- Secure a breakdown of the receivables by class, whether notes or accounts and by debtors, such as customers, affiliated companies, officers, stockholders, employees and others.
- Check entries in the general ledger control accounts. Look for unusual items, especially those which do not originate from the sales or cash receipts journals.
- Determine if subsidiary ledgers are in agreement with control accounts, and if not, ascertain the reasons for any differences.
- Note any credit balances in the general ledger or subsidiary accounts. This may indicate deposits or overpayments which could be considered as additional income or unrecorded sales.
- Some credit sales invoices and postings should be test checked from the sales journal to the subsidiary and control account.
- Compare balances of accounts receivable and sales for the current year with that of the preceding year. Investigate significant changes.
- Investigate large and/or unusual balances classified as other accounts receivable.
- In case of notes receivable, determine whether accrued income on interest bearing notes or accounts has been included in income.
- Investigate the sources of notes receivable as there may be instances when the taxpayer has other sources of income other than his regular business.
- Determine whether accrued income on interest bearing notes or accounts has been included in income.
- If needed, check the detailed listing of beginning receivables to cash collected as reflected in the cash receipts book. This may disclose diversion of funds and other irregularities.
Reference: RAMO 1-2000