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:

Notes Payable

Financial obligations represented by written promises to pay specified amounts of money at future dates.

Accounts Payable

Liabilities representing amounts owed by a company to suppliers for goods and services purchased on credit.

Journal Entry

A record in the accounting journals that documents a financial transaction.

FICA Taxes

Taxes imposed by the Federal Insurance Contributions Act, funding Social Security and Medicare programs, withheld from employees’ pay and matched by employers.