There is significant interaction between cash receipt transactions and accounts receivable because _______.
A)the creation of an account receivable indicates receipt of cash
B)a misstatement of cash receipts will result in a misstatement of accounts receivable.
C)a misstatement of cash receipts will result in a misstatement of interest payments
D)the settlement of an account receivable will result in a decrease to the cash account

Question

Quizplus · Accepted Answer

A misstatement of cash receipts, such as if a payment is not properly recorded or is recorded in the wrong amount, will result in a misstatement of the accounts receivable balance. If cash receipts are overstated or understated, it will affect the accounts receivable balance which represents the amount owed to the company by its customers. Therefore, it is important for auditors to perform substantive tests on both cash receipts and accounts receivable to ensure accuracy and completeness of financial statements.

There Is Significant Interaction Between Cash Receipt Transactions and Accounts