related to auditing accounting estimates: When performing risk assessment procedures and related activities to obtain an understanding of the client and its environment‚ the auditor shall obtain an understanding of the following: The requirements of the applicable financial reporting framework relevant to accounting estimates‚ including related disclosures How management identifies those transactions‚ events and conditions that may give rise to the need for accounting estimates to be recognized or disclosed
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Association.”(ACAInternational Sept 2014) Bad Debt in a health care environment is a bill that is generated and supposed to be paid by a third-party or the individual who it was rendered to and has not been paid. Hospitals need to make the effort in collecting these debts but for the most part most of these debts come from low income patients who could have qualified for charity care but were never informed. The difference between charity care and bad debt is that bad debt is counted as an uncompensated cost
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Part A 1) a)Although a client/company is engaged to perform audits for the 2nd year‚ it does not allow sufficient time for auditor to detect material misstatement. This is due to lack of experience in understanding of the company? Repeat engagement over the years to come would reduce inherent risk Thus‚ the 2nd year of audit would increase inherent risk. b)The bank requires that a/ the company’s interest coverage ratio should be above 9‚ in order to provide loans to the client. From the extract
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due to the Bad Debt Expense estimation being based off 3% of net credit sales instead of the prior years’ estimate of 1.5%. The increase in Bad Debts expense as a result of the increase in estimate materially affected the 2012 earnings. However‚ 2012 had been a great year for earnings‚ so the additional expense did not disturb the earnings growth trend Nebobites’ had experienced in the past. However‚ upon further research‚ Jenny could find no justification for the increase in the Bad Debt Expense estimate
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2 What are the essential features of the allowance method of accounting for bad debts? There are three essential features of the allowance method of accounting for bad debt. First‚ companies estimate uncollectible accounts receivables and match them against revenues in the same accounting period in which the revenues are recorded. Second‚ companies record estimated uncollectibles as an increase (a debit) to bad debts expense and an increase (a credit) to allowance for doubtful accounts through
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the management of a companyto deliberately manipulate the company’s earnings so that the figures match a pre-determinedtarget. This practice is carried out for the purpose of income smoothing. Thus‚ rather thanhaving years of exceptionally good or bad earnings‚ companies will try to keep the figuresrelatively stable by adding and removing cash from reserve accounts. So‚ the financialstatements of the company will be seen smoothly over the years with the smooth earnings or net profits.The reasons
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E6-5 (Computation of Present Value) Using the appropriate interest table‚ compute the present values of the periodic amounts‚ shown on page 344‚ due at the end of the designated periods. (a) $50‚000 receivable at the end of each period for 8 periods compounded at 12%. 50‚000* 4.9676= $248‚380 (b) $50‚000 payments to be made at the end of each period for 16 periods at 9%. 50‚000* 8.3126= $415‚630 (c) $50‚000 payable at the end of the seventh‚ eighth‚ ninth‚ and tenth periods at 12%. 50‚000*
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the company estimated bad debt expenses of $15‚000. (3) On January 12‚ 2009‚ collect $100‚000 worth of accounts receivable. (4) After many collection attempts‚ the Company determined on June 15‚ 2009 that it would not collect $10‚000 in accounts receivables from Pendant Publishing. It decided to write-off this account. (5) On July 15‚ Pendant Publishing called to say that they have had financial problems but can afford to pay $7‚000 to settle their $10‚000 debt in full. Vandolay Industries
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that some of its accounts receivable will not be collected. It will debit Bad Debt Expense and credit Allowance for Uncollectible Accounts. This will result in reduction of “Current Assets” on balance sheet. Income Statement: This will also result in an expense on the income statement (Earlier than it would have been under direct write-off). This will reduce the Net Income by the Bad Debt Allowance Amount. If the Bad Debt allowance is not in line with the actual write-offs trend in previous periods
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Chapter 14 Working Capital and Current Assets Management Solutions to Problems P14-1. LG 2: Cash Conversion Cycle Basic = Average age of inventories + Average collection period = 90 days + 60 days = 150 days (a) Operating cycle (OC) (b) Cash Conversion Cycle (CCC) = Operating cycle − Average payment period = 150 days − 30 days = 120 days = (total annual outlays ÷ 365 days) × CCC = [$30‚000‚000 ÷ 365] × 120 = $9‚863‚013.70 (d) Shortening either the average age of inventory or the average collection
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