Quiz 3: Substantive testing of Inventory Balances

Agree Inventory listing to general ledger

Objective:

Verify recorded balance

Example:

Reconcile the inventory sub ledger to the trial balance

test mathematical accuracy

Objective:

Verify extensions and totals

Example:

Recalculate quantity x unit cost

Vouch recorded inventory costs

Objective:

Support recorded amounts

Example:

Trace selected inventory items to invoices and cost records

Trace physical goods to records

Objective:

Test Completeness

Example:

Select goods from warehouse locations and trace to the inventory listing

Test Cutoff

Objective:

Verify proper period recognition

Example:

Examine receiving and shipping records before and after year-end

Test Valuation

Objective:

Identify Overstatement

Example:

Compare recorded costs with applicable measurement requirements

Examine subsequent transactions

Objective:

Evaluate recoverability and cutoff

Example:

Inspect subsequent sales, usage, and inventory adjustments

Test Inventory Adjustments

Objective:

Support changes in recorded balances

Example:

Inspect approvals, count differences, and write-off documentation