Audit documentation often includes a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. The audit team uses this aging primarily to:
A)evaluate internal control over credit sales.
B)test the accuracy of recorded charge sales.
C)estimate credit losses.
D)verify the existence of the recorded receivables.

Question

Quizplus · Accepted Answer

The aged trial balance of accounts receivable is primarily used by the audit team to estimate credit losses. This involves analyzing the balances by age and assessing the likelihood of collection, as well as comparing the balances to previous years and industry benchmarks to identify potential bad debts that need to be written off. While the aging may provide some insight into internal control over credit sales and the accuracy of recorded charge sales, these are not the primary purposes of using the aged trial balance. Additionally, verifying the existence of the recorded receivables would require confirmation with customers, not just an assessment of their age.

Audit Documentation Often Includes a Client-Prepared, Aged Trial Balance of Accounts