Smakey Dog Foods, Inc Essay

4184 Words Apr 29th, 2012 17 Pages
Smackey Dog Foods, Inc

Smackey Dog Foods, Inc is a new client to Keller CPAs firm. The nature of business for this company is to produce natural dog food. Keller has never had any experience in the audit on this industry before. Smackey Dog Foods started in a family kitchen, experienced explosive growth, and have had some troubles handling the accounting side of the business. The auditor identifies that main purpose of Smackey Dog Food to obtain an audit report is to fulfill the bank requirement of additional loan for $150,000 on top of the company’s current existing bank loan for $150,000. Under audit planning, the auditor decides whether to accept a new client or continue serving an existing one. This determination is
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With only 7% of cash collection within 30 days period, Smackey needs to use this cash to hold up production line and pay back its existing loan. If Smackey obtains additional loan $150,000 they will not have ability to meet liabilities obligation and will have trouble paying the loan. Some other issues of account receivable is bad debt write-offs. The accounts receivable’s aging indicates that 38% of the receivables are 30 days or less, 22% percent are 31-60 days, 21% of the receivables are 61-90 days old, 10% are 90-120 days and the remaining 9% receivables are older than 120 days. Smackey had never written-offs any uncollectible account receivable whereas material statement against general accepted accounting principles. Upon concluding that and amount cannot be collected, the company must write it off. Typically, this occurs after a customer files for bankruptcy or the account is turned over to a collection agency. Proper accounting requires and adjustment for these uncollectible accounts. The company needs to provide bad debts provision expenses for any amount that they do not expect to collect. Proper record for sales returns also has an effect on the company’s receivables. There does not appear to be any recording of returned dog food bags since someone is taking them as if they never were returned. Presumably the customers

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