Audit documentation often includes a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. the audit team uses this aging primarily to Estimate credit losses.
The aged triad balance of accounts receivable provided by the customer is often included in the audit records so that the anticipated credit losses may be assessed. Thus, this age should be used by the auditors to calculate credit losses.
The predicted loss rate is multiplied by the asset's amortized cost as of the balance sheet date to compute credit losses.
The provision for credit losses is accounted for as an expense in the company's financial statements. They stand for projected losses from problematic debt that is past due or other credit that will likely default or become unrecoverable. The possibility of suffering a loss as a result of a borrower's failure to make loan payments or honor contractual obligations is known as credit risk.
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