,500 x 25/125) 2,500
Total current assets at 12/31/2020, adjusted 397,500
MCQ PROBLEM 12
Engaged to make an audit for 2020, you find that Diamond Company does not provide allowance for doubtful
accounts expense since it started its operations in 2016. The company's practices to directly write-off as doubtful
accounts expense and credit recoveries to income The company's contract are generally for two years.
The company upon your recommendation, agreed to change its accounts for 2020 to give effect to doubtful
treatment on the allowance basis. The allowance is to be based on a percentage of sales which is derived from the
experience of prior years. Statistics for 2016 to 2020 are shown as follows:
Accounts written off and Year of

Year Charges Sales Sale Recoveries
2016
2016 200,000 1,100
2016 2017 2016

2017 500,000 3,000 2,000 200
2016 2017 2018 2017

2018 600,000 1,000 8,000 2,600 800
2017 2018 2019 2018
2019 650,000 2,400 9,000 3,000 1,000
2018 2019 2020 2019

2020 550,000 5,400 10,000 2,800 1,200
Accounts receivable at December 31, 2020 are as follows:

2019 Sales - P 30,000; 2020 Sales - P 270,000
Question 16:
The amount of allowance for doubtful accounts that should be set up for 2020 is:
A. P 10,450
B. P 15,400
C. P 22,000
D. P 30,000
SOLUTION:
Charge
Year Sales Gross D/A Recoveries Net D/A % of Sales
2016 200,000 5,100 200 4,900 2.45%
2017 500,000 12,400 800 11,600 2.32%
2018 600,000 17,000 1,000 16,000 2.67%
1,300,000 34,500 2,000 32,500 2.50% Question 17
The provision doe Doubtful accounts for 2020 should be based in the experience for the three years 2016 to 2018,
since data for these three years were complete.
2019 Sales 650,000

2020 Sales 550,000
Total 1,200,000
Computation of Allowance for Doubtful Accounts:

Allowance for doubtful accounts
(P 1,200,000 x 2.50%) 30,000
Less: Write-offs
2019 accounts 13,000
2020 accouts 2,800
Total 15,800
Less: Recoveries 1,200 14,600
Allowance to be set up 15,400 Question 16
Question 17:
The average percebtage if net doubtful accounts to charge sales that should be used in setting up the 2020
allowance is:
A. 2.50%
B. 2.05%
C 1.90%
D. 1.77%
SOLUTION:
See computation in number 16.
MCQ PROBLEM 13
As part of your engagement to audit the financial statements of San Antonio Corporation, you have been assigned
to examine the accounts receivable. You gathered the following data from the trial balance as of December 31,
2020:
Accounts Receivable 2,000,000

You determined the following from the schedule of accounts receivable as of December 31, 2020:
Accounts with debit balances

60 days and below 1,000,000
61 to 90 days 500,000
Over 90 days 400,000 1,900,000
Accounts with credit balabces -50,000
Accounts receivable per GL 2,000,000
Additional information:
. Accounts receivable for more than a year totalling to P 40,000 should be written off.
. On October 1, 2020, goods amounting to P 50,000 were shipped to ABC Company, FOB shipping point but
the same has not been recorded by the company. No collection has yet been made by the company on this
account.
. The bank returned on December 29, 2020, a customer's check for P 20,000 marked "No Sufficient Fund:, but
no entry was made. The customer's invoice was dated and recorded on December 1, 2020.
. Confirmation replies directly from customers diclosed the following exceptions:
Customer Comments from Customers Audit Findings

A. Tim We do not owe this amount *%#@
Investigation revealed that goods sold
(bad words). We did not receive any
for P 60,000 were shipped to Tim on
merchandse from your company.
December 29, 2020, terms FOB
shipping point. The goods were lost in
transit and the shipping company has
acknowledged its responsibility for the
loss of the merchandise.
B. Tony We do not owe P 45,000 to San The shipment costing P 20,500 was
Antonio on December 31 as goods made on December 29, 2020 but the
were received in January 3, 2021, FOB goods were included in recording the
Destination. December 31, 2020 inventory.
C. Boris We have not yet sol the goods We will Goods billed for P 45,000 were
remit the proceeds as soon as the consigned to Boris on December 30,
goods are sold. 2020. The goods cost P 39,000.
D. Kahwi Balance amounting to P 10,000 was San Antonio received mailed check on
paid on December 29, 2020. January 4, 2021. Kahwi was billed on
December 5, 2020.
E. Danny We are rejecting the price, which is too
Danny's balance amounted to P 30,000.
much.
San Antonio's clerk erroneously
computed the unit price at P 200. The
correct pricing should have been at P
150 per unit. Danny was billed on
October 30, 2020.
. Based on your discussion with san Antonio's Credit Manager, you both agreed that an allowance for doubtful
accounts should be maintained using the following rates:
60 days old and below 4%

61 to 90 days 5%
Over 90 days 10%
Based on the above and result of your audit, compute for the following:
Question 18:
The adjusted accounts receivable balance in the 60 days and below category as of December 31, 2020
A. P 880,000
B. P 890,000
C. P 930,000
D. P 975,000
SOLUTION:
Age of account with debit balances
60 & below 61 to 90 Over 90
Unadjusted balances 1,000,000 500,000 400,000
Adjustments:
. Write off of accounts of more than one year -40,000
. Unrecorded sales to ABC Company on 10/1/2020 50,000
. Customer's NSF Check - Invoice date 12//1/2020 20,000
. Confirmation results:
A. Tim - goods shipped on 12/29/2020 but
lost in transit; acknowledged by shipping
company; assumed reclassified already
to Claims Receivable -
B. Tony - Goods shipped on 1/3/2021. Term is FOB
Destination. -45,000
C. Boris - Goods sent out on consignment
on12/30/2020. -45,000
D. Kawhi - Payment sent on 12/29/2020 but received
on 1/4/2021. -
E. Danny - Overstated amount billed on 10/30/20.
Correct amount is P 22,500 (150 units x P 150
each) instead of P 30,000. -7,500
Adjusted balances of accounts with debit balances 930,000 492,500 410,000
Multiply by doubtful accounts rate 4% 5% 10%
Required Allowance for Doubtful Accounts 37,200 24,625 41,000
Net Realizable Value, 12/31/2020
Question 19:
The adjusted balance of Accounts Receivable as of December 31, 2020
A. P 1,742,500
B. P 1,782,500
C. P 1,792,500
D. P 1,832,500
SOLUTION:
See Supporting computation in number 18.
Question 20:
The adjusted allowance for doubtful accounts as of December 31, 2020
A. P 96,225
B. P 101,225
C. P 102,450
D. P 102,825
SOLUTION:
See Supporting computation in number 18.
Question 21:
The adjusted balance of the doubtful accounbts expense for the year ended December 31, 2020
A. P 36,225
B. P 41,225
C. P 42,250
D. P 42,825
SOLUTION:
Required Allowance for Doubtful Accounts (See No. 18) 102,825
Less: Unadjusted Allowance for Doubtful Accounts
Before any adjustments based on confirmation 100,000
Write off of accounts of more than one year -40,000 60,000
Doubtful Accounts Expense for 2020 42,825
Question 22:
The adjusting entry to correct the error for customer Danny should include
A. Debit to Accounts receivable, P 22,500
B. Debit to Sales, P 22,500
C. Credit to Accounts Receivable, P 7,500
D. No adjusting entry is necessary
SOLUTION:
Sales 22,500
Correct amount (150 units x P 150) 22,500

Less: Recorded as sales - error 30,000
Overstatement -7,500
MULTIPLE CHOICE QUESTIONS - THEORY (DO-IT-YOURSELF)

Substantitive Audit Procedures for Receivables
. Which of the following is not a balance-related audit objective evaluated in the audit of accounts receivable?
A. Timing
B. Realizable value
C. Completeness
D. Accuracy
. The appropriate evidence to be obtained from tests of details must be decided on a(n):
A. efficiency basis.
B. effectiveness basis.
C. audit objectives basis.
D. none of the above.
A. Occurrence
B. Completeness
C. Rights
D. Accuracy
. For most audits, inherent risk for accounts receivable is moderate or low except for which balance-related audit
objectives?
A. Timing and realizable value.
B. Completeness and existence.
C. Existence and accuracy.
D. Realizable value and cutoff.
. Which of the following types of receivables would not deserve the special attention of the auditor?
A. Accounts receivables with credit balances.
B. Accounts that have been outstanding for a long time.
C. Receivables from affiliated companies.
D. Each of the above would receive special attention.
. A listing of the balances in the accounts receivable master file at the balance sheet date, by total balance
outstanding and by the amount of time the component parts have been outstanding, is the:
A. customer list.
B. aged trial balance.
C. accounts receivable ledger.
D. schedule of accounts receivable.
. Auditors are often concerned with three aspects of internal controls related to the sales and collection cycle. Which
of the following is not one of those controls?
A. Controls that detect or prevent embezzlements.
B. Controls over cutoff.
C. Controls over acquisitions.
D. Controls related to the allowance for doubtful accounts.
. Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the
communication is correct or incorrect is a:
A. representation letter.
B. negative confirmation.
C. bank confirmation.
D. positive confirmation.
. A type of positive confirmation known as a blank confirmation:

A. requests the recipient to fill in the amount of the balance.
B. is considered less reliable than the regular positive confirmation.
C. generates as high a response rate as the regular positive confirmation form.
D. is used when the auditor is confirming several small balances.
. For sales, the occurrence transaction-related audit objective affects the ______ balance-related audit objective.
A. existence
B. completeness
C. rights
D. detail tie-in
. For cash receipts, the occurrence transaction-related audit objective affects the ______ balance-related audit
objective.
A. existence
B. completeness
C. rights
D. detail tie-in
. Which of the following is likely to be determined first when performing tests of details for accounts receivable?
A. Recorded accounts receivable exist.
B. Accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly
added and agrees with the general ledger.
C. Accounts receivable are owned.
D. Existing accounts receivable are included.
. The most effective test of details of accounts receivable is the:

A. detail tie-in of the records.
B. analysis of the allowance for doubtful accounts.
C. confirmation of accounts receivable.
D. examination of sales invoices.
. The most important test of details of balances for accounts receivable is:
A. confirmations.
B. recalculation of the aged receivables and uncollectible accounts.
C. tracing credit memos for returned merchandise to receiving room reports.
D. tracing from shipping documents to journals to the accounts receivable ledger.
. The most important test of details of balances to determine the existence of recorded accounts receivable is:
A. tracing details of sales invoices to shipping documents.
B. tracing the credits in accounts receivable to bank deposits.
C. tracing sales returns entries to credit memos issued and receiving room reports.
D. the confirmation of customers’ balances.
. When should auditors not perform alternative procedures in testing the accounts receivable balance?
A. When customers do not return positive confirmation requests.
B. When customers do not return negative confirmation requests.
C. When confirmations are deemed to be ineffective as an audit procedure.
D. When confirmations are too costly to use.
.
Because of its central role in auditing of accounts receivable, the ______________ is one of the first items tested.
A. accounts receivable master file
B. customer file
C. aged trial balance
D. sales register
. Most tests of accounts receivable are based on what schedule, file, or listing?
A. Sales master file.
B. Aged accounts receivable trial balance.
C. Accounts receivable master file.
D. Accounts receivable general ledger account.
. If the client’s internal control for recording sales returns and allowances is evaluated as ineffective:
A. a larger sample is needed to verify cutoff.
B. sampling is not appropriate.
C. all sales returns must be traced to supporting documentation.
D. all sales returns must be confirmed with the customer.
. Which of the following audit procedures would not likely detect a client’s decision to pledge or factor accounts
receivable?
A. A review of the minutes of the board of directors’ meetings.
B. Discussions with the client.
C. Confirmation of receivables.
D. Examination of correspondence files.
MULTIPLE CHOICE QUESTIONS - THEORYS (DO-IT-YOURSELF)

Internal Controls for Receivables
. In order to safeguard the assets through proper internal control, accounts receivable that are written off are
transferred to a (an)
A. Separate ledger
B. Attorney for evidence in collection proceedings
C. Tax reduction file
D. Credit manager since customers may seek to reestablish credit by paying.
. Which of the following controls would best prevent the lapping of accounts receivable?
A. Segregate duties so that the clerk responsible for recording in the accounts receivable subsidiary ledger has no
B. Request that customers review their monthly statements and report any unrecorded cash payments.
C. Require customers to send payments directly to the company's bank.
D. Request that customers make the check payable to the company.
. Which of the following best describes lapping?

A. Applying cash receipts to a different customer's account in an attempt to conceal previous thefts of funds.
B. Inflating bank balances by transferring money among different ban accounts
C. Expensing an asset that has been stolen.
D. A clerk writes off a customer's account receivable and keeps the cash that the customer remits.
. Which of the following sets of tasks should not be separated?

A. Processing customer sales orders and approving credit
B. Receiving cash and updating the accounts receivable subsidiary ledger
C. Processing customer sales orders and posting to the sales journal
D. All of the above tasks should be separated
. Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorde
A. The billing department supervisor sends copies of approved sales orders to the credit department for comparis
B. The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to th
C. The accounting department supervisor controls the mailing of monthly statements to customers and investigate
D. The billing department supervisor matches prenumbered shipping documents with entries in the sales journal
. Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximiz
A. Employees responsible for authorizing sales and bad debt write offs are denied access to cash.
B. Shipping documents and sales invoices are matched by an employee who does not have authority to write off b
C. Employees involved in the credit granting function are separated from the sales function.
D. Subsidiary accounts receivable records are reconciled to the control account by an employee independent of th
. For good internal control, the billing department should be under the direction of the
A. controller
B. credit manager
C. sales manager
D. treasurer
. A sales clerk at Schackne Company correctly prepared a sales invoice for $5,200, but the invoice was entered as
$2,500 in the sales journal and similarly posted to the general ledger and accounts receivable ledger. The
customer remitted only $2,500, the amount on his/her monthly statement. The most effective procedure for
preventing this type of error is to
A. Use predetermined totals to control posting routines.
B. Have an independent check of sales invoice serial numbers, prices, discounts, extensions, and footings.
C. Have the bookkeeper prepare monthly statements that are verified and mailed by a responsible person other th
D. Have a responsible person who is independent of the accounts receivable department promptly investigate una
. Proper authorization procedures in the revenue cycle usually provide for the approval of bad debt write offs by an
employee in which of the following departments?
A. treasurer
B. sales
C. billing
D. accounts receivable
.
A company policy should clearly indicate that defective merchandise returned by customers is to be delivered to the
A. sales clerk
B. receiving clerk
C. inventory control clerk
D. accounts receivable clerk
. Shipping documents should be compared with sales records or invoices to

A. Determine whether payments are properly applied to customer accounts.
B. Assure that shipments are billed to customers.
C. Determine whether unit prices billed are in accordance with sales contracts.
D. Ascertain whether all sales are supported by shipping documents.
. To achieve good internal accounting control, which department should perform the activities of matching shipping
documents with sales orders and preparing daily sales summaries?
A. billing
B. shipping
C. credit
D. sales order
. Which of the following control procedures may prevent the failure to bill customers for some shipments?
A. Each shipment should be supported by a prenumbered sales invoice that is accounted for.
B. Each sales order should be approved by authorized personnel.
C. Sales journal entries should be reconciled to daily sales summaries.
D Each sales invoice should be supported by a shipping document.
. For effective internal accounting control, employees maintaining the accounts receivable subsidiary ledger should
not also approve
A. employee overtime wages
B. credit granted to customers
C. write-offs of customer accounts
D. cash disbursements
. Which of the following would be the best protection for a company that wishes to prevent the “lapping” of trade
accounts receivable?
A. Segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail.
B. Segregate duties so that no employee has access to both checks from customers and currency from daily cash
C. Have customers send payments directly to the company’s depository bank.
D. Request that customers’ payment checks be made payable to the company and addressed to the treasurer
. Which of the following is an effective internal accounting control over accounts receivable?
a. Only people who handle cash receipts should be responsible for preparing documents that reduce accounts rec
b. Responsibility for approval of the write off of uncollectable accounts receivable should be assigned to the cashi
c. Balances in the subsidiary accounts receivable ledger should be reconciled to the general ledger control accou
d. The billing function should be assigned to people other than those responsible for maintaining accounts receiva
. Which of the following statements is not correct?

A. The employee in charge of shipping goods to customers should not be responsible to receiving goods from
the suppliers.
B. Receiving and billing employees should not keep the books of accounts.
C. The billing and collecting functions should be assigned to one person.
D. The collections of cash from buyers are made by the cashiers in the treasury department.
. The credit department should be

A. Independent of shipping and accounting but not of billing.
B. Independent of shipping, billing and accounting.
C. Independent of billing and accounting but not of shipping.
D. Independent of accounting but not of shipping and billing.
. Which of the following should be prenumbered and the numerical sequence be accounted for?
A. Delivery Receipts
B. Sales Invocies
C. Bills of Lading
D. All of the above documents
. Sales invoices should be correlated to

A. Shipping orders
B. Delivery Receipts
C. Bills of lading
Accounts
hered the following
of P 640,000 which were
. Collections of P
d applied as partial
ated Allowance for Doubtful

ue and the amount of
3,600,000
38,440,000
42,040,000
33,400,000
8,640,000
Accounts Receivable
Credit
32,000,000
160,000
40,000
1,200,000
33,400,000
72,000
224,000
296,000
160,000
136,000
Allowance for DA
Credit
72,000
40,000
184,000
296,000
136,000
8,640,000
136,000
8,504,000
ue and the amount of

d the following in its
50 from various customers.

wrote off uncollectible
NRV
619,200
1,895,693
the company's sales and
YEAR
2021
120,000
145,200
265,200
150,000
115,200
are being recorded in a
owing:
l position as at December
Credit
444,000
0. An analysis of this

1,522,500
1,125,000
2,647,500
accuracy of Accounts
Notes
ebit to Accounts Receivable

redit to Accounts Receivable
er audit or per verification
ubject to further audit
Planetarium Company,
Balance
9,200
14,200
9,200
10,400
11,460
2,260
3,480
4,880
4,952
2,620
3,456
3,576
2,176
3,736
2,516
5,110
4,154
5,790
4,320
5,742
5,652
4,230
4,650
5,292
6,284
5,222
3,586
the following basis:
out basis (FIFO Basis)
> 30 days
420
1,422
1,636
110
3,588
Balance
3,736
2,516
5,110
4,154
5,790
4,320
5,742
5,652
4,230
4,650
5,292
6,284
5,222
ice basis
> 30 days
2,594
1,636
4,230
Balance
9,200
14,200
9,200
10,400
11,460
2,260
3,480
4,880
4,952
2,620
3,456
3,576
2,176
3,736
2,516
5,110
4,154
5,790
4,320
5,742
5,652
4,230
4,650
5,292
6,284
5,222
December 31, 2021. The
101-2021
Balances
10,000
4,000
14,000
8,000
24,000
18,000
24,000
120-2021
Balances
240,000
-2,400
197,600
130-2021
Balances
20,000
40,000
140-2021
Balances
60,000
0
80,000
0
105,560
110,000
150-2021
Balances
10,000
18,880
33,880
15,000
27,000
15,000
ce for Doubtful Accounts is
oldest items are paid first.
e disposition and any
sary adjustments.
Y
ceivable
1
Past Due Accounts (Days)

1 to 60 61 to 120 Over 120 Remarks
16,000 2,000 Pay P 3,000 monthly
Reclasified to NR - AJE 1
20,000 20,000
105,560
15,000 Investigate payments
136,560 22,000 20,000
2.00% 5.00% 50.00%

2,731 1,100 10,000
Credit
197,600
2,400
3,883
500
October 31, 2021:

olling account in the
olling account in the
of Rhoda Maraño which
10,000 worth of
P 2,000, we did not order
r 12. This was covered by

his error was corrected by
r:
first requests, and by
ys credit.”
SLC CORPORATION
Working Paper for Accounts Receivable Confirmation
October 31, 2021
CONFIRMATION RESULTS SUBSEQUENT COLLECTIONS

Confirming Reporting Returned by Up to November 30, 2021
Balance Differences PO NO REPLY Date OR No. Amount
18,000
12,000
10,000 11/26/2021 5978 10,000
10,000 11/15/2021 4567 10,000
10,000
16,000 11/24/2021 5467 16,000
24,000 11/18/2021 5125 24,000
8,000
14,000
20,000 10,000
2,000 11/16/2021 4789 2,000
22,000
4,000
6,000 2,000
12,000
78,000 36,000 22,000 64,000 62,000
39% 18% 11% 32% 31%
g document be issued for

ent. The last shipment
the order that the billing
ollows:
mber 31, 2021.
ded December 31, 2021.
ended December 31,
Year 2021 AJE

AR Sales
528,262 528,262
21,278 21,278
-124,044 -124,044
-382,860 -382,860
42,636 42,636
Year 2021 AJE

AR
-382,860
-124,044
528,262
21,278
42,636
ed December 31, 2021.
Credit
42,636

d to you by the accounting department
Acct. Rec. Sales Rev.

Credit Credit
240,000
100,000
120,000
180,000
250,000
50,000
50,000
80,000
350,000
1,100,000 80,000
ed by the bank due to insufficiency of
ed on Invoice No. 5540, the cash discount
Invoice No. 5554 but the P 20,000 worth

on December 10 regarding this return.
Invoice No. 5554 but the P 20,000 worth
on December 10 regarding this return.
n December 13 due to inferior quality. The
n/30.
s written off in year 2020 but recovered IN
nt with a credit term of 3/10, n/30.

to understatement of sales by P 5,000.
y Receipt was dated September 11, 2021.
Sales Discount Sales Revenue

Debit Credit Debit Credit
23,600 21,120,000
2,285,000
7,400 80,000
31,000 23,405,000
Debit Credit
240,000
240000
1,000
1,000
20,000
20000
50,000
50000
5,000
5000
80,000
80,000
120,000
120,000
Sales Discount Sales Revenue

Debit Debit Credit
31,000 23,405,000
1,000
20,000
5,000
120,000
32,000 23,550,000
ncollectible accounts receivable under the
arged to the allowance account;
d adjustments to the allowance account
credit sales totaled P 9,000,000, interim

nd recoveries of accounts previously
ing of accounts receivable was prepared
g category, additional receivables totaling

, Blue Powder adopted a new accounting
ng analysis of accounts receivable.
ended December 31, 2021. Show
lance as of December 31, 2021.
nded December 31, 2021 with
130,000
180,000
-90,000
15,000
235,000
60,000
175,000
60,300
235,300
ance as of December 31, 2021.
ollectible receivables were expensed as

ncial statements were issued)
ct and determined that an allowance for
ounts based on Polo’s historical bad debt
o be recomputed each year based on the
ounts as January 1, 2020. Disregard
the year ended December 31, 2020.
ounts as January 1, 2020. Disregard
the year ended December 31, 2020 with

ual in the December, 2021
GL No. 105
Balance
35,000
31,000
46,000
41,000
33,000
40,000
52,000
48,000
57,000
54,000
Act. No. 5-20

Balance
15,000
12,000
11,000
Act. No. 5-25

Balance
15,000
12,000
11,000
10,000
Act. No. 5-35

Balance
7,000
Act. No. 5-48

Balance
13,000
7,000
5,000
4,000
Act. No. 5-52

Balance
12,000
11,000
Act. No. 5-55

Balance
9,000
tally with the deposit slips

Entries in ARSL CASH SHORTAGE
Date Amount Balance Covered by
Dec. 01 3,000 1,000

Dec. 10 1,000 0 Collection from J.dela Cruz

Dec. 23 1,000 0 Collection from J. Julian
Dec. 14 6,000 2,000

Dec. 23 2,000 4,000
Dec. 29 1,000 3,000 From G. Adriano
Dec. 29 1,000 2,000

19,000
24,000
-5,000
During your audit, the General Ledger for
Credit
8,000
50,000
ent of its full collectibility.
ely disclose on the notes to the financial
ber 31, 2021 will the notes receivable -
December 31, 2021?
December 31, 2021 will the notes
Notes Receivable Accounts Receivable Int. Rec. Int. Inc.

8,000 Discounted with recourse
Oustanding at 12/31/2021 (11 months remaining from 12/31/202
50,000
Oustanding at 12/31/2021 (4 months remaining from 12/31/2021
30,000 1,800 1,800 P 30,000 x 24% x 3/12 (continues to accrue from Oct 1 to Dec. 31)
1,200 1,200 P 120,000 x 12% x 1/12 (1 month accrual) - NONTRADE NOTES R

120,000
2,400 2,400 P 60,000 x 24% x 2/12
1,350 1,350 P 90,000 x 18% x 1/12
208,000
150,000 6,750
358,000 No 2
ed at December 31, 2021?
1,800
1,200
2,400
1,350
6,750
ended December 31, 2021, you examined the notes receivable represented by the following:
Discounting of Notes
Date Rate Nature of Transaction and Other Remarks
11/30/2021 16%
- - 2,500 preference shares subscription at P 100 each
- - Dishonored at maturity; Collection doubtful
- - Note not renewed; president confirmed
- - Note is held by bank as collateral
e Denmark Company in favor of the

4, 2021.
d to credit Interest Income for the revenue.
PRUS CORPORATION
Notes Receivable
December 31, 2021
INTEREST
Received Accrued Earned REMARKS
5,333 1,333 Discounted on
John John:
11/30/2021
Subscription Receivable onat2,500
discounted
16%
on date of receipt of note.
6,667 6,667 Preference Shares; Subscription
Therefore, the discount should be at 4
Receivable (AJE 1) months also.
8,000 8,000 Dishonored at maturity; collection is
doubtful; Accounts Receivable (AJE 2)
Maker is the C-Corp President; not paid at
maturity; not renewed; confirmed;
Advances to Officers (AJE 3)
2,880 2,880 Note held by bank as collateral; Disclosure
Accepted by C-Corp. on 12/04/2021; Disclosure
5,333 17,547 18,880
Hakuna Matata
Norway Investment Corporation
R. Julio, Company President

Per policy, expense method is used when notes is discounted

Income method is used upon discounting
Sweden Company - From 12/31/2021 to 3/30/2022 (3 months)
Hakuna Matata - From 12/31/2021 to 3/30/2022 (3 months)
with related notes as follows:

John John:
Total P 610,000
John John:
Total P 610,000
by bank as collateral for a loan.
Company in favor of the Greece

ber 4, 2021.
dit of Capable Corporation for calendar
e to Howard and Company, dated

f picking up this check, Howard and
ounts Receivable is still outstanding in the
at 150% of cost. As of December 31,
20% commission and P 3,000 freight
ccount of the consignor.
oration with indefinite repayment date,
e vouched and supporting documents
Comments
n credited to Famas Marketing. Famous
ce of P 5,000 on December 31, 2020.
ance due to mistake in pricing
urn of defective merchandise.
ective merchandise.
on August 1, 2020. This account was
off as uncollectible on December 31,
s delivered in January 2021.
020, payable in four equal semi-annual
iled March 1, 2020, which had been

mida and is now pending in court. Legal
Position of Capable Corporation as at

Allowance Other
for D/A Receivables
70,000 160,000
-2,000
-5,000
6,000
-6,000
71,000 152,000
nt of Financial Position of Capable Corporation as at December 31,
693,230
152,000
845,230
SELF)
it balance of P 462,000.
ght company - P 6,000;
ts totalled P 400,000,
s or more - P 70,000.
totalling P 15,000; they

and they consider all other
al position dated
balance, while the

of accounts receivable
are:
the peso. The December

ompany. P 3,000
tten off since Mr. Nanding,

e that current obligations
event of liquidation.
m the association as final
l position?
ance at year-end?
ers, a 90-day note dated

ment of his subscription to
and your audit

o P 50,000 both dated
or deposit by the bank
otation “NSF”. Of these

were made for the return
se goods was P
nt. The transaction was
already invoiced and

00 were no longer
btained the following
ear-end aging of
es of P 6,000,000), P
+ P 10,000)
equal the estimated

a were gathered:
able are deemed
Corporation.
November 10, 2020 for

January 3, 2021.
e 4, 2020. The carrier

nd JM Corporation)
posited on 1/3/2021.
,000. Investigation
Jose)
credit memo.
Receivable – Trade at
wing account:
on December 1, 2020,
he due date but the
but will merely note on

d but still outstanding.
ecember 31, 2020 will
Remarks
Discounted
Discounted
To AR
Trade NR
Discounted
Discounted
Trade NR
d the following current
llowing items:
wance for doubtful
y write-off as doubtful
r two years.
ffect to doubtful
hich is derived from the
ee years 2016 to 2018,
ing up the 2020

ou have been assigned
as of December 31,
OB shipping point but

y the company on this
No Sufficient Fund:, but

2020.
allowance for doubtful
ber 31, 2020
debit balances
Total
1,900,000
-40,000
50,000
20,000
-45,000
-45,000
-7,500
1,832,500
102,825
1,729,675
LF)
unts receivable?
unts receivable?
alance-related audit
total balance
collection cycle. Which
ce as stated on the
ated audit objective.
ance-related audit
counts receivable?
and the total is correctly
nts receivable is:
f the first items tested.

or factor accounts
ELF)
e written off are
subsidiary ledger has no access to the general ledger.

ash payments.
ous thefts of funds.
ns of an entity are recorded?

department for comparison to authorized credit limits and current customer account balances.
ble subsidiary ledger to the accounts receivable control account monthly.
ustomers and investigates any differences reported by customers.
ries in the sales journal
ales personnel to maximize sales volume at the expense of high bad debt write offs?
ave authority to write off bad debts.
mployee independent of the authorization of credit.
nvoice was entered as

ble ledger. The
ve procedure for
ons, and footings.

sponsible person other than the bookkeeper.
promptly investigate unauthorized remittance deductions made by customers or other matters in dispute.
d debt write offs by an
is to be delivered to the
s of matching shipping
shipments?
bsidiary ledger should
e “lapping” of trade
s to incoming mail.
currency from daily cash receipts.
essed to the treasurer
that reduce accounts receivable balances.

be assigned to the cashier.
eral ledger control account once a year, preferably at year end.
ntaining accounts receivable subsidiary records.
receiving goods from

Accounts Receivable
Debit Credit
xxx Write-offs
Account bala xxx
Allowance for DA
Debit Credit
xxx Provision
xxx Recovery
xxx Account balance

Accounts Receivable
Debit Credit
xxx Write-offs
Account bala xxx

Accounts Receivable
Debit Credit
xxx Write-offs
Account bala xxx

Accounts Receivable
Debit Credit
xxx Write-offs
Account bala xxx
Sales
Debit Credit
xxx Cash Sales
xxx Credit Sales
xxx Account balance
REMARKS
Addresse unknown
P 10,000 returned on 11/12 - CM 1615
Overbilling; confirmed; corrected - 11/10

12/31/2021 (11 months remaining from 12/31/2021)
12/31/2021 (4 months remaining from 12/31/2021)

x 3/12 (continues to accrue from Oct 1 to Dec. 31)
% x 1/12 (1 month accrual) - NONTRADE NOTES REC.

pt of note.
uld be at 4
rs in dispute.
Sales Discounts
Total balances
Beginning balance
Total balances
Account balance
Sales Discounts
Total balances
Sales Discounts
Total balances
Sales Discounts
Total balances
Credit Sales
Account balance
STRAIGHT PROBLEMS
Problem 16
Audit of Receivables - Comprehensive Problems
You are a senior accountant on the staff of Jose and Jose, CPAs. You are in-charge of the annual audit of Capable Corporation fo
year 2020.
Your Working Balance Sheet (WBS) shows the following accounts, among others:
Cash 256,000
Allowance for Doubtful Accounts -70,000
Inventories 490,000
Prepaid Expenses 40,000
Long-term Investments 120,000
Property, Plant and Equipment (net) 830,000
Other Assets 50,000
The Working Income Statement includes the following accounts:
Net Sales 3,600,000

Cost of Sales 2,340,000
Operating Expenses 729,000
Other Income 65,000
Other Expenses 40,000
Your audit notes follow:

A. CASH
The following items were noted:
. Included in cash are customers’ NSF Checks totaling P 3,000.
.
The December 31, 2020 outstanding checks include Check No. 6320 for P 15,000 payable to Howard and Company,
December 27, 2020. Howard and Company is a customer as well as a supplier. Instead of picking up this check, How
Company offset the amount against its payable to the company. The same amount in Accounts Receivable is still out
company’s books.
B. NOTES RECEIVABLE
This consisted of the following:
. Customers’ notes not due, P 150,000.
. Customers’ notes past due (accrued interest of P 2,000 included in Other Receivables), P 10,000.
C. ACCOUNTS RECEIVABLE
A reconciliation shows:
Per subsidiary ledger:

Accounts with debit balances 695,000
Less: Accounts with credit balances 30,000
Balance 665,000
Less: Unlocated difference 3,000
Per general ledger 662,000
Audit Notes:
.
. Domino Trade Corporation, P 50,000 – This represents cash advanced by Capable Corporation with indefinite repaym
Domino is a wholly owned subsidiary.
. Test of Subsidiary Ledger – On a test basis, entries in the subsidiary ledger accounts were vouched and supporting d
traced to ledger entries. Following were among the accounts examined:
Crown Enterprises
2017
Feb. 04 SJ 5,000
2020
Nov. 18 SF 5,000
Worldwide Supply Corporation

2020
Jun. 10 SF 10,000
Jul. 08 SJ 6,000
Aug. 25 SJ 8,000
Sep. 20 CRJ 18,000
Nov. 07 SJ 7,000
Dec. 01 SJ 12,000
Manila Corporation
2020
Sep. 4 SJ 6,000
Oct. 28 SJ 2,500
Nov. 05 CRJ 8,330
. Worldwide Supply Corporation, P 28,000 – The customer is disputing this amount.

. Credit Terms – For all customers, 2/10, n/30.
. Credit balances in customers’ accounts – Following is a breakdown:
Customers Amount Comments

Famous Marketing 2,000 Should have been credited to Famas Marketin
has a debit balance of P 5,000 on December
Exultet Exporters 4,000 Allowance due to mistake in prici
Caloocan Supply, Inc. 3,000 Return of defective merchandise
Budapest Compamy 5,000 Allowance for defective merchandise.
Aldana and Company 6,000 Collected P 6,000 on August 1, 2020. This ac
2019
Green Field Marketing 10,000 Advance on goods delivered in January 2021
D. OTHER RECEIVABLES
Included in this account are the following:
. Cash advance to Reginald San Pedro, Vice President, P 12,000 given on September 1, 2020, payable in four equal s
installments starting February 28, 2021.
. Luzviminda Shipping Company, P 20,000. This represents a claim for shipping damages filed March 1, 2020, which h
Luzviminda Shipping Company, P 20,000. This represents a claim for shipping damages filed March 1, 2020, which h
Required:
. Compute the adjusted balances of the following accounts at December 31, 2020:
A. Notes Receivable
B. Accounts Receivable
C. Allowance for Doubtful Accounts
D. Other Receivables
. What amount of Trade and Other Receivables would be reported in the Statement of Financial Position of Capable Corpora
December 31, 2020?
SOLUTION:
. The necessary adjusting journal entries at December 31, 2020.

NOTE A - CASH
2020 (AJE 1)
Dec 31 Accounts Receivable 3,000
Cash 3,000
NSF Check of customers.
(AJE 2)
31 Cash 15,000
Offsetting of accounts receivable
to Accounts Payable.
NOTE B - NOTES RECEIVABLE

(AJE 3)
31 Accounts receivable 12,000
Notes Receivab;e 10,000
Other Receivable 2,000
Customers' notes past due.
NOTE C - ACCOUNTS RECEIVABLE

(AJE 4)
31 Sales (P 24,000 x 2/3) 16,000
Reversing entry for consignment
recorded as sales.
(AJE 5)
31 Inventories [(P 24,000 x 2/3 / 150%] 10,667
Cost of Sales 10,667
Reversing the cost of consigned
goods recorded as sales.
(AJE 6)
31 Operating expenses - Commission 1,600
(P 24,000 x 1/3 x 20%)
Consignee's commission deducted
from accounts receivable.
(AJE 7)
31 Cost of Sales (P 3,000 x 1/3) 1,000
Inventories (P 3,000 x 2/3) 2,000
Allocation of freight on consignment
deducted from Accounts Receivable.
(AJE 8)
31 Long-term Investments 50,000
Cash advances to affiliates -
Domino Trade Corporation
(AJE 9)
31 Allowance for Doubtful Accounts 5,000
Accounts Receivable - Crown Ent. 5,000
Write off of accounts dated
February 4, 2017.
(AJE 10)
31 Net Sales (P 8,500 x 2%) 170
Accounts Receivable - Manila Corp. 170
Correcting the non-recognition
of sales discounts.
(AJE 11)
31 Accounts Receivable - Exultet Exporters 4,000
Allowance due to mistake in
pricing.
(AJE 12)
31 Accounts Receivable - Caloocan Supply, Inc. 3,000
Return of defective merchandise.
(AJE 13)
31 Accounts Receivable - Budapest Company 5,000
Allowance for defective merchandise
(AJE 14)
31 Accounts receivable - Aldana and Company 6,000
Previously written off and collected
but not re-established upon collection.
(AJE 15)
31 Accounts Receivable - Green Field Marketing 10,000
Advance payment on goods
delivered in January 2021.
NOTE D - OTHER RECEIVABLES

(AJE 16)
31 Other Assets (P 12,000 x 1/2 - semi-annual) 6,000
Reclassifying the advances to
officers - noncurrent.
. Computation of the adjusted balances at December 31, 2020:
Notes Accounts
Explanation Receivable Receivable
Unadjusted balances, December 31, 2020 160,000 662,000

Adjustments:
AJE 1 NSF Check of customers. 3,000
2 Offestting of A/R to A/P -15,000
3 Customers' notes past due. -10,000 12,000
4 Consignment recorded as sales -16,000
6 Consignee's commission charged to AR -1,600
7 Consignment freight allocation -3,000
8 Cash advances to affiliates -50,000
9 Accounts written off on 02/04/2017 -5,000
10 Sales discount not recorded -170
11 Allowance due to pricing mistake 4,000
12 Return of defective merchandise 3,000
13 Allowance for defective merchandise 5,000
14 Re-establishment of accounts written-off 6,000
15 Unrecorded Advance payment on goods 10,000
16 Reclassying the advances to officers
Adjusted balances, December 31, 2020 150,000 614,230
. The amount of Trade and Other Receivables that would be reported in the Statement of Financial Position of
2020
Trade Receivables:
Other Receivables
Total Trade and Other Receivables
dit of Capable Corporation for calendar
e to Howard and Company, dated

f picking up this check, Howard and
ounts Receivable is still outstanding in the

oration with indefinite repayment date,
e vouched and supporting documents
Comments
n credited to Famas Marketing. Famous
ce of P 5,000 on December 31, 2020.
ance due to mistake in pricing
urn of defective merchandise.
ective merchandise.
s delivered in January 2021.
020, payable in four equal semi-annual

Position of Capable Corporation as at

Allowance Other
for D/A Receivables
70,000 160,000
-2,000
-5,000
6,000
-6,000
71,000 152,000
nt of Financial Position of Capable Corporation as at December 31,
693,230
152,000
845,230
MULTIPLE CHOICE PROBLEMS - RECEIVABLES (DO-IT-YOURSELF)
MCQ PROBLEM 1
According to subsidiary ledger which have been thoroughly checked and rechecked, the trade accounts totalled P 400,000,
composed of current accounts P 250,000; two-month accounts - P 80,000; and accounts three months or more - P 70,000.
Responsible official have acknowledged definite uncollectibility of three -month accounts with balance totalling P 15,000; they
have expressed doubt with respect to an additional P 16,000 worth of accounts in the same category; and they consider all other
accounts collectible.
Question 1:
At what net realizable amount should accounts receivable - trade be carried in the statement of financial position dated
December 31, 2021?
A. P 369,000
B. P 385,000
C. P 372,000
D. P 431,000
MCQ PROBLEM 2
The accounbts receivable - trade showed a debit balance of P 50,000 on the December 31, 2021 trial balance, while the
allowance for doubtful accounts was reported in the same trial balance at a credit of P 3,000. Analysis of accounts receivable
reveals that with two exceptions, all appeared collectible as December 31, 2021. The two exceptions are:
a.
The Makiling Company had falledn into receivership and was expected to realize only P 0.40 on the peso. The December
31, 2021 balance was P 5,000. On February 14, 2022, P 4,000 was receovered from Makiling Company. P 3,000
allowance for doubtful accounts was set up to meet the expected loss on the Makiling account.
b.
The Aca Association had not paid anything on their balance of P 3,000 and this account was written off since Mr. Nanding,
the [president of associatio had informed your client in december 2021 that it appeared ipossible that current obligations
could ever be met and that mortgage holders would probably absord all assets proceeds in the event of liquidation.
However, on March 2, 2022, ten days before issuance of your report, P 1,500 was received from the association as final
settlement.
Question 2:
At what net reaoizable value should the trade accounts receivable appear on the statement of financial position?
A. P 47,500
B. P 48,500
C. P 47,000
D. P 50,000
MCQ PROBLEM 3
At the end of its first year of operations, Xander Corporation made available to you the following information:

Payments made for merchandise purchases 2,000,000
Unsold inventory at year-end 600,000
Collections from various customers 1,700,000
All items of merchandise were marked to sell at 30% above cost.
Question 3:
Assuming all accounts receivable are deemed collectible, what would be the Accounts Receivable balance at year-end?
A. P 640,000
B. P 900,000
C. P 1,420,000
D. P 1,680,000
MCQ PROBLEM 4
Your examination of the notes receivable for the year-ended December 31, 2021 showed, among others, a 90-day note dated
November 1, 2021, face value P 20,000 with interest at 9%. The note was from a stockholders in payment of his subscription to
shares of the company's ordinary shares.
Question 4:
An adjustment should be made as of December 31, 2021 to take up
A. Accrued interest expense of P 300
B. Accrued interest income of P 450
C. Accrued interest income of P 300
D. No adjustment is necessary
MCQ PROBLEM 5
You are engaged to examine the accounts of Bonifacio Company as of December 31, 2020 and your audit
disclosed the following:
Question 5:
The cash you counted on December 31, 2020 included two customers’ checks amounting to P 50,000 both dated
January 2021. These checks were recorded in the books in December and were accepted for deposit by the bank
on due dates. The adjusting entry is:
A. Cash in Bank 50,000 Cash on hand 50,000
C. Cash on Hand 50,000 Accounts Receivable 50,000
Question 6: checks amounting to P 45,000 were returned during December 2020 with the notation “NSF”. Of these
Customers’
checks P 30,000 had been redeposited and cleared the bank during the month. No entries were made for the return
or redeposit. The adjusting entry is:
A. Cash 30,000 Accounts Receivable 30,000
C. Cash 15,000 Accounts Receivable 15,000
D. Accounts Receivable 15,000 Cash 15,000
Question 7:
Goods costing P 200,000 were excluded from the ending inventory. The selling price of these goods was P
300,000. The goods were shipped by your client on December 29, 2020, FOB Shipping point. The transaction was
not recorded in 2020. The adjusting entry is:
B. Inventory 250,000 Cost of Sales 250,000
C. Accounts Receivable 250,000 Sales 250,000
Question 8:
Merchandise costing P 150,000 were still included in ending inventory although these were already invoiced and
recorded as sales to customers on December 31, 2020. The sales invoices totaling P 250,000 were no longer
recorded when the goods were delivered on January 5, 2021. The adjusting entry is:
B. Accounts Receivable 250,000 Sales 250,000
C. Sales 250,000 Accounts Receivable 250,000
D. Inventory 150,000 Cost of Sales 150,000
MCQ PROBLEM 6
Reviewing the accounts receivables of Sunrays Company as at December 31, 2020, you obtained the following
information:
• Sunrays estimates the required allowance for uncollectible accounts using the year-end aging of
accounts receivable.
• Allowance for uncollectible accounts, January 1, 2020, P 65,000.
• Provision made during the year 2020 for uncollectible accounts (2% of credit sales of P 6,000,000), P
120,000.
• Uncollectible accounts written off on October 31, 2020, P 80,000
• Estimated uncollectible accounts per aging on December 31, 2020, P 115,000.
Question 9:
After the year-end adjustments the doubtful accounts expense of Sunrays for the year 2020 should be:
A. P 130,000
B. P 105,000
C. P 115,000
D. P 120,000
MCQ PROBLEM 7
Mabini Corporation decided that the allowance for doubtful accounts should be adjusted to equal the estimated
amount required based on aging the accounts as of December 31, 2020. The following data were gathered:

Provision for doubtful accounts during 2020 (2% of P 3,000,000 sales) 60,000
Accounts written off in 2020 75,000
Estimated doubtful accounts per aging of accounts receivable on 12/31/2020 80,000
Question 10:
The adjusting entry should be:
A. Doubtful Accounts Expense 15,000 Allow. for Doubtful Accounts 15,000
B. Allow. for Doubtful Accounts 45,000 Accounts Receivable 45,000
C. Allow. for Doubtful Accounts 25,000 Doubtful Accounts Expense 25,000
D. None of the above
MCQ PROBLEM 8
The following information is available for the Rural Corporation’s first year of operation:
Payment for merchandise purchases 5,000,000

Merchandise inventory at the end of the year 700,000
Collections from customer during the year 4,900,000
All merchandise were marked to sell at 20% above cost.
Question 11:
What should be the ending balance in Accounts Receivable, assuming all accounts Receivable are deemed
collectible?
A. P 1,700,000
B. P 1,100,000
C. P 860,000
D. P 260,000
MCQ PROBLEM 9
Presented below is the aging of accounts receivable at December 31, 2020 of BMX Tower Corporation.
Balance Days Past Due

Customers Due Current 1 to 30 31 to 60 Over 60
John Rodwin Bautista 23,000 23,000
Russel Malabanan 105,000 62,000 20,000 13,000 10,000
Adrian Chavez 87,500 23,000 14,500 10,000 40,000
Allyana Gatuz 93,500 53,000 20,500 10,000 10,000
J. Victorino Company 40,000 40,000
Paolo Constantino 31,000 15,000 16,000
Sophia Jose 1,000 1,000
Kenzo Jose 64,000 20,000 18,000 16,000 10,000
JM Corporation 60,000 60,000
505,000 234,000 89,000 72,000 110,000
The Accounts Receivable control accounts reported a balance of P 505,000.
Audit comments for possible adjustments:

. John Rodwin Bautista Merchandise found defective returned by customer on November 10, 2020 for
credit. But the credit memo was issued by BMX only on January 3, 2021.
. Russel Malabanan Account is good but usually pays late.
. Adrian Chavez Merchandise worth P 40,000 destroyed in transit on June 4, 2020. The carrier
was billed on July 1, 2020. (See J. Victorino Company and JM Corporation)
. Allyana Gatuz Customer billed twice in error for P 10,000. Balance is collectible.
. J. Victorino Company Collected in full on January 15, 2021.
. Paolo Constantino Paid in full on December 29, 2020. Not recorded but deposited on 1/3/2021.
. Sophia Jose Received accounts confirmation from customer for P 11,000. Investigation
revealed an erroneous credit for P 10,000. (See Kenzo Jose)
. Kenzo Jose Neglected to post P 10,000 credit to customer’s account.
. JM Corporation Customer wants to know reason for receipt of P 40,000 credit memo.
Question 12:
Based on the foregoing information, what should be the adjusted balance of the Accounts Receivable – Trade at
December 31, 2020?
A. P 474,000
B. P 441,000
C. P 464,000
D. P 481,000
MCQ PROBLEM 10
During your audit of the Planetoids Corporation for the calendar year 2020 you find the following account:
NOTES RECEIVABLE
2020
Nov 1 Vittorio, 24%, due in 13 months 60,000
Dec 1 Tango, 18%, due in 5 months 90,000
All notes are trade notes receivable unless otherwise specified. The Charlie note was paid on December 1, 2020,
as per notification received from the bank. The Howard Company note was dishonored on the due date but the
legal department has assured management of its full collectability.
The company, with your concurrence will not use the notes receivable discounted account but will merely note on
the face of the statement of financial position the amount of the notes receivable discounted but still outstanding.
Question 13:
At what amount on the current assets section of the statement of financial position dated December 31, 2020 will
the notes receivable trade be carried?
A. P 90,000
B. P 270,000
C. P 150,000
D. P 180,000
Question 14:
A. P 6,150
B. P 27,150
C. P 27,750
D. P 6,750
MCQ PROBLEM 11
On December 31, 2020, the statement of financial position fo Mindoro Corporation contained the following current
assets:
Cash 160,000
Inventories 140,000
An examination of the accounts revealed that accounts receivable were composed of the following items:
Customers' accounts 81500

Employees' accounts - current 4000
receivable assigned under guaranty 8000
Selling price of merchandise sent by Mindoro
Corporation on consignment at 125% of cost
and not sold by consignee 12500
Allowance for uncollectible accounts 6000
Question 15:
What should be the adjusted amount of current assets as of December 31, 2020?
A. P 375,500
B. P 376,000
C. P 396,000
D. P 397,500
MCQ PROBLEM 12
Engaged to make an audit for 2020, you find that Diamond Company does not provide allowance for doubtful
accounts expense since it started its operations in 2016. The company's practices to directly write-off as doubtful
accounts expense and credit recoveries to income The company's contract are generally for two years.
The company upon your recommendation, agreed to change its accounts for 2020 to give effect to doubtful
treatment on the allowance basis. The allowance is to be based on a percentage of sales which is derived from the
experience of prior years. Statistics for 2016 to 2020 are shown as follows:
Accounts written off and Year of

Year Charges Sales Sale Recoveries
2016
2016 200,000 1,100
2016 2017 2016

2017 500,000 3,000 2,000 200
2016 2017 2018 2017

2018 600,000 1,000 8,000 2,600 800
2017 2018 2019 2018

2019 650,000 2,400 9,000 3,000 1,000
2018 2019 2020 2019

2020 550,000 5,400 10,000 2,800 1,200
Accounts receivable at December 31, 2020 are as follows:

2019 Sales - P 30,000; 2020 Sales - P 270,000
Question 16:
The amount of allowance for doubtful accounts that should be set up for 2020 is:
A. P 10,450
B. P 15,400
C. P 22,000
D. P 30,000
Question 17:
The average percebtage if net doubtful accounts to charge sales that should be used in setting up the 2020
allowance is:
A. 2.50%
B. 2.05%
C 1.90%
D. 1.77%
MCQ PROBLEM 13
As part of your engagement to audit the financial statements of San Antonio Corporation, you have been assigned
to examine the accounts receivable. You gathered the following data from the trial balance as of December 31,
2020:
Accounts Receivable 2,000,000

You determined the following from the schedule of accounts receivable as of December 31, 2020:
Accounts with debit balances

60 days and below 1,000,000
61 to 90 days 500,000
Over 90 days 400,000 1,900,000
Accounts with credit balabces -50,000
Accounts receivable per GL 2,000,000
Additional information:
. Accounts receivable for more than a year totalling to P 40,000 should be written off.
. On October 1, 2020, goods amounting to P 50,000 were shipped to ABC Company, FOB shipping point but
the same has not been recorded by the company. No collection has yet been made by the company on this
account.
. The bank returned on December 29, 2020, a customer's check for P 20,000 marked "No Sufficient Fund:, but
no entry was made. The customer's invoice was dated and recorded on December 1, 2020.
. Confirmation replies directly from customers diclosed the following exceptions:
Customer Comments from Customers Audit Findings

A. Tim We do not owe this amount *%#@
Investigation revealed that goods sold
(bad words). We did not receive any
for P 60,000 were shipped to Tim on
merchandse from your company.
December 29, 2020, terms FOB
shipping point. The goods were lost in
transit and the shipping company has
acknowledged its responsibility for the
loss of the merchandise.
B. Tony We do not owe P 45,000 to San The shipment costing P 20,500 was
We do not owe P 45,000 to San The shipment costing P 20,500 was
C. Boris We have not yet sol the goods We will Goods billed for P 45,000 were
remit the proceeds as soon as the consigned to Boris on December 30,
goods are sold. 2020. The goods cost P 39,000.
D. Kahwi Balance amounting to P 10,000 was San Antonio received mailed check on
paid on December 29, 2020. January 4, 2021. Kahwi was billed on
December 5, 2020.
E. Danny We are rejecting the price, which is too
Danny's balance amounted to P 30,000.
much.
San Antonio's clerk erroneously
computed the unit price at P 200. The
correct pricing should have been at P
150 per unit. Danny was billed on
October 30, 2020.
. Based on your discussion with san Antonio's Credit Manager, you both agreed that an allowance for doubtful
accounts should be maintained using the following rates:
60 days old and below 4%

61 to 90 days 5%
Over 90 days 10%
Based on the above and result of your audit, compute for the following:
Question 18:
The adjusted accounts receivable balance in the 60 days and below category as of December 31, 2020
A. P 880,000
B. P 890,000
C. P 930,000
D. P 975,000
Question 19:
The adjusted balance of Accounts Receivable as of December 31, 2020
A. P 1,742,500
B. P 1,782,500
C. P 1,792,500
D. P 1,832,500
Question 20:
The adjusted allowance for doubtful accounts as of December 31, 2020
A. P 96,225
B. P 101,225
C. P 102,450
D. P 102,825
Question 21:
The adjusted balance of the doubtful accounbts expense for the year ended December 31, 2020
A. P 36,225
B. P 41,225
C. P 42,250
D. P 42,825
Question 22:
The adjusting entry to correct the error for customer Danny should include
A. Debit to Accounts receivable, P 22,500
B. Debit to Sales, P 22,500
C. Credit to Accounts Receivable, P 7,500
D. No adjusting entry is necessary
SELF)
ts totalled P 400,000,
s or more - P 70,000.
totalling P 15,000; they

and they consider all other
al position dated
balance, while the

of accounts receivable
are:
the peso. The December

ompany. P 3,000
tten off since Mr. Nanding,

e that current obligations
event of liquidation.
m the association as final
l position?
ance at year-end?
ers, a 90-day note dated

ment of his subscription to
and your audit
o P 50,000 both dated

or deposit by the bank
otation “NSF”. Of these

were made for the return
se goods was P
nt. The transaction was
already invoiced and
00 were no longer
btained the following
ear-end aging of
es of P 6,000,000), P
equal the estimated

a were gathered:
able are deemed
Corporation.
November 10, 2020 for

January 3, 2021.
e 4, 2020. The carrier

nd JM Corporation)
posited on 1/3/2021.
,000. Investigation
Jose)
credit memo.
Receivable – Trade at
wing account:
on December 1, 2020,
he due date but the
but will merely note on

d but still outstanding.
ecember 31, 2020 will
d the following current

llowing items:
wance for doubtful

y write-off as doubtful
r two years.
ffect to doubtful
hich is derived from the
ing up the 2020
ou have been assigned

as of December 31,
OB shipping point but

y the company on this
No Sufficient Fund:, but

2020.
allowance for doubtful
ber 31, 2020

MULTIPLE CHOICE QUESTIONS - THEORY (DO-IT-YOURSELF)
Substantitive Audit Procedures for Receivables
A. Timing
B. Realizable value
C. Completeness
D. Accuracy
. The appropriate evidence to be obtained from tests of details must be decided on a(n):
A. efficiency basis.
B. effectiveness basis.
C. audit objectives basis.
D. none of the above.
A. Occurrence
B. Completeness
C. Rights
D. Accuracy
. For most audits, inherent risk for accounts receivable is moderate or low except for which balance-related audit
objectives?
A. Timing and realizable value.
B. Completeness and existence.
C. Existence and accuracy.
D. Realizable value and cutoff.
. Which of the following types of receivables would not deserve the special attention of the auditor?
A. Accounts receivables with credit balances.
B. Accounts that have been outstanding for a long time.
C. Receivables from affiliated companies.
D. Each of the above would receive special attention.
. A listing of the balances in the accounts receivable master file at the balance sheet date, by total balance
outstanding and by the amount of time the component parts have been outstanding, is the:
A. customer list.
B. aged trial balance.
C. accounts receivable ledger.
D. schedule of accounts receivable.
. Auditors are often concerned with three aspects of internal controls related to the sales and collection cycle. Which
of the following is not one of those controls?
A. Controls that detect or prevent embezzlements.
B. Controls over cutoff.
C. Controls over acquisitions.
D. Controls related to the allowance for doubtful accounts.
. Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the
communication is correct or incorrect is a:
A. representation letter.
B. negative confirmation.
C. bank confirmation.
D. positive confirmation.
. A type of positive confirmation known as a blank confirmation:

A. requests the recipient to fill in the amount of the balance.
B. is considered less reliable than the regular positive confirmation.
C. generates as high a response rate as the regular positive confirmation form.
D. is used when the auditor is confirming several small balances.
. For sales, the occurrence transaction-related audit objective affects the ______ balance-related audit objective.
A. existence
B. completeness
C. rights
D. detail tie-in
. For cash receipts, the occurrence transaction-related audit objective affects the ______ balance-related audit
objective.
A. existence
B. completeness
C. rights
D. detail tie-in
. Which of the following is likely to be determined first when performing tests of details for accounts receivable?
A. Recorded accounts receivable exist.
B. Accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly
added and agrees with the general ledger.
C. Accounts receivable are owned.
D. Existing accounts receivable are included.
. The most effective test of details of accounts receivable is the:

A. detail tie-in of the records.
B. analysis of the allowance for doubtful accounts.
C. confirmation of accounts receivable.
D. examination of sales invoices.
. The most important test of details of balances for accounts receivable is:
A. confirmations.
B. recalculation of the aged receivables and uncollectible accounts.
C. tracing credit memos for returned merchandise to receiving room reports.
D. tracing from shipping documents to journals to the accounts receivable ledger.
. The most important test of details of balances to determine the existence of recorded accounts receivable is:
A. tracing details of sales invoices to shipping documents.
B. tracing the credits in accounts receivable to bank deposits.
C. tracing sales returns entries to credit memos issued and receiving room reports.
D. the confirmation of customers’ balances.
. When should auditors not perform alternative procedures in testing the accounts receivable balance?
A. When customers do not return positive confirmation requests.
B. When customers do not return negative confirmation requests.
C. When confirmations are deemed to be ineffective as an audit procedure.
D. When confirmations are too costly to use.
.
Because of its central role in auditing of accounts receivable, the ______________ is one of the first items tested.
A. accounts receivable master file
B. customer file
C. aged trial balance
D. sales register
. Most tests of accounts receivable are based on what schedule, file, or listing?
A. Sales master file.
B. Aged accounts receivable trial balance.
C. Accounts receivable master file.
D. Accounts receivable general ledger account.
. If the client’s internal control for recording sales returns and allowances is evaluated as ineffective:
A. a larger sample is needed to verify cutoff.
B. sampling is not appropriate.
C. all sales returns must be traced to supporting documentation.
D. all sales returns must be confirmed with the customer.
. Which of the following audit procedures would not likely detect a client’s decision to pledge or factor accounts
receivable?
A. A review of the minutes of the board of directors’ meetings.
B. Discussions with the client.
C. Confirmation of receivables.
D. Examination of correspondence files.
LF)
unts receivable?
unts receivable?
alance-related audit
total balance
collection cycle. Which
ce as stated on the
ated audit objective.
ance-related audit
counts receivable?
and the total is correctly
nts receivable is:

f the first items tested.
or factor accounts
MULTIPLE CHOICE QUESTIONS - THEORYS (DO-IT-YOURSELF)
Internal Controls for Receivables
. In order to safeguard the assets through proper internal control, accounts receivable that are written off are
transferred to a (an)
A. Separate ledger
B. Attorney for evidence in collection proceedings
C. Tax reduction file
D. Credit manager since customers may seek to reestablish credit by paying.
. Which of the following controls would best prevent the lapping of accounts receivable?
A. Segregate duties so that the clerk responsible for recording in the accounts receivable subsidiary ledger has no
B. Request that customers review their monthly statements and report any unrecorded cash payments.
C. Require customers to send payments directly to the company's bank.
D. Request that customers make the check payable to the company.
. Which of the following best describes lapping?

A. Applying cash receipts to a different customer's account in an attempt to conceal previous thefts of funds.
B. Inflating bank balances by transferring money among different ban accounts
C. Expensing an asset that has been stolen.
D. A clerk writes off a customer's account receivable and keeps the cash that the customer remits.
. Which of the following sets of tasks should not be separated?

A. Processing customer sales orders and approving credit
B. Receiving cash and updating the accounts receivable subsidiary ledger
C. Processing customer sales orders and posting to the sales journal
D. All of the above tasks should be separated
. Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorde
A. The billing department supervisor sends copies of approved sales orders to the credit department for comparis
B. The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to th
C. The accounting department supervisor controls the mailing of monthly statements to customers and investigate
D. The billing department supervisor matches prenumbered shipping documents with entries in the sales journal
. Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximiz
A. Employees responsible for authorizing sales and bad debt write offs are denied access to cash.
B. Shipping documents and sales invoices are matched by an employee who does not have authority to write off b
C. Employees involved in the credit granting function are separated from the sales function.
D. Subsidiary accounts receivable records are reconciled to the control account by an employee independent of th
. For good internal control, the billing department should be under the direction of the
A. controller
B. credit manager
C. sales manager
D. treasurer
. A sales clerk at Schackne Company correctly prepared a sales invoice for $5,200, but the invoice was entered as
$2,500 in the sales journal and similarly posted to the general ledger and accounts receivable ledger. The
customer remitted only $2,500, the amount on his/her monthly statement. The most effective procedure for
preventing this type of error is to
A. Use predetermined totals to control posting routines.
B. Have an independent check of sales invoice serial numbers, prices, discounts, extensions, and footings.
C. Have the bookkeeper prepare monthly statements that are verified and mailed by a responsible person other th
D. Have a responsible person who is independent of the accounts receivable department promptly investigate una
. Proper authorization procedures in the revenue cycle usually provide for the approval of bad debt write offs by an
employee in which of the following departments?
A. treasurer
B. sales
C. billing
D. accounts receivable
.
A company policy should clearly indicate that defective merchandise returned by customers is to be delivered to the
A. sales clerk
B. receiving clerk
C. inventory control clerk
D. accounts receivable clerk
. Shipping documents should be compared with sales records or invoices to

A. Determine whether payments are properly applied to customer accounts.
B. Assure that shipments are billed to customers.
C. Determine whether unit prices billed are in accordance with sales contracts.
D. Ascertain whether all sales are supported by shipping documents.
. To achieve good internal accounting control, which department should perform the activities of matching shipping
documents with sales orders and preparing daily sales summaries?
A. billing
B. shipping
C. credit
D. sales order
. Which of the following control procedures may prevent the failure to bill customers for some shipments?
A. Each shipment should be supported by a prenumbered sales invoice that is accounted for.
B. Each sales order should be approved by authorized personnel.
C. Sales journal entries should be reconciled to daily sales summaries.
D Each sales invoice should be supported by a shipping document.
. For effective internal accounting control, employees maintaining the accounts receivable subsidiary ledger should
not also approve
A. employee overtime wages
B. credit granted to customers
C. write-offs of customer accounts
D. cash disbursements
. Which of the following would be the best protection for a company that wishes to prevent the “lapping” of trade
accounts receivable?
A. Segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail.
B. Segregate duties so that no employee has access to both checks from customers and currency from daily cash
C. Have customers send payments directly to the company’s depository bank.
D. Request that customers’ payment checks be made payable to the company and addressed to the treasurer
. Which of the following is an effective internal accounting control over accounts receivable?
a. Only people who handle cash receipts should be responsible for preparing documents that reduce accounts rec
b. Responsibility for approval of the write off of uncollectable accounts receivable should be assigned to the cashi
c. Balances in the subsidiary accounts receivable ledger should be reconciled to the general ledger control accou
d. The billing function should be assigned to people other than those responsible for maintaining accounts receiva
. Which of the following statements is not correct?

A. The employee in charge of shipping goods to customers should not be responsible to receiving goods from
the suppliers.
B. Receiving and billing employees should not keep the books of accounts.
C. The billing and collecting functions should be assigned to one person.
D. The collections of cash from buyers are made by the cashiers in the treasury department.
. The credit department should be

A. Independent of shipping and accounting but not of billing.
B. Independent of shipping, billing and accounting.
C. Independent of billing and accounting but not of shipping.
D. Independent of accounting but not of shipping and billing.
. Which of the following should be prenumbered and the numerical sequence be accounted for?
A. Delivery Receipts
B. Sales Invocies
C. Bills of Lading
. Sales invoices should be correlated to

A. Shipping orders
B. Delivery Receipts
C. Bills of lading
ELF)
e written off are
subsidiary ledger has no access to the general ledger.

ash payments.
ous thefts of funds.
ns of an entity are recorded?

department for comparison to authorized credit limits and current customer account balances.
ble subsidiary ledger to the accounts receivable control account monthly.
ustomers and investigates any differences reported by customers.
ries in the sales journal
ales personnel to maximize sales volume at the expense of high bad debt write offs?
ave authority to write off bad debts.
mployee independent of the authorization of credit.
nvoice was entered as

ble ledger. The
ve procedure for
ons, and footings.
sponsible person other than the bookkeeper.
promptly investigate unauthorized remittance deductions made by customers or other matters in dispute.
d debt write offs by an
is to be delivered to the
s of matching shipping
shipments?
bsidiary ledger should
e “lapping” of trade
s to incoming mail.
currency from daily cash receipts.
essed to the treasurer
that reduce accounts receivable balances.

be assigned to the cashier.
eral ledger control account once a year, preferably at year end.
ntaining accounts receivable subsidiary records.
receiving goods from

rs in dispute.

MODULE 6 Audit of Receivables and Related Accounts With Discussion 3

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MODULE 6 Audit of Receivables and Related Accounts With Discussion 3

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MODULE 6.

Audit of Receivables and Related Accounts

A. Problems (Do-It-Your Self)

Applied Auditing 2017 Edition by Asuncion, Ngina and Escala

Basic Auditing Practice Volume 2 by Petronilo Santos

Textbook in Auditing Practice by Solita A. Frias

Practical Auditing 2019 Edition by Patricia M. Empleo

Practical Auditing 2001 Edition by Zenaida S. Bijasa-Sangcal

Applied Auditing by Baldres, De Leon, Magadia and Sarmiento

Comprehensive Manual of Auditing by Ma. Elenita Balatbat Cabrera

Intermediate Accounting by Robles and Empleo

Forensic Accounting 4th Edition by Zimbelman and Albrecht

Did they arise from sale of goods or

Are they collectible within twelve (1

CLASSIFIED AS CURRENT ASSETS:

CLASSIFIED AS NONCURRENT ASSETS:

II. AUDIT OBJECTIVES

Source: Basic Auditing Practice Volume 2 by Petronilo Santos

C. Sales Returns and Allowances

C. SALES RETURNS AND ALLOWANCES

Source: Practical Auditing 2019 Edition by Patricia M. Empleo

. consider internal control over receivable and revenue transactions

Source: Practical Auditing 2001 Edition by Zenaida S. Bijasa-Sangcal

. Adequate control structure olicies and procedures exist.

Source: CPA Review Manual in Auditing Problems BY Ma. Elenita Balatbat C

C. ALLOWANCE FOR DOUBTFUL ACCOUNTS

III. AUDIT PROCEDURES

Source: Basic Auditing Practice Volume 2 by Petronilo Santos

C. SALES RETURNS AND ALLOWANCES

YEAR-END SUBSTANTIVE TEST OF BALANCES AUDIT PROGRAM

Source: CPA Review Manual in Auditing Problems BY Ma. Elenita Balatbat C

B. Compare the accounts receivable turnover to the prior periods.

G. Perform the following tests on the trade notes receivable analysis:

J. Prepare or obtain an analysis of the allowance for doubtful accounts.

K. Review the adequacy of the allowance for doubtful accounts by

Source: Textbook in Auditing Practice by Solita A. Frias

Source: Practical Auditing 2001 Edition by Zenaida S. Bijasa-Sangcal

B. Existence and Occurrence

C. Rights and Obligations

ACCOUNTS RECEIVABLE AND SALES

. Reconcile controlling and subsidiary account balances.

. Inspect items on hand. Notes receivable will either be

. Confirm notes receivable.

Source: Applied Auditing 2017 Edition by Asuncion, Ngina and Escala

IV. AUDIT WORKING PAPERS AND DOCUMENTATION

. The problems encountered abd bases of resolution.

. To the extent appropriate, the following:

Source: Practical Auditing 2001 Edition by Zenaida S. Bijasa-Sangcal

. Aged trial balance of trade accounts receivable.

Common Fraud Schemes and Transactions Common Audit Procedures

Record Fictitious Sales •

Recognize revenues too early •

Understate allowance for doubtful accounts/ don't write- •

No record returned goods/discounts from customer •

Record returned goods / write-off receivables after the •

Manipulation of cash received •

Related Party Transactions •

Liberal return policy •

6 TYPES OF ACCOUNTS RECEIVABLE FRAUD

. Old or Closed Accounts

VI. INTERNAL CONTROLS

y collectible within twelve (12)

4) Deposits to guarantee performance or