Question

Confirmations would almost always be used, assuming all the accounts below are material, for:

A) individual transactions between organizations, such as sales transactions.
B) bank balances and accounts receivable.
C) fixed asset additions.
D) payroll expenses.

Answer 1

Confirmations are typically used for bank balances and accounts receivable, as they provide an independent verification of the amounts reported on a company's financial statements.

Step-by-step explanation:

The question asks which accounts would typically require the use of confirmations when they are material. Confirmations are often used for:

• B) bank balances and accounts receivable.

Confirmations are direct communications with third parties to verify the existence, amount, and terms of balances and transactions. For example, confirming a bank balance involves obtaining a statement from the bank itself, which serves as a powerful piece of evidence about the accuracy of the reported cash balance on the balance sheet. Similarly, accounts receivable confirmations are sent to customers to verify that the amounts they owe as per the company's records are correct. This process is crucial since it provides an independent source of verification for the amounts reported on the financial statements, maximizing the accuracy and reliability of the financial information.