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Hello Sir, for past year question March/June 2017 Q16 PART (b)
Hurling Co ‘s audit risk and response
extract question :The new customers have been given favourable credit terms as an introductory offer, provided goods are purchased within a two-month period.”
answer: “In addition, there is a risk of sales cut-off errors as new customers could place orders within the two-month introductory period and subsequently return these goods post year end.”
what is the introductory period ?is it can freely return the goods purchased in this period? or why this period will increase the sales return occurs? I don’t understand the answer.
An introductory offer is typically made to attract new customer for a specified period time. In Hurling the offer is favourable credit terms – these are not specified but could be “buy now and pay nothing for 6 months – hurry! this offer expires on xxx (a date 2 months from the offer was introduced)”.
“Introductory period” is referring to the 2-month period of the offer, which you can see from the Q started in January. So at the y/e – 31 March – none of the new customers will have paid anything. Once customers have paid for goods they are less likely to return them. Conversely, there is a higher risk that customers who have not paid for goods may return them.