You are conducting the audit of Superior Company as of December 31, 2014. The fo
ID: 2578572 • Letter: Y
Question
You are conducting the audit of Superior Company as of December 31, 2014. The following accounts receivable confirmations were sent out by you and returned to you from Superior’s customers. Based on the customer’s comments indicate what action you would take.
January 15, 2015
Baker Company
18 Lakeview Drive
Rocky Hill, Ct. 06262
Dear Mrs. Baker,
Our auditor, Miller, CPA, is currently auditing our financial statements. To facilitate that audit, please confirm the balance due us as of December 31, 2014 which is shown on our records as $25,000. Indicate in the space below whether this is in agreement with your records. If there are exceptions please provide information please provide any information that will assist our auditors in reconciling the difference.
Please mail your reply directly to Miller, CPA. A stamped, self addressed envelope is enclosed for your convenience.
James Blake
James Blake
Controller
Superior Company
To Miller, CPA:
The amount shown above is correct as of December 31, 2014, except as follows:
Sure we ordered $25,000 of merchandise on October 10, 2014, but Superior was out of stock until recently. They back ordered goods and we finally received them on January 4, 2015.
Nancy Baker
January 15, 2015
Clark Retailing
48 Harvest Street
Hartford, Ct. 06762
Dear Mrs. Smith
Our auditor, Miller, CPA, is currently auditing our financial statements. To facilitate that audit, please confirm the balance due us as of December 31, 2014 which is shown on our records as $75,000. Indicate in the space below whether this is in agreement with your records. If there are exceptions please provide information please provide any information that will assist our auditors in reconciling the difference.
Please mail your reply directly to Miller, CPA. A stamped, self addressed envelope is enclosed for your convenience.
James Blake
James Blake
Controller
Superior Company
To Miller, CPA:
The amount shown above is correct as of December 31, 2014, except as follows:
Our records show that a check for $75,000 was mailed on December 27, 2014.
Mary Smith
Controller
Explanation / Answer
In the first case, since my client has only received order in the year under consideration but actual delivery took place in another year, this transaction will not be treated as sales for the said year. It will be considered as sales in the year of delivery. Since there is no sales, no accounts receivable can be recorded before sales. Hence I will reduce sales amount and accounts receivable amount by $25000 in conduct of audit.
In the second case, I would consider Mary Smith as accounts receivable as on December 31, 2014 since though she has mailed check but my client either did not deposit the same into bank or even if it has deposited, the same is not cleared. Hence it will be correctly shown as accounts receivable in my client's book.
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