Question

Hello, There are three parts to this one question that I am having trouble finding an answer to.

Determine the amount of misstatement for each customer listed.

• Customer No. 00850 disputed the balance on the confirmation of $35,700 in its entirety. Further investigation showed that the balance was charged to the wrong customer. Goods were shipped to Customer No. 00580. On January 3, 2022, the error was discovered. A credit memo was issued to Customer No. 00850 and an invoice was sent to Customer No. 00580, which was paid in full on January 27, 2022.
• No response was received from Customer No. 10141. Goods in the amount of $944,232 were shipped on November 1, 2022. Additional goods in the amount of $131,824 were shipped on December 12, 2022. The receivable balance was $1,076,056 at December 31, 2022. A review of the cash receipts journal showed that a check for $944,232 was deposited on January 24, 2022. Another check for $131,824 was received on February 1, 2023.
• Customer No. 21287 disputed receivables in the amount of $755 claiming that it did not receive a promised 1% discount associated with the first shipment to a new customer. The book value of the receivables for Customer No. 21287 at December 31, 2022 was $75,500. The customer subsequently paid $74,745 on January 29, 2022, and Cloud 9 issued a credit memo in the amount of $755.

Other information listed...

the audit team sets tolerable misstatement at $3,000,000, expected misstatement at $1,750,000, and risk of incorrect acceptance at 37%. You use a sample size of 73 confirmations. The sampling interval is $981,134. You may assume that except for the following, you received confirmations from customers that showed no exceptions. Determine whether the following conditions represent errors for purposes of your evaluation. Based on your evaluation and the parameters of the sample you designed above, evaluate the result of confirming accounts receivable.

Thank you in advance for your help!

Answer 1

As no one are perfect in this world,there may be possibilities of errors in the company. Generally errors will be in the following types

• Error of principle - It may be due to inappropriate knowledge about accounting principles,accounting policies etc.
• Error of ommission - It is seen when the information is completely ommited.
• Error of commission - It is seen when the amount has been changed.
• Compensating errors - These are the errors where there will be no effect on trial balance and balance sheet.
• Error of duplication - The are the errors where the information is noted more than one time.

In the first case,we can treat it as compensating error as there will be no effect on financial statement in the change of customer but the liability of customer will effect.

In the second case,we can treat it as error of ommission as the entries where not posted.

In the third case,we can treat it as error of commission as the discount is not detected and the amount in closing balance is more.