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For each of the following problems, provide an audit procedu

For each of the following problems, provide an audit procedure that would have identified the problem.

(a) The allowance for doubtful accounts estimated by management is too small.
(b) Cash received in payment of an account receivable is deposited in the bank in the
current period but is not posted to the accounts receivable record, trial balance,
or general ledger until the subsequent period.
(c) For a month, sales are transacted using an outdated price list with amounts that
are too low. The transactions are recorded accurately based on the price list used.
Management is not aware the problem occurred.
(d) Cash for the exact amounts of sales are regularly pocketed by employees and not
recorded on the sales terminal. Customers do not ask for receipts.
(e) Management records false sales close to year end and posts them as accounts
receivable.
(f) Sales on account for services that take place in the first two days of the subsequent
year are posted in the current year.

Solution Preview

(a) The allowance for doubtful accounts estimated by management is too small.
-- The allowance for doubtful accounts should be based on past history, and as a percentage of sales. An examination of the company's current sales and recent bad debt records should let management know if they have underprojected the allowance for doubtful accounts. This can be tested by a simple calculation, used as a percentage to sales.

(b) Cash received in payment of an account receivable is deposited in the bank in the
current period but is not posted to the accounts receivable record, trial balance,
or general ledger until the subsequent ...

Solution Summary

For each of the following problems, provide an audit procedure that would have identified the problem.

(a) The allowance for doubtful accounts estimated by management is too small.
(b) Cash received in payment of an account receivable is deposited in the bank in the
current period but is not posted to the accounts receivable record, trial balance,
or general ledger until the subsequent period.
(c) For a month, sales are transacted using an outdated price list with amounts that
are too low. The transactions are recorded accurately based on the price list used.
Management is not aware the problem occurred.
(d) Cash for the exact amounts of sales are regularly pocketed by employees and not
recorded on the sales terminal. Customers do not ask for receipts.
(e) Management records false sales close to year end and posts them as accounts
receivable.
(f) Sales on account for services that take place in the first two days of the subsequent
year are posted in the current year.

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