Concept explainers
a.
Introduction: Allowance for doubtful accounts is a contra asset account which is used to provide provision for losses which may result due to non-receipt of accounts receivables. The value of allowance is deducted from the figure of accounts receivables as presented in the balance sheet.
To describe: Basis for valuation of allowances for doubtful account, its comparison with account balances based on recorded transactions and precision requirement for balances containing estimates.
b.
Introduction: Uncollectible debt represent the debt which is not likely to be realized by the company, depending on the certainty of un-collectability, either an allowance (provision) can be made for the same or the debt can be written off by recognizing it as ‘
To describe:Information that the company may use to make the estimate of the allowance for uncollectible debt.
c.
Introduction: Audit Evidence refers to the evidence obtained by the auditor by performing
To describe: Evidence needed to be collected by auditor in order to determine the fairness of client’s estimate of the allowance for uncollectible accounts.
d.
Introduction: When the allowance is estimated based on past trends, as a percentage of sales, the same rate cannot be taken in the current period since the customer base has been altered and therefore, management would have to determine a new methodology for estimation.
To discuss:Effect of sale to low credit customers on estimate of allowance for doubtful debt.
e.
Introduction: Economic conditions are the prevalent market conditions within which the business operates, a business can only operate profitably when the economic environment within which it exits, allows the business sufficient opportunities.
To describe: Importance of change in economic conditions in estimation of allowance for doubtful accounts.
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AUDITING-TEXT (LOOSELEAF)
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