ASSIGNMENT 1

ACCOUNT RECEIVABLE AND CREDIT SALES

APPLE BLOSSOM COLOGNE COMPANY
SUBSTANTIVE AUDIT PROCEDURES: ACCOUNTS RECEIVABLE AND BAD
DEBTS
To begin your substantive audit work in the accounts receivable area, you obtain an
aged trial balance from Don McKenna. This schedule is included in the working
papers with this assignment section referenced B-1. Your may assume that you can
check the aged trial balance with the accounts receivable subsidiary ledger and that
the subsidiary ledger supports the aged trial balance as to both amounts due and
age of accounts.
On Monday, January 3, with the clients assistance, you prepared and mailed both
positive and negative accounts receivable confirmations. Positive confirmations
were sent to five customers, as follows: (1) Frankies Floral Fragrances, (2) Tears and
Doefall Company, (3) Anne Charlotte Cosmetics, (4) Young and Beautiful, and (5)
Darings. Negative confirmations were mailed to all other customers with an
accounts receivable balance. The confirmation from Capitol Odors was returned by
the post office because of inability to deliver. You have received replies on all of the
positive confirmations and no replies to the negative negative confirmations. The
positive confirmations are referenced B-2 through B-4. Upon checking with John
Roberts, you learn that a $1.450 credit should have been issued to Anne Charlotte
Cosmetics but the credit was never posted.
You have also discussed the delinquent accounts with John Roberts, and he had the
following comments about those customers and their paying habits:
Alpha Aroma
Good account
Anne Charlotte CosmeticsCredit of $1.450 should be allowed
Bobell Beauty Supply
Never been delinquent before
Body Bar
Slow paying, good account
Capitol Odors
Probably will collect nothing
Cut-Rate Discount Stores Slow paying, but has always paid
Darings
Established company, good pay
Inceses, Inc
Never been delinquent before
Janis Dept. Store
Slow paying, good account
Rauschs Department Store
Good account
John Robert indicated that he had spoken with both Parker Shelton, controller, and
Ellen Jacobs, sales manager, about the delinquent Capitol Odors account. They were
in agreement that it should be written off. Account amounting to $11,700 had been
written of during the year, you noted that all write-offs were approved by Mr.
Roberts.
From the cash receipts journal you were able to learn of the following subsequent
payments on the accounts receivable balances as of December 31, 2011
Customer
Anne Charlotte Cosmetics

Payment Amount
$30,900

Date
January 12

Body Bar
Capitol Odors
Cut-Rate Discount Stores
Darings
Incense, Inc.
Janis Department Store
Lone Star Supply
Rauschs Department Store
Tears and Doefall Company
Young and Beautiful

1,850
3,600
1,800
36,000
6,000
5,200
2,400
3,400
70,000
18,000

January 09
January 14
January 07
January 03
January 07
January 03
Janyary 14
January 07
January 03
January 04

Apple Blossom Cologne Company

Account Receivable-Aged Trial Balance
31 December 2011
(Prepare By Client)

CONFIRMATION REPLIES CURRENT YEAR (2011)

----------------------------------------------------------------------------------------------------------------------------------------CONFIRMATION OF ACCOUNTS RECEIVABLE
B2 1
Confirmation Request No.
Anderson, Odds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois

Dear Sir,
The statement of our account showing a balance of $ 22,300 as of 31/12/2011 is
correct except as noted below.
Very truly yours,
Frankies Floral Fragrances,
James Whitemore
Chief Accountant
Date: January 17, 2012
Exceptions:
No exceptions
----------------------------------------------------------------------------------------------------------------------------------------CONFIRMATION OF ACCOUNTS RECEIVABLE
B3 2
Confirmation Request No.
Anderson, Odds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Dear Sir,
The statement of our account showing a balance of $ 77,540 as of 31/12/2011 is
correct except as noted below.
Very truly yours,
Tears and Doefall Company
William OKeefe
Chief Accountant
Date: January 21, 2012
Exceptions:
$70,000 payment made prior to December 31, 2011. Balance as of
December 31, 2011 should be $7,540
----------------------------------------------------------------------------------------------------------------------------------------CONFIRMATION OF ACCOUNTS RECEIVABLE

B4 3
Confirmation Request No.

Anderson, Odds, and Watershed

Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Dear Sir,
The statement of our account showing a balance of $ 32,350 as of 31/12/2011 is
correct except as noted below.

Very truly yours,

Anne Charlotte Cosmetics
William Brown
Chief Accountant
Date: January 17, 2012
Exceptions:
We returned $1,450 of merchandise in November. We were promised
credit but have not yet received it.
----------------------------------------------------------------------------------------------------------------------------------------CONFIRMATION OF ACCOUNTS RECEIVABLE
B5 4
Confirmation Request No.
Anderson, Odds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Dear Sir,
The statement of our account showing a balance of $ 23,000 as of 31/12/2011 is
correct except as noted below.
Very truly yours,
Young and Beautiful
Roger McAdams
President
Date: January 17, 2012
Exceptions:
We only owe $5,000. Balance above is incorrect
----------------------------------------------------------------------------------------------------------------------------------------CONFIRMATION OF ACCOUNTS RECEIVABLE

B6
Confirmation Request No. 5

Anderson, Odds, and Watershed

Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Dear Sir,
The statement of our account showing a balance of $ 44,100 as of 31/12/2011 is
correct except as noted below.

Very truly yours,

Dearings
Rosemary William
Chief Accountant
Date: January 14, 2012
Exceptions:
No exception
---------------------------------------------------------------------------------------------------------------------------------------Excerpt of the above confirmation replies:
B-2
Frankies Floral Fragrances, balance of $22,300, exceptions: none
B-3
Tears and Doefall Company, balance of $77,540, exceptions: $70,000
payment made prior to 12/31/2011, balance as of 12/31/2011 should be
$7,540
B-4
Anne Charlotte Cosmetics, balance of $32,350, exceptions: We returned
$1,450 of merchandise in November 2011. We were promised credit but have
not yet received it.
B-5
Young and Beautiful, balance of $23,000, exceptions: We only owe $5,000.
Balance above is incorrect.
B-6
Darings, balance of $44,100, exceptions: no exceptions.
Instructions:
1. Begin with the list of typical Errors or Irregularities below, write your audit
program to detect these potential errors or irregularities.
a. Sales amounts may have been incorrectly recorded
b. Goods may have been shipped but not billed to the customer
c. Sales may have been billed to the customer but not shipped
d. Sales may have been recorded in the wrong accounting period
e. Merchandise may have been sold to customers who were bad credit risks
f. Unauthorized sales may have occurred
g. Sales may have been posted to the wrong account
h. Unauthorized write-offs of receivables may have occurred
2. Begin with the list of assertions below and add others you think appropriate.
Then write your audit program to test those assertions.
a. None of the accounts receivable are fictitious
b. No accounts receivable has been omitted from the balance sheet
c. The accounts receivable are collectible in the normal course of business
d. The accounts receivable are bona fide claims owed the company
e. Pledged accounts receivable or accounts receivable used as collateral are
all disclosed.
f. Receivables from directors, officers, and affiliates are all separately
disclosed.
3. Study the prior years working papers, schedules B-1 through B-5. Note the use
of tick marks to evidence the audit work and the system of cross-referencing
the working papers. Perform all required audit work on schedules B-1 through B6 and prepare schedule B-7 to analyze the allowance account for the current

year (2011), performing all appropriate audit work. You have determined that the
expected uncollectible percentages from the prior year are still appropriate for
the current year.

PREVIOUS YEAR (2010) WORKING PAPER

CONFIRMATION REPLIES PREVIOUS YEAR (2010)

----------------------------------------------------------------------------------------------------------------------------------------CONFIRMATION OF ACCOUNTS RECEIVABLE
B2
Confirmation Request No. 1
Anderson, Odds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Dear Sir,
The statement of our account showing a balance of $ 10,500 as of 31/12/2010 is
Bcorrect except as noted below.
1
Very truly yours,
Frankies Floral Fragrances,
James Whitemore
Chief Accountant
Date: January 15, 2011
Exceptions:
No exceptions
----------------------------------------------------------------------------------------------------------------------------------------CONFIRMATION OF ACCOUNTS RECEIVABLE
B3
Confirmation Request No. 2
Anderson, Odds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Dear Sir,
The statement of our account showing a balance of $ 840 as of 31/12/2010 is
Bcorrect except as noted below.
1
Very truly yours,
--------------Date: ________________
Exceptions:
Confirmation to Kanine Kaffiures returned by post office unopened.
Should write off as bad debt. Ref B-1 for proposed AJE
-----------------------------------------------------------------------------------------------------------------------------------------

CONFIRMATION OF ACCOUNTS RECEIVABLE

B4 3
Confirmation Request No.

Anderson, Odds, and Watershed

Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Dear Sir,
The statement of our account showing a balance of $ 56.250 as of 31/12/2010 is
Bcorrect except as noted below.
1
Very truly yours,
Tears and Doefall Company
William OKeeef
Chief Accountant
Date: January 18, 2011
Exceptions:
Traced $43,000 of this amount to January collection recorded in cash receipts
Bjournal.
1
----------------------------------------------------------------------------------------------------------------------------------------CONFIRMATION OF ACCOUNTS RECEIVABLE
B5 4
Confirmation Request No.
Anderson, Odds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Dear Sir,
x
The statement of our account showing a balance of $ 11,750 as of 31/12/2010 is
Bcorrect except as noted below.
1
Very truly yours,
Williams Fragrance
William Brown
Chief Accountant
Date: January 21, 2011
Exceptions:
No exception
x traced $9,000 of this amount to January collection recorded in
Bcash receipts journal.
1
-----------------------------------------------------------------------------------------------------------------------------------------

CONFIRMATION OF ACCOUNTS RECEIVABLE

B6 5
Confirmation Request No.

Anderson, Odds, and Watershed

Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Dear Sir,
x
The statement of our account showing a balance of $ 11,250 as of 31/12/2010 is
Bcorrect except as noted below.
1
Very truly yours,
Young and Beautiful
Roger M Adams
President
Date: January 15, 2011
Exceptions:
No exception
x Traced $11,250 to January collection recorded in cash
B- receipt
journal.
1
---------------------------------------------------------------------------------------------------------------------------------------Apple Blossom Cologne Company
Allowance for Bad Debts
December 31, 2010
Denies
Balance per 31-12-2010
2009 Write off
2010 Provision
Balance per 31-12-2010
Adjustment # 1
Adjusted Balance

B-5
22-1-2011
Prepared by:
12,250
10,850
1,400
99,257
WTB IS
11,325 WTB BS
840
10,485 (current balance)

PROVISION FOR BAD DEBTS REASONABLENESS TEST

Age
Amount
Expected
Uncollectible (%)
1 30 days see B-1
91,876
1.5%
30 60 days see B-1
18,057
10%
60 90 days see B-1
14,088
50%
Over 90 days see B-1
0
100%
Balance per analysis
Adjusted balance

Estimated
Uncollectible
1,378
1,806
7,044
0
10,022
10,488
WTB BS

Adjusted
Notes:
1. Beginning balance agree to prior years working paper
2. All bad debt write off are approved
3. Provision for bad debts appear reasonable and in line with prior year
4. Allowance balance is in line with prior year and appear reasonable based
upon above reasonableness test.
5. Over 90 days: $840-840 = 0, see B-1/AJE # 1

CURRENT YEAR (2012) WORKING TRIAL BALANCE