Final answer:
An auditor reconciling the accounts receivable will likely find out if a customer's payment was incorrectly posted to the wrong account if there's a discrepancy. While they may not uncover improperly computed invoices or past-due accounts through reconciliation alone, they will notice if opening balances have been incorrectly carried forward.
Step-by-step explanation:
Understanding Accounts Reconciliation
An auditor reconciling the total of the accounts receivable subsidiary ledger to the general ledger control account primarily seeks to ensure that the detailed individual customer balances (subsidiary ledger) match the total receivables amount reported in the general ledger (control account). This is an important procedure to verify the accuracy of accounting records. Here are some insights into the potential findings of such a reconciliation:
It may not necessarily uncover an improperly computed invoice unless there is a discrepancy in the total receivables.
An October check from a customer that was posted to the wrong account would be revealed if the reconciliation shows a discrepancy in the individual accounts when compared to the control account.
An improperly carried forward opening balance would be indicated if the beginning balance in the control account does not match the sum of the opening balances in the subsidiary ledger accounts.
Information about an account balance being past due would not be directly uncovered in such a reconciliation; it requires an analysis of the aging of receivables, not just the balance verification.
Now, understanding the bank balance sheet is different. The money that appears as assets may not be physically present in the bank due to reasons like loans given to customers or investments made by the bank. Banks operate on the principle of fractional reserve banking, where only a fraction of the bank's deposits is kept as reserves, and the rest is used for loans and other investments.
Valuing Loans in the Secondary Market
In the secondary loan market, the value paid for a loan can vary based on several factors:
If a borrower has been late on loan payments, the loan is considered riskier, reducing its value.
If interest rates in the economy have risen since the loan was issued, the older loan with a lower rate is less attractive, hence would be valued less.
A borrower that is a firm with recently declared high profits would likely prompt a higher value for the loan due to decreased perceived risk.
If interest rates have fallen since the loan was made, a loan with a higher fixed rate is more attractive and might fetch a higher price in the secondary market.