Analytical Procedures Performed During an Audit Indicate That Accounts Receivable

question 39

Multiple Choice

Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year.However,the allowance for doubtful accounts as a percentage of accounts receivable remained about the same.Which of the following client explanations would satisfy the auditor?

• A)A greater percentage of accounts receivable are listed in the "more than 120 days overdue" category than in the prior year.
• B)Internal control activities over the recording of cash receipts have been improved since the end of the prior year.
• C)The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet.
• D)The client tightened its credit policy during the current year and sold considerably less merchandise to customers with poor credit ratings.

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Definitions:

Over Time Cost

Expenses incurred from working beyond normal working hours, including higher wages for employees and additional operational costs.

Inventory Management

The process of ordering, storing, and using a company's inventory, including raw materials, components, and finished products.

Predictable Variability

Variations or changes in processes or systems that can be forecasted with a degree of reliability based on historical data.

Demand

The amount of a product or service that customers are willing and able to purchase at a given price in a specific market context.