outstanding balances

We ll wait for the tutor’s expert reply but I ll give it a go

As the customers are struggling to pay there is a chance that Murray Co might never receive payment from them. Now well aware of the fact Murray Co can still put the whole receivable figure in their balance sheet, may be Mr Murray is an optimist, may be he wants the company accounts to look good, and if they do(put the whole figure) that would be an overstatement of receivables as Murray Co is not sure if they ll ever receive payment from their financially struggling customers. (it could be that they are nearly bankrupt or they are not bothered and want to spend this money on their next trip of Paris Disneyland ).

Obviously if Murray Co overstate their receivables their irrecoverable debt ll be understated which they have to make provisions for.

Its an audit risk because its an auditor’s job to make sure the FS show a true and fair view and if receivables are overstated and allowance for bad debt understated the FS arent exactly showing true and fair view

Testing of post year end cash receipts ll be used as our Audit Procedure because most companies overstate their balances at the end of the year to show good performance, an auditor has to make sure that they performs extended post year end cash receipt checks to make sure if the the entity actually received the payment they claimed they would in their FS.

If you receive payment in January for an amount outstanding 31/12, then that receivable has clearly not gone bad and no allowance for irrecoverability is needed.