Vouching of Payment Side of

Cashbook/ Cash payment transactions

 Credit side or payment side of the cash book
• Auditor should satisfy himself that the payment
have been actually made:
i. To the right persons,
ii. For the business itself,
iii.Have been sanctioned by a person holding some
authority,
iv.Have been properly recorded in the books of
accounts.
v. Against a proper voucher
Vouching of Payment Side of Cashbook
1. Cash Purchases 13. Bills Payable Paid
2. Payments to Creditors 14. Bill Receivable Dishonored
3. Wages 15. Investment Purchased
4. Salaries 16. Land & Building Purchased
5. Director’s Fees 17. Plants Furniture etc.
6. Commission of Salesmen & Purchased
Agents 18. Payments Under Hire
7. Traveling Allowance Purchase Agreement
8. Freight & Carriage 19. Loans Advanced by the Client
9. Custom Duties 20. Dividends Paid
10. Insurance Premium 21. Partner’s Drawing
11. Advertising Expense 22. Other Expenses
12. Bank Charges
 The auditor should consider the
following points
• All vouchers relating to cash payments should
be serially numbered and properly arranged
• Vouchers are properly dated
• Vouchers are written in the cash book
regularly
• He should evaluate the internal check system
• He should enquire whether a rough cash book
or daily cash dairy is maintained.
• Payments are posted to the concerned
accounts
• He should see that the amount appears in the
voucher both in words and figures.
• Payment made by the authorized persons
• If printed receipts of the firm or if cheques
issued as vouchers, due verification should be
done
 1. Cash Purchases
• Cash Memo issued by the vendor
– Acknowledge of cash received by the vendor
– Details of goods purchased
• Invoice
• Proper authorization of purchases
• Purchase Requisition
• Supplier’s Quotation
• Purchase Order
• Receiving Report
 Internal check as regards purchases
• The system of internal check will depend upon the size
of the business the staff available .
• Purchase requisition
• All the orders sent out should be recorded in the
purchase order book which should have two carbon
copies.
• When the goods are received, the gatekeeper or store
keeper should make a record in the goods inward book.
• The invoice should be checked with goods inward
book
• Another clerk should check the invoice regarding
calculations etc.,
• He should keep in mind the following:
1. The invoice is in the name of his client
2. The date given in the invoices relate to the period
under audit.
3. The invoice relates to the business in which the
concern deals.
4. Invoices is initialed by some responsible person.
5. The invoice is entered in the name of supplier in
the purchase book.
6. The trade discount has been deducted.
 2. Payments to Creditors
(Payment for Credit Purchases)
• Cash Memo
– Acknowledge of cash received
• Payments for goods purchased on credit
– Vouching of ‘Purchase Book’
• Payments to suppliers for services (e.g. repair,
consultancy) / Purchase of asset on credit
– Vouching of ‘General Journal
• All documents in the name of the business
• Cash Discount Availed
• Proper accounting entries
 Payment to creditors
• Money due the creditors can be compared
with the accounts of the creditors and the
actual invoice received.
• The auditor should enquire whether periodical
statements are submitted by the creditors.
• He may refer to minutes, contracts and other
evidences before he passes an entry.
• In regard to cash purchases, cash memos and
goods inward book should be compared with the
entries in the cash book.
• Special attention should be paid to trade
discounts
• If any voucher is missing, he should insist upon
getting a duplicate copy of it.
 3. Bills payable
• Returned bills duly cancelled should be
examined.
• It would be a sufficient evidence of the
amount having been paid.
• Reference may be made to the bank pass and
bills payable books.
 4. Auditors’ duty as regards wages
• He should see whether the internal check system is
satisfactory;
• He should check the casts of the wages and wage book;
• He should check few items of the wages sheet here and
there to see that calculations are correct
• He should check the total amount of wages payable
• He should check the names of some of the workers as
mentioned in the wages sheet with the job cards …….
• He should see that the wage sheet are properly initialized or
signed by all the responsible persons;
• He may pay a surprise visit on the day of payment of wages;
• The number of workers as recorded in the wage sheet
should be compared with the employees state insurance
cards
• The total wages of each department should be
compared with the original estimate made by
the costing department;
• Wage sheets of the previous months should
be compared with current month;
• Leave register should be examined;
• Compare the signature of the workers of two
or three periods;
• Test check the signatures and thumb
impressions of some of the workers
 wages
• The chances of fraud or errors are:
i. The inclusion of fictitious names
ii. Errors or fraud in time and piece-work records;
iii.Possibility of clerical errors;
iv.The names of the employees who have resigned;
v. Over-stating of rates of wages;
vi.Over-stating the hours of work or days of work
vii.Conversion of unpaid wages;
 4. Salaries
• Amount paid as salaries in cashbook
• Net salaries payable in payroll register
• Increments
– Authenticity of increment through approval
• Special Payment
– Relevant approval letter
• Payroll is signed by the Manager/Director
• Deductions allowed
• Acknowledge of salary received by the recipient
(i) He should compare the cheques drawn with the
salaries book.
(ii) Any change in the salary list should be verified with an
official source.
(iii) Special attention should be paid to the deductions in
respect of provident fund, life insurance premium,
income tax, etc.
(iv) Independent information as regards employees
leaving the service of the concern should be obtained
from the staff departments and compared with the
salaries book to find out persons already left being
included in the salaries book.
(v) He should ensure that the payment has been made to
the correct person. This he can do by comparing the
signature on the salaries book with the specimen
signature of the employees.
 5. Auditor’s Remuneration
• Payment should be sanctioned by the Board of
Directors
• He should vouch the payment of audit fees
with the voucher
• Consideration of audit fees
– Profit and Loss Account
– Liability
 6. Advertising Expense
• Advertisement through agency
– Statement of accounts
• Details of newspaper, radio and TV time
– Acknowledge of cash received by the ‘Agency’
• Advertisement directly through media
– Statement of accounts
– Acknowledge of cash received by the ‘Media’
 7. Capital expenditure
• Payment is properly authorized
• Examination of documents
• Examine the invoices and the receipts
• Related expenses
• Physical examination of concerned assets
• Repairs and maintenance should be treated as
revenue expenditure
A. Plant and machinery
i. Auditor can vouch the purchaser of plan and
machinery with the invoice received form the
supplier.
ii. Expenses incurred for installation, import duty
and clearing charges should be capitalised
iii. If the plant and machinery is purchased through
brokers the documentary evidence is brokers
bought note.
iv. In certain cases physical verifications can be
done.
 B. Land & Building Purchased
• Ascertain proper authorization
• Examine the agreement for the purchase of
property
• Acknowledgement of money received by the
vendor
• Title Deed in case of Freehold property
• Lease Deed in case of Leasehold property
• Proper capitalization of all expenses
• Physical inspection of property
• In case of construction of building through
contractors ,examine the contractor
 Purchase of fixed assets (L&B)

• If the purchase of freehold land or building is made, the

Title Deed should be examined.
• If the property purchased is leasehold, in which case the
purchaser’s right over the property is for some period.
• If the property is purchased through the broker, the
broker’s note should be examined.
• The expenses incurred are: auctioneer’s commission,
brokerage, registration fee, architect’s fee, etc.,
• (vouchers-Title Deed Lease, Auctioneer’s Note, Broker’s
Note, Receipts, Contract, Architect’s certificate)
 C. Patents and copy rights
• Acquisition copyrights and patents can be
vouched with the receipts issued by the seller or
agent’s note
• Commission paid on such acquisition should be
capitalised.
• If patents and copyrights are developed through
R&D, all the expenses incurred on such
experiments should be capitalised.
• Renewal fees is treated as revenue expenditure.
 D. Investments
• Payments for purchase of shares , securities etc, should be
vouches with the Brokers bought note.
• According to sec 292 auditor should ensure that
investments have been purchase by a resolution taken in
the board meeting.
• Investment purchased are registered in the name of the
client
• In case of new issue, auditor should examine the letter of
allotment.
• Investment have been purchased in accordance with the
Companies Act
• Investments are physically examined during the course of
‘verification of assets’.
8. Payment of Petty Cash expenses

Vouching petty cash is another problem for the

auditor as normally there are no proper
vouchers and therefore chances of
misappropriation of cash exist.
As a first step, the auditor should examine the
soundness of internal check system in this
regard and in case he finds it to be satisfactory,
he should take the following steps :
(i) He should see that imprest system is being followed
and if not he should recommend the same to the client.
(ii) He should check the payments made to the petty
cashier with the entries in the cash book.
(iii) For those expense for which vouchers are not
available he should ask the petty cashier to give a
summary which should be duly signed by a responsible
officer.
(iv) He should examine the totals and balances of the
petty cash book.
(v) He should see that the petty cash book is periodically
checked and initialled by some responsible official.
(vi) The auditor should, without notice and occasionally,
count the cash in hand and agree it with the balances
shown by the petty cash book.
 Conclusion
• For each and every payment
– Acknowledge of cash received
– Necessary documentary evidence