Question

An aged trial balance of accounts receivable is normally used by the auditor to evaluate the

        adequacy of the allowance for doubtful accounts involving accounts receivable. The company’s

       credit terms are 2% 10, net 30. The aged trial balance was made on December 31, year 1. The

       auditor reviews the work on January 30, year 2. An outstanding accounts receivable on December

       31, year 1 was for a sale invoiced on November 22, year 1 would be classified on the aged trial

       balance as:

     a. Current.

      b. Past due

       c. More than 30 days past due.

       d. More than 60 days past due.

Answer 1

(b) Past Due

Explanation:

The terms of credit are net 30 days. This implies that any invoice issued within a period of 30 days before the reporting date will be classified as current. In the present scenario, any invoice issued in the month of December will be classified as current. Any invoice issued in the month of November will be classified as 1-30 days past due. Any invoice issued in the month of October will be classified as 31-60 days past due and so on.

The invoice issued on November 22, Year 1 will fall in the category of 1-30 days past due. Therefore, Option (b) is correct.

Option (a) is not correct because the invoice was issued before a period of 30 date from reporting date.

Option (c) is not correct because the invoice is not more than 30 days past due.

Option (d) is not correct because the invoice is not more than 60 days past due.