Auditors routinely encounter client entries or financial accounting choices that are inconsistent with the financial statement assertions.

Question:

Required

a. For each of the following, indicate what account balance assertion(s) is violated.

1. Sales shipped FOB destination are recorded when shipped.Some of these are in transit at the balance sheet date.

2. An inventory purchase is received but not recorded until the company pays for the goods.

3. Repair costs that should be expensed are capitalized.

4. No loss is recorded or disclosed for a pending lawsuit against the client that is material, probable, and can be estimated.

5. Sales shipped FOB shipping point are recorded before the balance sheet date but not shipped until after the balance sheet date.

6. Wages earned but not paid by the balance sheet date are not recorded.

7. Some checks in payment of accounts payable are recorded before the balance sheet date but not mailed until after the balance sheet date.

8. Collections from customers received after the balance sheet date are recorded as of the balance sheet date.

9. A capital lease is improperly accounted for as an operating lease.

10. A $56,000 sale on account near year end was recorded at $65,000.

b. Which of the items in part (a) affect net income? Explain.

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