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Hi Tutor,
Can substantive procedures for sales revenue be used as procedures for trade receivables? For example:
“Select a sample of credit notes issued after the year end and trace these through to the related sales invoices to ensure sales returns were recorded in the proper period”Which of the assertions does this procedure test?
“Test whether discounts have been properly applied by recalculating them for a sample of invoices”The BPP study text says that it tests the cut off assertion of revenue, which I don’t get.
Hoping you could help me on this one, thank you 🙂
Yes, substantive procedures for sales can be relevant for trade receivables. Not all are relevant, of course. For example, for sales it would be necessary to ensure that sales tax is split out whereas this would be included in receivables. However, recalculating the value of an invoice will be relevant to both.
Your example “Test whether discounts have been properly applied by recalculating them for a sample of invoices”, would seem to me to be addressing accuracy, not cut-off.
Thank you for the clarification 🙂
I have 2 other doubt relating to receivables- hope it is okay to post them in the same post here.
“Review the aged receivables ledger for any credit balances and inquire of management whether these should be reclassified as payables”
What does it mean by “..be reclassified as payables”?What is the difference between a receivables ledger and a receivables ledger control account? I had always thought they meant the same thing.
A Cr balance on the receivables ledger means that a customer is owed money. That customer has therefore become a creditor (payable) and reallymshould be included in liabilities rather than being netted off.
A receivables ledger has an account for each customer showing details of amounts owed and payments made. These are memorandum accounts.
A receivables control account shows the total amount owed by customers, but not details about who owes what. This is included in the trial balance.
The balance on the control account should agree with the total of the accounts in the receivables ledger.
Would I be right to say that the receivables ledger account is the same as the aged receivables listing?
No.
A receivables ledger account mainly shows invoices sent to a customer and payments received.
An aged receivables listing examines the date of each invoice still outstanding and sorts these into age categories, such as: up to 30 days, 30 to 60, 60 to 90 and over 90. The sum of the analysis for each customer should reconcile to the total amount owed by that customer.
The aged categories are added uo to give an age profile for the whole receivables ledger.
In general, the older a debt, the higher the chance that it will never be recovered.
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