The term “receivables” is used broadly to include almost all amounts receivable by a concern from its customers, offices, branches, and affiliated or subsidiary concerns, except those which are evidence by a bond or other security. From the verification point of view they can be divided into here classes:
a) Accounts Receivable from customers
b) Notes Receivables
c) Other Receivables.
Purpose of verification of Receivables may be stated as under:
1) To determine whether the Balance Sheet or general ledger amount or receivables is supported by valid accounts.
2) To determine where the receivables as stated are collectible;
3) To determine whether the receivables are properly classified and described;
4) Determine whether sales transactions have been accounted for properly during the period.
Audit Programme for Accounts Receivables and Sales
1) To determine the specific debtors making up the total amounts receivable, obtain a detailed list of the receivables, compare with the subsidiary ledger accounts, foot and agree total with Control Accounts or Balance Sheet amount.
2) Obtain independent verification of balances:
a) Send confirmation requests to a representative portion of the debtors;
b) Obtain satisfactory explanations for any confirmation returned with exceptions of differences;
c) Investigate the propriety of any accounts for which confirmation were requested and not returned.
3) To consider collectibility of account balances:
a) Review accounts with credit manager or over due balances;
b) Review collection on account in period following balance sheet date;
c) Ensure that Reserve for Bad Debts is adequate to cover all uncollectible accounts plus a reasonable provision for doubtful debts.
4) To Test arithmetical accuracy of accounts, both controlling account and subsidiary ledger, foot and balance ledger accounts for receivables:
a) General Ledger control account or accounts;
b) A representative portion of subsidiary ledger accounts.
5) To test reliability of book-keeping procedures:
A) Test postings to books of original entry:
(a) General Ledger control account or accounts;
(b) A representative portion of subsidiary ledger accounts;
B) Investigate propriety of any unusual entries in the general ledger controlling account or accounts.
6) To verify sales transactions for a test period:
a) Compare duplicate sales invoices with entries in sales book
b) Foot sales book;
c) Trace postings to general ledger accounts;
d) Examine documentary evidence supporting sales returns and sales allowance transactions;
e) Account for all sales invoices and for all credit memos issued for the test period;
f) Foot and balance the Sales account.
g) Investigate propriety of any unusual entries in the Sales account.
7) To determine whether sales book has been help open past the closing date or receipts of the book with date of deposit and date of remittance advice if available, for last cash receipts of the period and first cash receipts of the following period.
8) Prepare any necessary adjusting or re-classifying journal entries.
