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NOTES AND ACCOUNTS RECEIVABLE

  1. 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.
  2. 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.
  3. Determine if subsidiary ledgers are in agreement with control accounts, and if not, ascertain the reasons for any differences.
  4. 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.
  5. Some credit sales invoices and postings should be test checked from the sales journal to the subsidiary and control account.
  6. Compare balances of accounts receivable and sales for the current year with that of the preceding year. Investigate significant changes.
  7. Investigate large and/or unusual balances classified as other accounts receivable.
  8. In case of notes receivable, determine whether accrued income on interest bearing notes or accounts has been included in income.
  9. Investigate the sources of notes receivable as there may be instances when the taxpayer has other sources of income other than his regular business.
  10. Determine whether accrued income on interest bearing notes or accounts has been included in income.
  11. 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