The Salah Company sells electronics equipment and has grown rapidly in the last year by adding new customers. The audit partner has asked you to evaluate the allowance for doubtful accounts at December 31, 2019. Comparative information on sales and accounts receivable is included next:
Year Ended Year Ended
12/31/19 12/31/18
Sales $12,169,876 $10,452,513
Accounts Receivable 1,440,381 1,030,933
Allowance for doubtful accounts 90,000 75,000
Bad debt charge-offs 114,849 103,471
Required
In-class
Discussion
Required
*Based on AICPA question paper, American Institute of Certified Public Accountants.
Chapter 16 / COMPLETING THE TESTS IN THE SALES AND COLLECTION CYCLE: ACCOUNTS RECEIVABLE 567
Year Ended Year Ended
12/31/19 12/31/18
Accounts Receivable:
0–30 days $ 897,035 $ 695,041
30–60 days 254,269 160,989
60–90 days 171,846 105,997
Over 90 days 117,231 68,906
TOTAL $ 1,440,381 $ 1,030,933
a. Identify what tests of controls and substantive tests of transactions you recommend
be performed before conducting your analysis of the allowance for doubtful accounts.
b. Perform substantive analytical procedures to evaluate whether the allowance is fairly
stated at December 31, 2019. Assume performance materiality for the allowance ac-
count is $15,000
