Auditing and Assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

XYZ has trade receivable balance of Rs. 1 crore as on year end date. The cut off procedure indicates that cheque of Rs 25 lakhs received in the last week of the year was not entered in the books and it was entered in cheques in hand register. In the history of the company the cheques are never lost or misappropriated and the cheques are deposited within the first week of receipt. These cheques were also deposited and trade receivable balances were accordingly reduced in the next year. Give your comments.

Answer
Internal control procedure of the company seems to be appropriate to record all cheques which have not been deposited on the same date and keep it properly till deposited. However, at the year end all balances should also reflect the true and fair view. In the given case since no entries are made for cheques in hand, cash balance is understated and trade receivable balances are overstated Rs 25 lakhs. So, the company should deduct the trade receivable balance in the current year itself therepresenting cheques in hand under cash and cash equivalents. In the next year when cheques are deposited, cash in hand balance will be reduced and bank balance should be increased.



(Visited 25 times, 1 visits today)
Share this on:

Leave a Reply

Your email address will not be published.