You are conducting the audit of Superior Company as of December 31, 2014. The fo

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

Grove Retailing.

3838 Curtis Street

Hartford, Ct. 06703

Dear Mr. Jones,

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 $24,000. 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:

We received $24,000 of goods on consignment from Superior on December 10, 2014, but they are not sold yet.

Andy Briggs

Accounts Payable Supervisor

Grove Retailing

Explanation / Answer

From the customer's comments it appears that the goods worth $24000 were sent on consignment basis, but were wrongly accounted as a credit sale.

Steps to be taken:

*Client to be advised to make rectification entries:

One entry to reverse the initial credit sale entry and the second one debiting 'Consignment Account' and crediting 'Goods sent on consignment account' for the goods sent on consignment.

*The goods sent on consignment are to be included in stock.

*As this case is a lapse in proper accounting of a consignment sale, the entire process of recording consignment sales should be reviewed form the point of view of internal control and proper accounting.

*The client should be asked to give a list of Consignment agents. A sample of transactions on consignment basis should be checked for proper recording and accounting to ensure that there are no similar mistakes in accounting.

.

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