The external auditor must ensure that the amounts shown on the balance sheet for Accounts Receivable represent actual amounts that customers owe the company. Each customer account in the accounts receivable subsidiary ledger must represent an actual credit sale to the person or company indicated, and the customer's balance must not have been collected. This auditing concept is called validity, or validating the existence of the accounts receivable.
The auditor must also ensure that all amounts that the company owes are included in Accounts Payable and other liability accounts. For example, all credit purchases of inventory made by the company (and not yet paid) should be included in the balance of the Accounts Payable account. This auditing concept is called completeness.
Required
Suggest how an auditor might test a customer's Account Receivable balance for validity. Indicate how the auditor might test the balance of the Accounts Payable account for completeness.