At the beginning of the annual audit of Porster, BV, wholesale distributor of Valkenburg, the Netherlands, Lynna

Question:

At the beginning of the annual audit of Porster, BV, wholesale distributor of Valkenburg, the Netherlands, Lynna Heijn, Registeraccountant, was given a copy of Porster’s financial statements as prepared by the company’s accountant. On reviewing these statements, Heijn noted the following abnormal conditions:

1. The accounts receivable outstanding at the year-end represent an unusually high number of average days’ credit sales.

2. The inventories on hand at the year-end represent an unusually high proportion of the current assets.

3. The working capital ratio of the company is almost twice that of the previous year.

4. The percentage of gross profit on net sales is considerably in excess of that of previous years.

5. The rate of turnover of inventory is unusually low in comparison with previous years.

Required:

Taking all the above conditions together, what irregularities might Heijn suspect regarding sales and inventories?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...