The understatement of sales and accounts receivable is BEST uncovered by:
A) confirming receivables.
B) test of transactions for shipments made but not recorded.
C) reviewing the aged trial balance.
D) reconciling the accounts receivable general ledger account with the schedule of accounts receivable.

Question

Quizplus · Accepted Answer

Test of transactions for shipments made but not recorded is the best way to uncover the understatement of sales and accounts receivable as it checks whether all the sales made during the year have been recorded in the books of accounts or not. The reviews of aged trial balance and reconciliation of accounts receivable general ledger account with the schedule of accounts receivable may not reveal the transactions that have not been recorded. Confirming receivables may help in identifying any discrepancy but may not be as effective as test of transactions in detecting an understatement.

The Understatement of Sales and Accounts Receivable Is BEST Uncovered