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sir how does the below substantive procedure help test completeness of receivables.
Review the sales ledger for any credit balances and discuss with management whether these should be reclassified as payables.
Say total sales ledger balance is $90k but made up of $100k debit balances and $10k credit balances. If there is no valid offset between the debits and credits, $90k is understated – i.e. incomplete.
exactly what I was thinking. For further knowledge and understanding, in what circumstance does credit receivable balance should be reclassed as payable.
Thanks Kim.
When it represents an actual liability to the customer – either through cash refund or offsetting against their future purchases. Think of reasons why there could be a credit balance on a customers account ….
They overpaid (e.g. settled the same invoice more than once)
They advance paid (e.g. a deposit)
They have been issued with a credit note for goods returned which they have paid for
etcIf a credit balance has arisen on a customer’s account because an invoice for them has been misposted to another customer’s account, it would not be reclassified.
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